Insurance Company of North America vs. Republic of the Philippines

A non-corporate government entity performing a proprietary function that is a necessary incident of its primary governmental function does not waive sovereign immunity from suit.

The plaintiff, Insurance Company of North America, acted as a subrogee of Yucuanseh Drug Co., Inc., an importer and consignee. The defendant is the Republic of the Philippines, operating through the Bureau of Customs, which manages the Customs Arrastre Service at the Port of Manila. The dispute involves the loss of goods while in the custody of the arrastre service, raising the question of whether the State can be sued for damages arising from the operation of a service that may be deemed proprietary.

Insurance Company of North America, as subrogee of the importer and consignee Yucuanseh Drug Co., Inc. of Manila, sought to recover the insurance value of one carton of medicines amounting to P2,167.02. The medicines were lost while in the custody of the Customs Arrastre Service, which is operated by the Republic of the Philippines through the Bureau of Customs. After paying the importer in due course, the insurance company filed an action originally in the City Court of Manila against the Republic of the Philippines to recover the amount.

The City Court of Manila rendered judgment on March 31, 1965, in favor of the plaintiff. On appeal, the Court of First Instance of Manila likewise rendered judgment on July 5, 1966, in favor of the plaintiff, rejecting the defendant's plea of immunity from suit. The Republic of the Philippines, through the Solicitor General, appealed the decision on a question of law to the Supreme Court. The Solicitor General asserted that the sole issue of the non-suability of the State with respect to its operation of the Arrastre service had already been settled by the Supreme Court in prior decisions. The plaintiff-appellee did not file its brief, apparently realizing the futility of its position.

• State Immunity: The Solicitor General maintained that the sole issue of the non-suability of the State with respect to its operation of the Arrastre service in the Port of Manila had already been settled in prior jurisprudence.

• State Immunity: Whether the Republic of the Philippines, through the Bureau of Customs, may be sued for the loss of goods while in the custody of the Customs Arrastre Service.

• State Immunity: No. The operation of the arrastre service by the Bureau of Customs, although proprietary in nature, is a necessary incident of its primary governmental function of assessing and collecting customs revenues, and thus does not waive the sovereign immunity from suit.

• State Immunity: The Court reasoned that a non-corporate government entity performing a proprietary function does not necessarily become suable if that function is undertaken as an incident to its governmental function. The Bureau of Customs is part of the Department of Finance with no personality of its own apart from the national government. Its primary function is governmental: assessing and collecting lawful revenues from imported articles and all other tariff and customs duties, fees, charges, fines, and penalties. The arrastre service is a necessary incident to this primary function. Therefore, engaging in the arrastre function does not render the Bureau liable to suit, as sovereign immunity granted as to the end should not be denied as to the necessary means to that end. Statutory provisions waiving State immunity are strictly construed, and there is no statute authorizing suit against the Bureau of Customs when it conducts arrastre operations itself. The proper remedy for the plaintiff is to file a money claim with the General Auditing Office under Commonwealth Act 327.

• Doctrine of State Immunity as to Necessary Means — Sovereign immunity from suit granted to a government entity as to its primary governmental function is not denied as to the necessary means to that end. If a proprietary function is undertaken as a necessary incident of a governmental function, there is no waiver of sovereign immunity. The Bureau of Customs' operation of the arrastre service, though proprietary, is a necessary incident of its primary governmental function of collecting customs revenues, thus it remains immune from suit.

• "Sovereign immunity, granted as to the end, should not be denied as to the necessary means to that end." — This passage articulates the core ratio decidendi that a government entity's immunity extends to proprietary functions that are necessary incidents of its primary governmental functions.
• "Regardless of the merits of the claim against it, the State, for obvious reasons of public policy, cannot be sued without its consent." — This underscores the strict application of state immunity and points to the proper administrative remedy for money claims against the government.

• Mobil Philippines Exploration, Inc. vs. Customs Arrastre Service, et al., L-23139, 18 SCRA 1120 — Controlling precedent. The Court relied on the doctrine first enunciated in this case, which held that the Bureau of Customs is immune from suit in its operation of the arrastre service as a necessary incident of its governmental function.
• Bureau of Printing, et al. vs. Bureau of Printing Employees Association, et al., L-15751, January 28, 1961 — Cited within the Mobil case to support the proposition that a non-corporate government entity performing a proprietary function does not necessarily become suable if such function is an incident to its governmental function.
• Fireman's Fund Ins. Co. vs. Maersk Line Far East Service, L-27189, March 28, 1969 — Affirmed the doctrine of state immunity in arrastre operations.
• Insurance Co. of North America vs. Osaka Shosen Kaisha, et al., L-22784, March 28, 1969 — Affirmed the doctrine of state immunity in arrastre operations.
• Rizal Surety & Insurance Co. vs. Customs Arrastre Service, L-25709, April 25, 1969 — Most recent affirmation of the doctrine at the time of the decision.

• Section 81, Revised Administrative Code — Identifies the Bureau of Customs as part of the Department of Finance, with no personality of its own apart from the national government.
• Section 602, Republic Act 1937 — Defines the primary governmental function of the Bureau of Customs as assessing and collecting lawful revenues from imported articles and all other tariff and customs duties, fees, charges, fines and penalties.
• Commonwealth Act 327 — States the conditions under which money claims against the Government may be filed, providing the proper remedy for the plaintiff instead of suing the State directly.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando, Capistrano and Barredo, JJ., concurred. Concepcion, C.J. and Castro, J., were on leave.