Ruiz vs. Cabahug

A suit against government officers is not a suit against the State, and the doctrine of state immunity from suit does not apply, when the relief demanded requires no affirmative discharge of any obligation belonging to the State in its political capacity — even though the officers act officially and disclaim personal interest, provided the State is not actually made a party nor is it necessary to make it a party to furnish the relief demanded.

The plaintiffs, Enrique J. L. Ruiz and Jose V. Herrera, were architects and minority stockholders of Allied Technologists, Inc., a corporation that contracted with the Government to furnish architectural and engineering services for the construction of the Veterans Hospital. The defendants included the Secretary of National Defense, the Head of the Engineer Group, the Finance Officer and Auditor of the Department of National Defense, Pablo D. Panlilio (a co-stockholder and architect), and Allied Technologists, Inc. The contract price for the architectural engineering services was P231,600, of which P34,740 (15%) was retained by the defendant-officials pending resolution of a dispute among the architects.

On July 31, 1950, the Secretary of National Defense accepted the bid of Allied Technologists, Inc. to furnish architectural and engineering services for the construction of the Veterans Hospital at a price of P302,700. The plans, specifications, sketches, and detailed drawings submitted by the corporation through its architects — Enrique J. L. Ruiz, Jose V. Herrera, and Pablo D. Panlilio — were approved by the United States Veterans Administration in Washington, D.C. Because of a technical objection to the capacity of Allied Technologists, Inc. to practice architecture, and upon the advice of the Secretary of Justice, the contract was signed on behalf of the corporation by E. J. L. Ruiz as President and P. D. Panlilio as Architect.

When the defendant-officials paid Allied Technologists the contract price for the architectural engineering services, they retained 15% of the sum due because Panlilio asserted that he was the sole and only architect of the Veterans Hospital, to the exclusion of Ruiz and Herrera — an assertion allegedly aided and abetted by defendant Jimenez. The plaintiffs alleged that unless the defendants were prevented from recognizing Panlilio as the sole architect and from paying him the 15% retained sum, the plaintiffs would be deprived of the monetary value of their professional services and their professional prestige and standing would be seriously impaired.

The contract price for the architectural engineering services was P231,600. All of that sum had been set aside for payment to the corporation and its architects, except for P34,740, representing 15% of the total costs, which was retained by the defendant-officials. Insofar as the Government was concerned, the full amount of the contract price had been set aside and authorized to be paid. The plaintiffs did not seek to sue the Government to require it to pay the amount or to involve it in the litigation. The defendant-officials were about to recognize Panlilio as the sole architect and to pay him the 15% retained sum, which would deprive the plaintiffs of their right to share therein and in the honor consequent to the recognition of their right.

• Nature of the Suit: Plaintiffs-appellants argued that the lower court erred in ruling that the suit was one against the Government and therefore could not be validly entertained because the Government cannot be sued without its consent.
• Applicability of Act 3038: Plaintiffs-appellants argued that the lower court erred in holding that the provisions of Act 3038, as amended by Commonwealth Act 327, were applicable to the case, and in holding that their claim should have been filed with the Auditor General.
• Minority Suit: Plaintiffs-appellants argued that the lower court erred in ruling that the minority suit was untenable.
• Dismissal of Injunction: Plaintiffs-appellants argued that the lower court erred in dismissing the amended complaint for injunction.

N/A — The decision does not recount the respondents' arguments in detail beyond the lower court's grounds for dismissal.

• State Immunity from Suit: Whether the suit against the defendant-officials is one against the Government, which cannot be sued without its consent.
• Minority Stockholder Suit: Whether the minority suit lies where the majority stockholders of the corporation have not joined in the action.
• Dismissal of Second Cause of Action: Whether the lower court erred in dismissing the second cause of action on the ground that the optional services under Title II had already been performed.

• State Immunity from Suit: No. The suit is not one against the Government, or a claim against it, but one against the officials to compel them to act in accordance with the rights to be established by the contending architects, or to prevent them from making payment and recognition until the contending architects have established their respective rights and interests in the funds retained and in the credit for the work done.
• Minority Stockholder Suit: The dismissal of the complaint on this ground was not sustained; the Court reversed the order of dismissal, implicitly rejecting the lower court's ruling that the minority suit did not lie.
• Dismissal of Second Cause of Action: The plaintiffs-appellants did not question the dismissal of the second cause of action, so the appeal related to the first cause of action only.

• State Immunity from Suit: The Court reasoned that the general rule that a sovereign state and its political subdivisions cannot be sued in the courts except upon the statutory consent of the state applies only when the state or its subdivision is actually made a party upon the record, or is actually necessary to be made a party in order to furnish the relief demanded by the suit. The rule does not apply when the suit is against an officer or agent of the state, and the relief demanded by the suit requires no affirmative discharge of any obligation which belongs to the state in its political capacity, even though the officers or agents who are made defendants disclaim any personal interest in themselves and claim to hold or to act only by virtue of a title of the state and as its agents and servants. In this case, the Government no longer had any interest in the retained amount, which the defendant-officials had retained and refused to pay to the plaintiffs or to the person or entity to which it should be paid. The suit was properly directed against the officials and against them alone, not against the Government, which did not have any interest in the outcome of the controversy between the plaintiffs on the one hand and Panlilio on the other. The suit was between these alone, to determine who was entitled to the amount retained by the officials. If the officials had chosen not to take sides in the controversy between the architects and had disclaimed interest in said controversy, the suit would have been converted into one of interpleader. But they acted to favor one side and abetted him in his effort to obtain payment of the sum remaining unpaid and credit for the work, to the exclusion of the plaintiffs. The Court cited State vs. Woodruff (Miss.), 150 So. 760, and State Mineral Lease Commission vs. Lawrence (1934), 157 So. 897, 898-899, in support of the view that the State need not be a party in this and parallel cases.

• Doctrine of State Immunity from Suit — A sovereign state and its political subdivisions cannot be sued in the courts except upon the statutory consent of the state. The rule applies only when the state or its subdivision is actually made a party upon the record, or is actually necessary to be made a party in order to furnish the relief demanded by the suit. It does not apply when the suit is against an officer or agent of the state, and the relief demanded by the suit requires no affirmative discharge of any obligation which belongs to the state in its political capacity. The Court applied this doctrine by holding that the suit against the defendant-officials was not a suit against the Government because the Government had no interest in the retained funds and the relief demanded required no affirmative action on the part of the State.

• "There is no proposition of law which is better settled than the general rule that a sovereign state and its political subdivision cannot be sued in the courts except upon the statutory consent of the state." — This passage states the general rule of state immunity from suit, which the Court acknowledged as well-settled before carving out the exception applicable to the case.
• "But the rule applies only when the state or its subdivision is actually made a party upon the record, or is actually necessary to be made a party in order to furnish the relief demanded by the suit. It does not apply when the suit is against an officer or agent of the state, and the relief demanded by the suit requires no affirmative discharge of any obligation which belongs to the state in its political capacity, even though the officers or agents who are made defendants disclaim any personal interest in themselves and claim to hold or to act only by virtue of a title of the state and as its agents and servants." — This passage defines the exception to the doctrine of state immunity, which formed the basis of the Court's ruling that the suit could proceed against the officials.
• "We hold that under the facts and circumstances alleged in the amended complaint, which should be taken on its face value, the suit is not one against the Government, or a claim against it, but one against the officials to compel them to act in accordance with the rights to be established by the contending architects, or to prevent them from making payment and recognition until the contending architects have established their respective rights and interests in the funds retained and in the credit for the work done." — This passage states the ratio decidendi of the case, holding that the suit was properly directed against the officials alone and not against the Government.

• State vs. Woodruff (Miss.), 150 So. 760 — Cited for the proposition that a sovereign state and its political subdivisions cannot be sued in the courts except upon the statutory consent of the state, and that such consent cannot be worked out of a statute by implication when express consent is absent from the terms of the statute.
• State Mineral Lease Commission vs. Lawrence (1934), 157 So. 897, 898-899 — Cited as illustrative authority for the exception to the rule of immunity: when officers or agents of the state seize the private property of a citizen, the state having no valid right or title thereto, or trespass upon that property or damage it, the jurisdiction of the courts to eject the officers or agents is well settled, for in such a suit no relief is demanded which requires any affirmative action on the part of the state.

• Act 3038, as amended by Commonwealth Act 327 — The lower court held that these provisions were applicable to the case, requiring the plaintiffs' claim to be filed with the Auditor General. The plaintiffs-appellants assigned as error the lower court's application of these provisions, but the Supreme Court's ruling did not directly address this issue, having resolved the case on the ground that the suit was not against the Government.

Bengzon, Paras, C.J., Montemayor, Reyes, A., Bautista Angelo, Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ., concurred.

N/A — No dissenting opinions are noted in the provided text.