An Unincorporated Government Agency Without Any Separate Juridical Personality Of Its Own Enjoys Immunity From Suit Because It Is Invested With An Inherent Power Of Sovereignty….

The Facts:

Department of Health Administrative Order (AO) 27 was issued in 1998 to set the guidelines and procedure for accreditation of government suppliers of pharmaceutical products for sale or distribution to the public, which accreditation shall be valid for 3 years. AO 10 Series of 2000 amended AO 27, reducing the accreditation period to two years under Section VII thereof. It also provided that accreditation may be suspended, recalled or revoked after due deliberation and notice by the DOH Accreditation Committee. Section VII was later amended by AO 66 Series 2000, which provided for due deliberation, notice and hearing of the suspension, recall and revocation of the accreditation. On August 28, 2000, the DOH issued Memorandum 171-C providing a list of category of sanctions imposable on accredited government suppliers for violation committed during their accreditation.

In compliance with Memorandum 171-C, Undersecretary Margarita Galon invited representatives of 24 companies to a meeting. Included was the representative of Philippine Pharmawealth Inc. (PPI). During the meeting, Usec Galon handed out a document entitled “Report On Violative Products” containing a list of detailed violations by accredited government suppliers. PPI was included in the document because some of its products were found unfit for human consumption. The companies were directed to submit their respective explanations on the findings within 10 days. PPI did not submit its reply on time. Instead, it submitted a letter stating that it is referring the matter to its lawyers for preparation of a reply but with no indicated date of compliance, which DOH Usec Galon found untenable, thus she informed PPI thru letter that its accreditation had been suspended for two years in accordance with AO 10 and Memorandum No. 171-C. PPI thru letter, demanded that Usec Galon cease and desist from enforcing the suspension under pain of legal redress.

PPI then filed a complaint to declare certain DOH issuances (Memorandum No. 171-C, AO 10, Series 2000, Usec Galon’s suspension order; and AO 14, Series 2001) null and void for being in violation of Section 26, Republic Act 3720, with prayer for injunction and damages against Usec Galon and later DOH Secretary Dayrit. It claimed that its accreditation was suspended without due notice and hearing. It prayed that it be awarded moral damages, attorneys fees and costs of suit. The respondent DOH officials filed a motion to dismiss, alleging that it gave PPI the opportunity to explain but it did not do so in a timely manner. The suspension was necessary to stop the distribution and sale of substandard products. In a Manifestation and Motion, the DOH officials further moved to dismiss the case as it was a suit against the State; the complaint was improperly verified; and the corporate officer lacked the authority to file the suit.

The Regional Trial Court dismissed the case, holding that the suit is against the State, thus the principle of immunity form suit is applicable.

On appeal to the CA, however, the latter reversed and set aside the RTC decision. According to the CA, it was premature for the RTC to have dismissed the case, as the cause of actions were sufficiently alleged in the complaint. Further, by filing a complaint, the DOH officials hypothetically admitted the allegations in the complaint-that they were being sued in their official and private capacities. Thus the DOH officials, herein petitioners, elevated the case to the Supreme Court, arguing that PPI’s prayer for damages should be considered a suit against the State for it would require the needed appropriation to satisfy PPI’s claim for damages should it win. In issuing the assailed DOH issuances, they acted within the scope of their authority, hence should not be made to account individually.

The Court’s ruling:

The Petition is granted.

The doctrine of non-suability.

The discussion of this Court in Department of Agriculture v. National Labor Relations Commission[1] on the doctrine of non-suability is enlightening.

The basic postulate enshrined in the constitution that ‘(t)he State may not be sued without its consent,’ reflects nothing less than a recognition of the sovereign character of the State and an express affirmation of the unwritten rule effectively insulating it from the jurisdiction of courts.  It is based on the very essence of sovereignty.  x x x [A] sovereign is exempt from suit, not because of any formal conception or obsolete theory, but on the logical and practical ground that there can be no legal right as against the authority that makes the law on which the right depends.  True, the doctrine, not too infrequently, is derisively called ‘the royal prerogative of dishonesty’ because it grants the state the prerogative to defeat any legitimate claim against it by simply invoking its non-suability.  We have had occasion to explain in its defense, however, that a continued adherence to the doctrine of non-suability cannot be deplored, for the loss of governmental efficiency and the obstacle to the performance of its multifarious functions would be far greater in severity than the inconvenience that may be caused private parties, if such fundamental principle is to be abandoned and the availability of judicial remedy is not to be accordingly restricted.

The rule, in any case, is not really absolute for it does not say that the state may not be sued under any circumstance.  On the contrary, as correctly phrased, the doctrine only conveys, ‘the state may not be sued without its consent;’ its clear import then is that the State may at times be sued.  The State’s consent may be given either expressly or impliedly.  Express consent may be made through a general law or a special law.  x x x Implied consent, on the other hand, is conceded when the State itself commences litigation, thus opening itself to a counterclaim or when it enters into a contract.  In this situation, the government is deemed to have descended to the level of the other contracting party and to have divested itself of its sovereign immunity.  This rule, x x x is not, however, without qualification.  Not all contracts entered into by the government operate as a waiver of its non-suability; distinction must still be made between one which is executed in the exercise of its sovereign function and another which is done in its proprietary capacity[2].

As a general rule, a state may not be sued.  However, if it consents, either expressly or impliedly, then it may be the subject of a suit[3]. There is express consent when a law, either special or general, so provides.  On the other hand, there is implied consent when the state “enters into a contract or it itself commences litigation[4].”   However, it must be clarified that when a state enters into a contract, it does not automatically mean that it has waived its non-suability[5]. The State “will be deemed to have impliedly waived its non-suability [only] if it has entered into a contract in its proprietary or private capacity.  [However,] when the contract involves its sovereign or governmental capacity[,] x x x no such waiver may be implied[6].”   “Statutory provisions waiving [s]tate immunity are construed in strictissimi juris.  For, waiver of immunity is in derogation of sovereignty[7].”

The DOH can validly invoke state immunity. 

a) DOH is an unincorporated agency which
performs sovereign or governmental functions.

In this case, the DOH, being an “unincorporated agency of the government[8]” can validly invoke the defense of immunity from suit because it has not consented, either expressly or impliedly, to be sued.  Significantly, the DOH is an unincorporated agency which performs functions of governmental character.

The ruling in Air Transportation Office v. Ramos[9] is relevant, viz:

An unincorporated government agency without any separate juridical personality of its own enjoys immunity from suit because it is invested with an inherent power of sovereignty.  Accordingly, a claim for damages against the agency cannot prosper; otherwise, the doctrine of sovereign immunity is violated.  However, the need to di

stinguish between an unincorporated government agency performing governmental function and one performing proprietary functions has arisen.  The immunity has been upheld in favor of the former because its function is governmental or incidental to such function; it has not been upheld in favor of the latter whose function was not in pursuit of a necessary function of government but was essentially a business[10].

b) The Complaint seeks to hold the DOH
solidarily and jointly liable with the
other defendants for damages which
constitutes a charge or financial liability
against the state.

Moreover, it is settled that if a Complaint seeks to “impose a charge or financial liability against the state[11],” the defense of non-suability may be properly invoked.  In this case, PPI specifically prayed, in its Complaint and Amended and Supplemental Complaint, for the DOH, together with Secretaries Romualdez and Dayrit as well as Undersecretary Galon, to be held jointly and severally liable for moral damages, exemplary damages, attorney’s fees and costs of suit[12].   Undoubtedly, in the event that PPI succeeds in its suit, the government or the state through the DOH would become vulnerable to an imposition or financial charge in the form of damages.  This would require an appropriation from the national treasury which is precisely the situation which the doctrine of state immunity aims to protect the state from.

The mantle of non-suability extends to complaints
filed against public officials for acts done in the
performance of their official functions.

As regards the other petitioners, to wit, Secretaries Romualdez and Dayrit, and Undersecretary Galon, it must be stressed that the doctrine of state immunity extends its protective mantle also to complaints filed against state officials for acts done in the discharge and performance of their duties[13]. “The suability of a government official depends on whether the official concerned was acting within his official or jurisdictional capacity, and whether the acts done in the performance of official functions will result in a charge or financial liability against the government[14].” Otherwise stated, “public officials can be held personally accountable for acts claimed to have been performed in connection with official duties where they have acted ultra vires or where there is showing of bad faith[15].” Moreover, “[t]he rule is that if the judgment against such officials will require the state itself to perform an affirmative act to satisfy the same, such as the appropriation of the amount needed to pay the damages awarded against them, the suit must be regarded as against the state x x x.  In such a situation, the state may move to dismiss the [C]omplaint on the ground that it has been filed without its consent.”[16]

It is beyond doubt that the acts imputed against Secretaries Romualdez and Dayrit, as well as Undersecretary Galon, were done while in the performance and discharge of their official functions or in their official capacities, and not in their personal or individual capacities. Secretaries Romualdez and Dayrit were being charged with the issuance of the assailed orders. On the other hand, Undersecretary Galon was being charged with implementing the assailed issuances.  By no stretch of imagination could the same be categorized as ultra vires simply because the said acts are well within the scope of their authority.  Section 4 of RA 3720 specifically provides that the BFAD is an office under the Office of the Health Secretary.  Also, the Health Secretary is authorized to issue rules and regulations as may be necessary to effectively enforce the provisions of RA 3720[17]. As regards Undersecretary Galon, she is authorized by law to supervise the offices under the DOH’s authority[18], such as the BFAD.  Moreover, there was also no showing of bad faith on their part.  The assailed issuances were not directed only against PPI.  The suspension of PPI’s accreditation only came about after it failed to submit its comment as directed by Undersecretary Galon.  It is also beyond dispute that if found wanting, a financial charge will be imposed upon them which will require an appropriation from the state of the needed amount.  Thus, based on the foregoing considerations, the Complaint against them should likewise be dismissed for being a suit against the state which absolutely did not give its consent to be sued.

Based on the foregoing considerations, and regardless of the merits of PPI’s case, this case deserves a dismissal.  Evidently, the very foundation of Civil Case No. 68200 has crumbled at this initial juncture.

PPI was not denied due process.

However, we cannot end without a discussion of PPI’s contention that it was denied due process when its accreditation was suspended “without due notice and hearing.”  It is undisputed that during the October 27, 2000 meeting, Undersecretary Galon directed representatives of pharmaceutical companies, PPI included, to submit their comment and/or reactions to the Report on Violative Products furnished them within a period of 10 days.  PPI, instead of submitting its comment or explanation, wrote a letter addressed to Undersecretary Galon informing her that the matter had already been referred to its lawyer for the drafting of an appropriate reply.  Aside from the fact that the said letter was belatedly submitted, it also failed to specifically mention when such reply would be forthcoming. Finding the foregoing explanation to be unmeritorious, Undersecretary Galon ordered the suspension of PPI’s accreditation for two years.  Clearly these facts show that PPI was not denied due process.  It was given the opportunity to explain its side.  Prior to the suspension of its accreditation, PPI had the chance to rebut, explain, or comment on the findings contained in the Report on Violative Products that several of PPI’s products are not fit for human consumption.  However, PPI squandered its opportunity to explain.  Instead of complying with the directive of the DOH Undersecretary within the time allotted, it instead haughtily informed Undersecretary Galon that the matter had been referred to its lawyers.  Worse, it impliedly told Undersecretary Galon to just wait until its lawyers shall have prepared the appropriate reply.  PPI however failed to mention when it will submit its “appropriate reply” or how long Undersecretary Galon should wait.  In the meantime, PPI’s drugs which are included in the Report on Violative Products are out and being sold in the market.  Based on the foregoing, we find PPI’s contention of denial of due process totally unfair and absolutely lacking in basis.  At this juncture, it would be trite to mention that “[t]he essence of due process in administrative proceedings is the opportunity to explain one’s side or seek a reconsideration of the action or ruling complained of.  As long as the parties are given the opportunity to be heard before judgment is rendered, the demands of due process are sufficiently met.  What is offensive to due process is the denial of the opportunity to be heard.  The Court has repeatedly stressed that parties who chose not to avail themselves of the opportunity to answer charges against them cannot complain of a denial of due process[19].”

Incidentally, we find it interesting that in the earlier case of Department of Health v. Phil Pharmawealth, Inc[20]. respondent filed a Complaint against DOH anchored on the same issuances which it assails in the present case.  In the earlier case of Department of Health v. Phil Pharmawealth, Inc.,[21] PPI submitted to the DOH a request for the inclusion of its products in the list of accredited drugs as required by AO 27 series of 1998 which was later amended by AO 10 series of 2000.  In the instant case, however, PPI interestingly claims that these issuances are null and void.

WHEREFORE, premises considered, the Petition is GRANTED.  Civil Case No. 68200 is ordered DISMISSED.

SO ORDERED.

SECOND DIVISION, G.R. No. 182358, February 20, 201

THE SECRETARY OF HEALTH, AND MA. MARGARITA M. GALON, PETITIONERS, VS. PHIL PHARMAWEALTH, INC., RESPONDENT.


[1] G.R. No. 104269, November 11, 1993, 227 SCRA 693.
[2] Id. at 698-699. Citations omitted.
[3] United States of America v. Judge Guinto, 261 Phil. 777, 790 (1990).
[4] Id. at 792.
[5] Id. at 793.
[6] Id. at 795.
[7] Equitable Insurance and Casualty Co., Inc. v. Smith, Bell & Co. (Phils.), Inc., 127 Phil. 547, 549 (1967).
[8] Department of Health v. Phil Pharmawealth, Inc., 547 Phil. 148, 154 (2007).
[9] G.R. No. 159402, February 23, 2011, 644 SCRA 36.
[10] Id. at 42-43. Citations omitted.
[11] Department of Health v. Phil Pharmawealth, Inc., supra at 154.
[12] See Complaint, pp. 12-13, records, pp. 13-14; Amended and Supplemental Complaint, p. 13, records, p. 422.
[13] United States of America v. Judge Guinto, supra note 34 at 791.
[14] Department of Health v. Phil Pharmawealth, Inc., supra note 39 at 153.
[15] M. H. Wylie v. Rarang, G.R. No. 74135, May 28, 1992, 209 SCRA 357, 368. Citation omitted. See also United States of America v. Reyes, G.R. No. 79253, March 1, 1993, 219 SCRA 192, 209 where the Court held:

x x x [T]he doctrine of immunity from suit will not apply and may not be invoked where the public official is being sued in his private and personal capacity as an ordinary citizen. The cloak of protection afforded the officers and agents of the government is removed the moment they are sued in their individual capacity. This situation usually arises where the public official acts without authority or in excess of the powers vested in him. It is a well-settled principle of law that a public official may be liable in his personal private capacity for whatever damage he may have caused by his act done with malice and in bad faith, or beyond the scope of his authority or jurisdiction. (Citations omitted)
[16] United States of America v. Judge Guinto, supra note 34 at 791-792. See also Department of Health v. Phil Pharmawealth, Inc., supra note 39 at 155.
[17] See Section 26, Republic Act No. 3720.
[18] See Section 12, Chapter 3, Title IX, Book IV, Administrative Code of 1987.
[19] Flores v. Montemayor, G.R. No. 170146, June 8, 2011, 651 SCRA 396, 406-407. Citations omitted.
[20] Supra note 39.
[21] Id.