The Supreme Court held that the City of Bacolod could not be sued for damages related to the closure of a bingo outlet because the city had not given its consent to be sued. The ruling reinforces the principle of sovereign immunity, protecting government entities from liability unless they expressly waive this protection. This decision clarifies the limits of holding local governments accountable for actions taken under their regulatory authority, especially concerning business permits and licenses.

When Regulatory Power Clashes with Business Interests: Can a City Be Sued?

Phuture Visions Co., Inc. (Phuture) sought to operate bingo games at SM City Bacolod, securing a provisional permit from PAGCOR and a lease from SM Prime. The City of Bacolod, however, closed Phuture’s outlet due to the lack of a valid city-issued mayor’s permit. Phuture filed a Petition for Mandamus and Damages against the city, its mayor, and other officials, alleging that the closure was malicious and illegal. The Regional Trial Court (RTC) dismissed the petition, but the Court of Appeals (CA) reversed the dismissal of the damages claim, ordering the RTC to determine if damages should be awarded. The central legal question was whether the City of Bacolod could be held liable for damages without its consent, given the principle of sovereign immunity.

The Supreme Court reversed the CA’s decision, emphasizing the constitutional principle of immunity from suit, which is enshrined in Section 3, Article XVI of the 1987 Philippine Constitution: “The State cannot be sued without its consent.” This principle safeguards governmental efficiency by preventing the dissipation of public resources in defending lawsuits. Consent can be express, via legislation, or implied, such as when the government engages in proprietary functions. However, the issuance of licenses and permits falls under the exercise of police power, a governmental function rather than a proprietary one.

The Court referenced Acebedo Optical Company, Inc. v. The Honorable Court of Appeals, where it was stated that “the issuance of business licenses and permits by a municipality or city is essentially regulatory in nature… essentially in the exercise of the police power of the State.” This distinction is crucial because it means that the city’s actions in issuing or denying permits cannot be construed as an implied waiver of its immunity from suit. Therefore, without express consent, the City of Bacolod could not be sued for damages.

The Court also addressed the argument that the city had waived its immunity by not raising it earlier in the proceedings. Citing Justice Barreda’s Opinion in Insurance Co. of North America v. Osaka Shosen Kaisha, the Court emphasized that waiver of immunity from suit cannot be lightly inferred. “[T]he real reason why, from the procedural point of view, a suit against the state filed without its consent must be dismissed is because, necessarily, any such complaint cannot state a cause of action, since, as the above decision confirms, ‘there can be no legal right as against the authority that makes the law on which the right depends.’” This highlights the fundamental issue: a lawsuit against the state without its consent lacks a valid cause of action from the outset.

Furthermore, the Court underscored that the City of Bacolod, as a government entity, cannot be estopped by the errors or omissions of its officials. Estoppel, a legal principle that prevents a party from denying or contradicting its previous conduct, does not apply against the government when its officers act without authority or in violation of the law. This protection ensures that the state’s interests are not compromised by the mistakes of individual actors.

The Supreme Court went on to address whether the petitioners were liable for damages. Phuture alleged that the closure of its bingo outlet was politically motivated and discriminatory. However, the Court found this claim to be speculative and without factual basis. The RTC had previously determined that Phuture lacked the necessary business permit to operate bingo games, justifying the city’s actions. Moreover, Phuture’s reliance on a provisional PAGCOR permit and a questionable claim slip did not establish a clear and unmistakable right to operate.

The Court pointed out that Phuture’s application form pertained to a renewal for “Professional Services, Band/Entertainment Services” at a different location, not for bingo operations at SM Bacolod. Additionally, Phuture’s Articles of Incorporation were amended to include bingo operations as a primary purpose only after the initial permit application, casting doubt on the legitimacy of its claim. These discrepancies undermined Phuture’s assertion of a legal right to operate its bingo business.

The city officials, in ordering the closure, were fulfilling their duty to enforce local ordinances and regulations, an exercise of the State’s police power. The Court emphasized that operating a bingo game, a form of gambling, is a privilege that can be regulated or revoked in the public interest. The Supreme Court also clarified that mere injury does not automatically entitle a party to damages. There must be both damage (damnum) and a legal wrong (injuria). As explained in The Orchard Golf & Country Club, Inc., et al. v. Ernesto V. Yu and Manuel C. Yuhico, citing Spouses Custodio v. Court of Appeals, “[T]o warrant the recovery of damages, there must be both a right of action for a legal wrong inflicted by the defendant, and damage resulting to the plaintiff therefrom. Wrong without damage, or damage without wrong, does not constitute a cause of action…”. Since Phuture had no legal right to operate without a valid permit, it could not claim damages for the closure.

The Supreme Court concluded that the City of Bacolod could not be held liable for damages due to sovereign immunity, and Phuture had no legal right to operate its bingo business without the proper permits. This ruling underscores the importance of obtaining proper permits and licenses before commencing business operations and reinforces the protection afforded to government entities under the principle of sovereign immunity.

FAQs

What was the key issue in this case?	The key issue was whether the City of Bacolod could be sued for damages related to the closure of a bingo outlet without its consent, considering the principle of sovereign immunity.
What is sovereign immunity?	Sovereign immunity is the legal principle that prevents the state or its political subdivisions from being sued without their consent, as stated in the Philippine Constitution.
Why did the City of Bacolod close the bingo outlet?	The City of Bacolod closed the bingo outlet because Phuture Visions Co., Inc. did not have a valid city-issued mayor’s permit to operate bingo games.
Did Phuture Visions Co., Inc. have a permit from PAGCOR?	Phuture Visions Co., Inc. had a provisional Grant of Authority (GOA) from PAGCOR, but this did not substitute for a valid business permit from the City of Bacolod.
Was the city’s action considered an exercise of police power?	Yes, the city’s action in closing the bingo outlet was considered an exercise of its police power to regulate businesses and ensure compliance with local ordinances.
What does damnum absque injuria mean?	Damnum absque injuria means damage without legal injury, implying that a loss suffered without a corresponding violation of a legal right does not give rise to a cause of action.
Can a government entity be estopped by the actions of its employees?	No, a government entity cannot be estopped by the unauthorized or illegal acts of its public officers, meaning the government is not bound by mistakes or omissions of its employees.
What was the basis for the Supreme Court’s decision?	The Supreme Court based its decision on the principle of sovereign immunity, the lack of consent from the city to be sued, and the absence of a legal right for Phuture Visions Co., Inc. to operate without a valid permit.

This case underscores the importance of securing all necessary permits and licenses before commencing business operations. The principle of sovereign immunity remains a critical protection for government entities, shielding them from unwarranted legal challenges unless consent is explicitly given. The Supreme Court’s decision clarifies the boundaries between regulatory authority and potential liability for local governments.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: The City of Bacolod vs. Phuture Visions Co., Inc., G.R. No. 190289, January 17, 2018