HARTFORD FIRE INSURANCE CO., PLAINTIFF-APPELLANT, VS. CUSTOMS ARRASTRE SERVICE AND/OR BUREAU OF CUSTOMS AND/OR REPUBLIC OF THE PHILIPPINES, DEFENDANTS-APPELLEES.

Hartford Fire Insurance versus Customs Arrastre Service

The Case

This is a civil action for damages brought by Hartford Fire Insurance Company, a foreign insurance company authorized to do business in the Philippines, against the Customs Arrastre Service, the Bureau of Customs, and the Republic of the Philippines. Hartford paid its insured for a pilfered shipment of nickel Babitt and, as subrogee of the consignee, sought to recover the amount from the government entities that had custody of the goods. The case matters because it is a clean application of the doctrine of state immunity: a non-corporate government entity performing a function that is proprietary in nature is still not suable when that function is undertaken as an incident to its governmental function.

Procedural History

Hartford filed its complaint before the Court of First Instance of Manila, praying that the defendants be ordered to pay the amount of the loss with legal interest, plus attorney's fees and costs. The lower court dismissed the case, sustaining the defendants' defense of non-suability. Hartford appealed directly to the Supreme Court, and the appeal is now before the Court. The Supreme Court noted that all the assignments of error raised by the appellant really hinge on whether the defendants may be sued at all.

Facts

From San Francisco, California, two packages of nickel Babitt were shipped and consigned to Earnshaw Docks and Honolulu Iron Works in Manila. The shipment was discharged into the custody of the Customs Arrastre Service of the Bureau of Customs from the vessel Bougainville on July 15, 1964.

When the Customs Arrastre Service delivered the goods to the consignee, the shipment was found to have been pilfered to the extent of a 1,356-pound loss worth 12,572 pesos.

Hartford, as insurer of the goods, paid the consignee that amount and, as subrogee of the consignee, laid claim against the Customs Arrastre Service. Failing to recover, Hartford filed a complaint on May 10, 1965, praying that the Customs Arrastre Service, the Bureau of Customs, and the Republic of the Philippines be ordered to pay 12,572 pesos with legal interest, plus 25 percent thereof as attorney's fees, plus costs.

Issues

• Whether or not the Customs Arrastre Service and the Bureau of Customs may be sued for the loss of the shipment while the goods were in their custody.
• Whether or not the Republic of the Philippines may be sued in relation to the operation of the Bureau of Customs.

Applicable Provisions

The decision does not quote any statutory provision. It rests on the doctrine of state immunity from suit as applied to non-corporate government entities, and it cites the Court's earlier ruling in Mobil Philippines Exploration versus Customs Arrastre Service and the Bureau of Customs. The Court states the governing principle in these words:

A non corporate government entity performing a function proprietary in nature is not suable if said non governmental function is undertaken as an incident to its governmental function.

This principle bears directly on the case because the Bureau of Customs was operating the arrastre service as an incident to its primary governmental function, which is the assessment and collection of lawful revenues from imported articles and all other tariff and customs duties, fees, charges, fines and penalties.

Ruling

On the first issue, the Court held that the defendants may not be sued. The Bureau of Customs, in operating the Customs Arrastre Service as an incident of its primary governmental function of assessment and collection of lawful revenues from imported articles and all other tariff and customs duties, fees, charges, fines and penalties, is not suable, for obvious reasons of public policy. Even though the arrastre function is proprietary in nature, it was undertaken as an incident to a governmental function, and that circumstance shields the entity from suit.

On the second issue, the Court held that the same rule applies to the Republic of the Philippines in relation to the operation of the Bureau of Customs. The Republic is likewise not suable on this claim.

The Court disposed of all the assignments of error on this single ground, since they all hinged on the question of suability, and it affirmed the judgment appealed from.

Doctrine

A Bar candidate should retain the following rules. First, a non-corporate government entity performing a function proprietary in nature is not suable if that non-governmental function is undertaken as an incident to its governmental function. Second, the Bureau of Customs, in operating the Customs Arrastre Service as an incident of its primary governmental function of assessment and collection of lawful revenues from imported articles and all other tariff and customs duties, fees, charges, fines and penalties, is not suable, for obvious reasons of public policy. Third, the Republic of the Philippines enjoys the same immunity in relation to the operation of the Bureau of Customs. The key point is that the proprietary character of the arrastre function does not by itself remove the shield of immunity when the function is performed as an incident to a governmental function.

Disposition

The Supreme Court affirmed the judgment of the lower court dismissing the case, without costs. The defendants won.

Remember This

The line worth memorizing is this: a non-corporate government entity performing a proprietary function is not suable if that function is undertaken as an incident to its governmental function. Examiners use this case to test state immunity from suit, particularly the rule that the Bureau of Customs is not suable for losses in the arrastre service because arrastre is performed as an incident to its governmental function of assessing and collecting customs revenues.