Vicarious Liability- State

Republic v. Palacio
G.R. NO. L-20322
May 29, 1968

Facts

Ildefonso Ortiz instituted a civil action against the Handog Irrigation Association, Inc, a
corporation, and the Irrigation Service Unit, an office under the Department of Public Works and
Communications to recover possession, with damages, a 958 sqm lot which
the Irrigation Association allegedly entered and occupied. For failure to answer,
the defendants were declared in default. Later, The Republic, through the Solicitor General, moved
for the dismissal of the complaint on the ground that the Irrigation Service Unit(ISU) has no
juridical entity to sue and be sued. The motion was denied on the ground that defendant is engaged
in the business of selling irrigation pumps on installment plan. A writ of execution was issued and
later on a writ of garnishment was issued against the deposit/trust fund of the ISU with
Philippine National Bank. The Solicitor General moved for the lifting of the order on the ground
that the trust fund is a public fund exempt from garnishment. On appeal, the CA sustained the
validity of the writ.

Issue

May the ISU be held liable?

Ruling

Irrigation Service Unit is not liable. The Court ruled that the ISU is a government agency engaged
in the administration of irrigation system to promote an economic policy of sustaining
development and growth in agriculture. Aside from being an agency of the government pursuing
a governmental function, the fact that it is collecting payment for irrigation pumps will not make
the ISU one engaged in business. The installment payment being collected is not for profit but
merely for the purpose of financing the cost of the pump and its maintenance and administration.

In addition, although the State allowed its self to be sued, the trust fund may not be automatically
the subject of garnishment due to the fact that it is a public fund. Being a public fund, it may only
be appropriated by law and may not be use for garnishment at the expense of the public.

The ISU liability thus arose from tort and not from contract; and it is a well-entrenched rule in this
jurisdiction, embodied in Article 2180 of the Civil Code of the Philippines, that the State is liable
only for torts caused by its special agents, specially commissioned to carry out the acts complained
of outside of such agent's regular duties (Merritt vs. Insular Government, supra; Rosete vs. Auditor
General, 81 Phil. 453). There being no proof that the making of the tortious inducement was
authorized, neither the State nor its funds can be made liable therefor.