GR L 11786; (September, 1958) (Digest)
G.R. No. L-11786; September 26, 1958
HARRY LYONS, INC., plaintiff-appellant, vs. THE UNITED STATES OF AMERICA (651 United States Naval Supply Depot, U.S. Navy, Philippines), defendant-appellee.
FACTS
Plaintiff Harry Lyons, Inc. filed an action in the Court of First Instance of Manila to collect sums of money arising from a contract for stevedoring services at the U.S. Naval Base in Subic Bay, Philippines, entered into with the defendant, the United States of America. The contract was executed pursuant to the U.S. Armed Services Procurement Act of 1947 and was set to terminate on June 30, 1956. The defendant filed a motion to dismiss on two grounds: (1) the court lacked jurisdiction over the defendant, a sovereign state which cannot be sued without its consent, and (2) the plaintiff failed to exhaust the administrative remedies specified in the contract. The trial court sustained the motion to dismiss on both grounds. The plaintiff appealed directly to the Supreme Court.
ISSUE
1. Whether the trial court has jurisdiction over the defendant United States of America, a foreign sovereign state, in a suit based on a contract.
2. Whether the plaintiff’s failure to exhaust the administrative remedies stipulated in the contract is a valid ground for the dismissal of the complaint.
RULING
1. On Jurisdiction: The Supreme Court held that the trial court has jurisdiction over the case. The Court ruled that when a sovereign state, such as the United States, enters into a contract with a private party, it descends to the level of an individual, and its consent to be sued is implied from that act. Citing its precedent in Santos vs. Santos, the Court stated that by entering into the stevedoring contract, the U.S. Government could be sued for any contractual liability it assumed. Therefore, the trial court erred in dismissing the case for lack of jurisdiction over the defendant.
2. On Exhaustion of Administrative Remedies: The Supreme Court affirmed the dismissal of the complaint, but on the distinct ground that the plaintiff failed to exhaust the administrative remedies mandated by the contract. Article XXI of the contract established a specific dispute resolution procedure: any factual dispute must first be decided by the Contracting Officer. If dissatisfied, the contractor may appeal to the Secretary of the Navy, whose decision is final and conclusive unless found by a court to be “fraudulent, arbitrary, capricious, or so grossly erroneous as necessary to imply bad faith.” Only after this administrative appeal could the plaintiff resort to a court of competent jurisdiction. The complaint did not allege compliance with this procedure. The Court, applying the doctrine of exhaustion of administrative remedies and citing authorities, held that the plaintiff’s failure to first pursue and exhaust this contractual administrative remedy was a fatal defect, justifying the dismissal of the action.
DISPOSITIVE PORTION:
Wherefore, the order appealed from is affirmed, with costs.