[G.R. No. L-37187. September 15, 1975]

Capistrano versus City of Manila

The Case

This is the story of a contract that a city mayor signed over all the public markets of Manila, and of the taxpayers and stallholders who went to court to stop it. Armando Capistrano and other plaintiffs sued the City of Manila and the Asiatic Integrated Corporation to annul a Management and Operating Contract covering all thirty-five public markets and talipapas of the city. The case matters because it fixes the boundaries of a local government's power to enter into contracts: a mayor cannot, by mere agreement, surrender the operation of a public service and the patrimonial assets of the city without the authority that the law and the charter require. It is a classic review case on the contracting power of municipal corporations and on the requirement of a public bidding.

Procedural History

The plaintiffs filed a civil case in the Court of First Instance of Manila against the City of Manila and the Asiatic Integrated Corporation. On July 13, 1973, the trial court rendered its decision declaring the Management and Operating Contract null and void. It ordered the markets turned over to the City, required an accounting of all income earned by Asiatic under the contract, and awarded attorney's fees and costs against Asiatic. The City and Asiatic each filed their separate appeals or petitions for review, which the Supreme Court treated as special civil actions. The plaintiffs also came to the Supreme Court on certiorari with preliminary injunction, asking that the respondent judge be restrained from enforcing the decision while the appeals of the City and Asiatic were pending. The Supreme Court resolved the cases together.

Facts

On December 13, 1972, the Market Committee created by Republic Act 6039 adopted a resolution recommending that the City Mayor urgently consider the immediate lease or assignment of the administration of the city public markets and talipapas to a multi-million peso corporation on terms most advantageous to the City of Manila. On December 28, 1972, the City of Manila, represented by Mayor Ramon D. Bagatsing, and the Asiatic Integrated Corporation, represented by its President Jose A. Rojas, executed a Management and Operating Contract covering all thirty-five public markets and talipapas of Manila. Under the contract, Asiatic would conduct, manage, operate, develop and maintain the markets for ten years, defray all costs of utilities, repairs, maintenance, improvement and reconstruction, and pay the City the annual gross income in excess of stated amounts, beginning with 500,000 pesos for the first year and rising to 950,000 pesos in the tenth year. All constructions and improvements would remain the property of the City upon expiration without payment to Asiatic.

The Municipal Board of the City of Manila passed a resolution on January 12, 1973 expressing its concurrence with and support for the contract. On the same day, President Ferdinand E. Marcos sent a memorandum to Mayor Bagatsing directing that certain conditions be incorporated into the contract: that market vendors form cooperatives and be sold shares in the markets, that the cooperatives be authorized to procure directly from producers, and that the public become part owners through the public sale of shares. To comply, the parties executed a Supplementary Contract on March 30, 1973 embodying those conditions.

Later, on November 26, 1973, Presidential Decree No. 345 authorized the reversion of the accumulated thirty percent sinking fund of 3,696,921 pesos and 99 centavos to the General Fund of the City of Manila, on the premise that Asiatic would undertake the improvements contemplated by Republic Act 6039. On January 3, 1974, the Municipal Board passed Ordinance No. 7451 authorizing the Mayor to lease vacant, unused and unencumbered patrimonial properties of the city under certain conditions. Against this background, the trial court struck down the contract, and the parties brought the matter to the Supreme Court.

Issues

• Whether or not the Management and Operating Contract between the City of Manila and the Asiatic Integrated Corporation is null and void for having been entered into without the requisite authority and without public bidding.
• Whether or not the City of Manila may lawfully turn over the management and operation of its public markets to a private corporation under the terms of the contract.
• Whether or not the trial court properly ordered the turnover of the markets to the City, an accounting of income earned by Asiatic, and the payment of attorney's fees and costs.

Applicable Provisions

Republic Act 6039, amending Section 18 of the Revised Charter of the City of Manila, provides on the market sinking fund:

The sinking fund shall be created from thirty per centum of the annual gross receipts from market fees which shall be used to amortize or to finance the construction of new markets, to remodel or replace old market buildings, the purchase of privately-owned building utilized as public markets, and purchase of new market sites and the construction of market building and facilities thereof.

This provision bears on the case because the contract diverted to a private corporation the very functions and funds that the charter reserved to the City for the construction and maintenance of its own markets.

Presidential Decree No. 345, authorizing the reversion of the accumulated sinking fund, recites the premise on which the contract rested:

There is no more need to appropriate the accumulated sinking fund of P3,696,921.99, since it is already the Asiatic Integrated Corporation, under the contract referred to above, which shall undertake the improvements stated in Republic Act No. 6039.

This decree shows that the contract had effectively transferred to Asiatic the improvement of the public markets that the charter had entrusted to the City.

Ruling

The Supreme Court held that the Management and Operating Contract is null and void. The City of Manila had no authority to enter into such a contract. The operation and management of the public markets is a public service and a governmental function that the charter confers upon the City; it cannot be surrendered to a private corporation by mere contract of the mayor. The contract also disposed of the use and income of patrimonial properties of the city without the required legislative authority and without public bidding, to the prejudice of the public and of the stallholders.

The Court likewise upheld the orders of the trial court. Since the contract is void, the markets must be returned to the City, Asiatic must render an accounting of all income it earned under the contract, and Asiatic must pay attorney's fees and costs. The Court thus resolved the certiorari petition and the appeals in favor of the plaintiffs, sustaining the decision of the Court of First Instance of Manila.

Doctrine

A municipal corporation has only such powers as are expressly granted to it by law, those necessarily implied therefrom, and those essential to its declared purposes. The operation and management of public markets is a governmental function entrusted to the City by its charter, and it cannot be bargained away to a private corporation through a contract executed by the mayor alone. Contracts involving the patrimonial properties and the income of the city must rest on a valid legislative grant of authority and must comply with the requirements of public bidding. A contract entered into without such authority is null and void and produces no rights; the parties must be restored to their original positions, with the private contractor accounting for all income earned under the void agreement.

Disposition

The Supreme Court upheld the decision of the trial court: the Management and Operating Contract was declared null and void, the markets were ordered returned to the City of Manila, Asiatic was ordered to render an accounting of its income and to pay attorney's fees and costs, and the plaintiffs prevailed.

Remember This

The single line to memorize: a mayor cannot contract away a governmental function of the city or its patrimonial assets without express authority and public bidding, and such a contract is void. Examiners use this case to test the scope of municipal contracting power, the governmental versus proprietary distinction, and the consequences of a void contract entered into by a local government.