G.R. No.

L-28972 October 31, 1972

CITY COUNCIL OF CEBU CITY vs.

Facts:

The City Council of Cebu approved Resolution No. 1648 authorizing the City Mayor Cuizon,
for and in behalf of the City of Cebu, to negotiate and to contract for, by public bidding, on deferred
payment plan and by lot bid, U.S. or European made road construction equipment for the City of
Cebu and authorizing him for this purposes, to sign the corresponding contract and other pertinent
papers. Consequently, the City Council approved Resolution No. 1831 to authorize the City Mayor,
to utilize the Time Deposit of the City of Cebu with the Philippine National Bank, as Bond guarantee
in the opening of a Letter of Credit in connection with the City of Cebu's application to directly
purchase road construction equipment from abroad.

The bid was awarded to the only bidder, Tropical Commercial Co., Inc. The City Council thru
Resolution No. 122 requested the Award Committee to forward the pertinent papers in connection
with the bidding. Notwithstanding the request in Resolution No. 122, the City Mayor, without having
been duly authorized thru proper resolution of the City Council, and without compliance with
Resolution No. 122, signed a contract with the Tropical Commercial Co., Inc. for the acquisition of
the heavy equipment.

In view of the fact that the City Mayor ignored the requests of the City Council, the City
Council approved Resolution No. 473, to revoke Resolution No. 1648 and Resolution No. 1831.
Subsequently the presiding officer of the City Council, sent a telegram to the Manager of the
Philippine National Bank informing that Cebu city council has revoked mayor's authority thereby
suspending further negotiations on their transaction.

Acting City Treasurer, Jesus E. Zabate, sent a reply to the Asst. Vice-President of the
defendant Philippine National Bank in Cebu City refusing the request of the Philippine National Bank
to withhold P3,000,000.00 from the time deposit of the City of Cebu on the ground that no
appropriation for the purchase of heavy equipment was made by the City Council.

Notwithstanding the knowledge of the revocation of Resolution No. 1648 and Resolution No. 1831,
the said City Mayor, Carlos J. Cuizon, continued with the transaction by placing the order with the
Equipment Division of the Continental Ore Corporation of New York U.S.A. for the purchase of the
said heavy equipment.

Hence, the COUNCILORS by themselves and representing the City Council of Cebu, filed
their complaint in the CFI of Cebu against Carlos J. Cuizon, as mayor of Cebu City, Jesus E. Zabate,
as acting Cebu City treasurer, Philippine National Bank and Tropical Commercial Company, Inc., that
the contract entered into between Mayor Cuizon on behalf of the city for the purchase of road
construction equipment from Tropical be declared as null and void ab initio. The councilors alleged
that the contract and the complementary transactions with the bank such as the corresponding letters
of credit were entered into without the necessary authority and approval of the city council.

The lower court dismissed plaintiffs' complaint on the ground of their lack of legal capacity to
sue and their not being the "real party in interest,". The lower court reasoned that the contract now
sought to be annulled was signed by the City Mayor in behalf of the contracting party, the City of Cebu,
by virtue of the authority granted him by Resolution No. 1648 of the city council. In the instant case
the plaintiffs, in their capacity as city councilors or tax payers are not parties to the contract executed
by the City of Cebu and there is no evidence to show that because of the contract they may be
prejudiced or may suffer injury different from that of the public in general. The City of Cebu being the
party to the contract, any action brought regarding the said contract must be instituted in the name of
the City of Cebu and by the person authorized to do so. Section 20(c) of the Revised Charter of Cebu
City (Republic Act No. 3857) empowers the City Mayor to "cause to be instituted judicial proceedings
to recover properties and funds of the city wherever found and cause to be defended all suits against
the City. There is no provision in the said Charter which authorizes expressly or impliedly the city
council or its members to bring an action in behalf of the City.

Hence this appeal.

Issue: Whether or not the city councils have the legal standing?

Ruling: Yes.

The lower court founded its erroneous conclusion on the equally erroneous premise of citing
and applying Article 1397 of the Civil Code that "the action for the annulment of contracts may be
instituted (only) by all who are thereby obliged principally or subsidiarily." The lower court's
fundamental error was in treating plaintiffs' complaint as a personal suit on their own behalf and
applying the test in such cases that plaintiffs should show personal interest as parties who would be
benefited or injured by the judgment sought.

Plaintiffs' suit is one filed on behalf of the City of Cebu, instituted by them in pursuance of their
prerogative and duty as city councilors and taxpayers, in order to question and declare null and void
a contract which according to their complaint was executed by defendant city mayor purportedly on
behalf of the city without valid authority. It is clear that it was not brought by them in their personal
capacity, in which situation Article 1397 of the Civil Code may rightfully be invoked to question their
legal capacity or interest to file the action, since they are not in such case in anyway obliged thereby
principally or subsidiarily.

Plaintiffs' right and legal interest as taxpayers to file the suit below and seek judicial assistance
to prevent what they believe to be an attempt to unlawfully disburse public funds of the city and to
contest the expenditure of public funds under contracts and commitments which they assert to have
been entered into by the mayor without legal authority and against the express prohibition of law have
long received the Court's sanction and recognition.

The lower court's narrow construction of the city charter, Republic Act No. 3857, that under
section 20 (c) thereof, it is only the city mayor who is empowered "to cause to be instituted judicial
proceedings to recover properties and funds of the city wherever found and cause to be defended all
suits against the city," and that plaintiffs' suit must therefore fail since "there is no provision in the
said charter which authorizes expressly or impliedly the city council or its members to bring an action
in behalf of the city" cannot receive the Court's sanction.

Section 20 (c) of the city charter invoked by the lower court, however, has no applicability to
the present suit, which is not one to recover properties and funds of the city or a suit against the city,
but rather a representative suit on behalf of and purportedly for the benefit of the city, which the city
mayor is however loath to institute.