Asiatic Integrated Corporation vs. Alikpala

A municipal contract for the management and operation of public markets is not ultra vires where the city is authorized to lease public markets, and any legal deficiency in its execution may be validated by subsequent ratification or legislative act; private market employees and vendors whose civil-service status and stall rights remain protected are not parties with requisite interest to impugn the contract.

The City of Manila owns and operates thirty-five public markets and talipapas under its charter, Republic Act No. 409, as amended by Republic Act No. 6039. Asiatic Integrated Corporation is a 100% Filipino-owned corporation. Private respondents are employees and vendors in those markets, including Samahan ng mga Manininda sa Pamilihan Quinta, Inc. Republic Act No. 6039 created a Market Committee with power to recommend policies for the city markets, while Republic Act No. 37 nationalizes public markets and existing civil service laws govern market personnel. Presidential Decree No. 231, the Local Tax Code, and Presidential Decree No. 345 also form part of the regulatory backdrop.

On December 13, 1972, the Market Committee created by Republic Act No. 6039 adopted a resolution recommending that the City Mayor of Manila urgently consider the immediate lease and/or assignment of the administration of the city public markets and talipapas to a multi-million peso corporation under terms and conditions most advantageous to the City of Manila. On December 28, 1972, the City of Manila, represented by Mayor Ramon D. Bagatsing, and Asiatic Integrated Corporation, a 100% Filipino-owned corporation represented by its President Jose A. Rojas, executed a Management and Operating Contract covering all thirty-five public markets and talipapas in Manila. The contract was for ten years from execution, with the City allowed to revoke it for unsatisfactory services or violation of its terms. Asiatic was to conduct, manage, operate, develop, and maintain the markets; start painting, cleaning, sanitizing, and repairing them; submit an improvement program within ninety days; defray all costs for utilities, repairs, maintenance, new equipment, improvement, rehabilitation, and reconstruction; and leave all constructions and improvements to the City upon expiration without payment. It was also to retain present personnel as long as their services remained satisfactory, extend them the same rights and privileges, and discharge employees only for cause subject to prior approval of the City; post a performance bond of P500,000; pay salaries, wages, insurance, and other benefits while holding the City free from liability, with the City’s liability remaining primary and Asiatic’s obligation being reimbursement; and appropriate yearly not less than thirty percent of the gross income of the public markets and talipapas for fiscal year 1971-1972 for maintenance, repair, reconstruction, development, and rehabilitation. Asiatic was further to honor the rights of stallholders, make available loans and financing at legal rates, and establish buying cooperatives. In return, Asiatic was entitled to the annual gross income in excess of P500,000 for the first year, with increasing amounts for the succeeding years up to P950,000 on the tenth year, and was to advance P100,000 within seven days and P400,000 within ninety days from execution.

On January 12, 1973, twelve of the twenty councilors of the Municipal Board signed a resolution expressing the Board’s concurrence with and support for the contract. Also on January 12, 1973, President Ferdinand E. Marcos sent a memorandum to Mayor Bagatsing expressing his desire, in the interest of public welfare, that three conditions be incorporated: all market vendors should form cooperatives and be sold shares in the market, thus becoming co-owners; the market cooperatives should be authorized to directly procure from producers’ cooperatives and other sources, domestically or internationally, and be given import allocations, provided they bring down prices in accordance with the policy and regulations of the Price Control Council; and the public should be part owner of such markets by public sale of shares. On March 30, 1973, a Supplementary Contract was executed by the parties in an effort to comply with the presidential memorandum. It provided that legitimate vendors who formed or organized cooperatives would be extended the fullest help and assistance; that market cooperatives would be aided so they could directly procure goods from producers’ cooperatives and other legitimate sources, provided they brought down prices per the Price Control Council; and that Asiatic bound itself to take steps to put up shares to be sold to the public, with market vendors given preference.

On November 26, 1973, President Marcos issued Presidential Decree No. 345, authorizing the reversion of the accumulated thirty percent sinking fund amounting to P3,696,921.99 to the General Fund of the City of Manila for public works projects. The decree recited that there was no more need to appropriate the accumulated sinking fund because Asiatic, under the contract, would undertake the improvements stated in Republic Act No. 6039. On January 3, 1974, the Municipal Board passed Ordinance No. 7451, authorizing the Mayor to lease vacant, unused, and unencumbered patrimonial properties, or other leasable patrimonial properties, to reputable and highly qualified persons, firms, or corporations. The ordinance provided that the contract shall not exceed twenty-five years; the price or consideration shall be determined by the City Appraisal Committee or City Rental Committee; the Municipal Board shall be furnished copies of the contracts; the Mayor shall consider other terms and conditions most beneficial to the city government; the ordinance shall not be utilized to create a monopoly in favor of any corporation or enterprise; P25,000,000 derived from the lease shall be set aside for the construction of a new city hall building or a temple of justice; and the Municipal Board shall retain the power to enact ordinances to make use of vacant and unused properties of the City for public purposes. The ordinance was approved by Mayor Bagatsing on January 11, 1974.

On February 13, 1974, the City and Asiatic executed an Amended Contract amending Paragraphs I and XV of the original contract. The term was extended from ten to twenty-five years commencing December 28, 1972. Asiatic was to pay the City P500,000 for the first year and an additional P50,000 yearly, such that on the twenty-fifth year the City would receive P1,700,000, payable within sixty days after the anniversary date of execution, with P100,000 to be advanced within ninety days; and if prescribed rentals or market fees increased, the amounts payable would automatically increase in the same proportion. All other terms of the original and supplementary contracts remained in full force. On February 15, 1974, Mayor Bagatsing wrote the Municipal Board, enclosing a copy of the Amended Contract for its information and guidance pursuant to Ordinance No. 7451.

Private respondents—employees and vendors in the Manila public markets, including Samahan ng mga Manininda sa Pamilihan Quinta, Inc.—filed Civil Case No. 89442 against the City and Asiatic, challenging the contract. In initially resolving the petition for preliminary injunction, the trial court ruled that the plaintiffs were not parties to the contract and that their apprehensions of removal from their jobs or deprivation of their stalls were speculative and may never arise; it made no final ruling on their personality in its later decision.

• Ultra Vires: Private respondents assailed the legality of the Management and Operating Contract on the ground that, involving public markets, it was ultra vires or beyond the authority of the City to enter into.
• Lack of Ordinance and Mayor’s Authority: Private respondents argued that the Mayor of Manila had no power to execute the contract and bind the City without the corresponding authority given in an ordinance duly approved by the Municipal Board.
• Violation of Republic Act No. 37 and Civil Service Laws: Private respondents contended that the contract was violative of Republic Act No. 37 nationalizing public markets and of existing civil service laws, rules, and regulations.
• Gross Disadvantage: Private respondents maintained that the contract was grossly disadvantageous to the City, claiming that based on the City’s net incomes for fiscal years 1969-70, 1970-71, and 1971-72, the City stood to lose close to P1,000,000 annually.

• Requisite Interest: Whether private respondents, as market employees and vendors, possess the requisite interest or personality to judicially impugn the Management and Operating Contract.
• Ultra Vires: Whether the Management and Operating Contract is ultra vires or beyond the authority of the City of Manila to enter into.
• Mayor’s Authority and Ratification: Whether the Mayor had the power to execute the contract without prior authority in an ordinance approved by the Municipal Board, and whether subsequent acts ratified or validated the contract.
• Republic Act No. 37 and Civil Service: Whether the contract violates Republic Act No. 37 nationalizing public markets and existing civil service laws, rules, and regulations.
• Gross Disadvantage: Whether the contract is grossly disadvantageous to the City of Manila.
• Amended Contract and Term Extension: Whether the Amended Contract extending the term from ten to twenty-five years is legal and valid.

• Requisite Interest: No. Private respondents lacked requisite interest because the employees retained their civil-service status and the vendors’ stall rights and awarding remained with the City authorities.
• Ultra Vires: No. Public markets owned by a city may be leased, and their management and operation may be contracted to private parties; the contract was not ultra vires.
• Mayor’s Authority and Ratification: Validated. Although the Mayor initially executed the contract without prior ordinance, subsequent acts—including the Municipal Board resolution, Presidential Decree No. 345, Ordinance No. 7451, and the amended contract—ratified and validated it.
• Republic Act No. 37 and Civil Service: No. The contract did not confer on Asiatic any authority over the awarding of stalls, and it did not impair the civil-service status or security of tenure of market employees.
• Gross Disadvantage: No. The determination of reasonableness rests primarily with city authorities, and no sufficient basis existed to hold the contract grossly disadvantageous to the City.
• Amended Contract and Term Extension: Yes. Ordinance No. 7451 authorized the lease of patrimonial properties for up to twenty-five years, and the amended contract was executed pursuant to that authority and ratified by the Board’s subsequent acquiescence.

• Requisite Interest: The threshold ruling was that private respondents did not possess the requisite interest or personality to file the complaint. As to the employees, Paragraph VI of the contract retained all present personnel as long as their services remained satisfactory, extended them the same rights and privileges, and allowed discharge only for cause subject to prior approval of the City. Paragraphs XI and XII further provided that Asiatic would pay salaries, wages, insurance, and other benefits but that the City’s liability remained primary and Asiatic’s obligation was to reimburse. The employees therefore remained in the employment of the City, subject to civil service laws, rules, and regulations. As to the vendors, Paragraph XIV bound Asiatic to honor and respect the rights of present stallholders, and the contract did not empower Asiatic to interfere with the awarding of stalls or the fixing of fees; those matters remained with the city authorities. The supplementary contract, executed pursuant to the President’s memorandum, further enabled vendors to become co-operators of the markets. Private respondents thus could not be prejudiced by the contract and lacked standing to impugn it.

• Ultra Vires: The trial court’s ruling that the City had no power to enter into a management and operating contract over its public markets was rejected. In the law on municipal corporations, public wharves belong to a different category from public markets. Public markets owned by a municipality or city may be leased. Municipal corporations have both governmental and corporate or business functions, and the construction and maintenance of markets belongs to the latter. Section 2318 of the Revised Administrative Code expressly authorizes that markets be let for a stipulated return to private parties. Section 17(cc) of the Charter of Manila grants the Municipal Board power to prohibit or permit the establishment or operation within the city limits of public markets by any person, entity, association, or corporation other than the city. Since markets can be leased, the management and operation thereof may by contract be given to private parties. The contract was therefore not ultra vires.

• Mayor’s Authority and Ratification: The Court found it unnecessary to pass on the initial form in which the contract was authorized or sanctioned by the city authorities because later developments made the original deficiency of little juridical consequence. The Market Committee created by Republic Act No. 6039 had recommended the lease and/or assignment of the administration of the markets. Twelve of the twenty members of the Municipal Board signed a resolution expressing concurrence with and support for the contract. President Marcos issued a memorandum directing the incorporation of certain conditions, which were substantially embodied in the Supplementary Contract of March 30, 1973. Presidential Decree No. 345 then declared that there was no more need for the sinking fund because Asiatic would undertake the improvements under the contract. The decree was treated as virtually sanctioning the contract and, in the then constitutional situation, amounted to a legislative enactment. A municipal corporation is a creature of the national legislative authority, and that authority may validate and legalize legally deficient acts of municipal officials, including ultra vires acts. Ordinance No. 7451 further authorized the Mayor to lease patrimonial and other leasable properties of the City for up to twenty-five years; public markets are leasable patrimonial properties, and the authority to lease includes the authority to award operation and management to private parties. The Mayor furnished the Board a copy of the amended contract, and the Board did not repudiate it. The Board also approved budget ordinances using the income from Asiatic as basis, and Asiatic’s payments and compliance were accepted without protest. The combined effect of these circumstances supplied more than enough legal basis for upholding the contract’s validity.

• Republic Act No. 37 and Civil Service: The contention that the contract violated Republic Act No. 37 and civil service laws was rejected. As regards the awarding of market stalls, nothing in the contract conferred upon Asiatic any authority to participate in it. The management and operation contemplated covered only the collection of stall fees and the maintenance, repair, and rehabilitation of the buildings, premises, and facilities. The awarding of stalls remained in the hands of the City authorities, and even if it had been given to Asiatic, it would have to be done in accordance with Republic Act No. 37. As regards the employees, the contract expressly retained them, respected their civil-service status, and preserved their rights and privileges. There was no basis to claim that the contract violated civil service laws, rules, and regulations.

• Gross Disadvantage: The determination of the reasonableness and propriety of the terms and conditions of the contract rested primarily with the city authorities and not with the courts. Courts may interfere only when the contract is ultra vires or clearly unreasonable. Private respondents claimed that the City would lose close to P1,000,000 annually, citing net incomes of P1,609,899.96 for FY 1969-70, P1,657,668.85 for FY 1970-71, and P1,455,932.95 for FY 1971-72. The Court found this argument misleading. Under the contract, Asiatic was required to appropriate at least thirty percent of gross income for improvements, which would in effect be income for the City for the statutory purpose. Adding Asiatic’s lump-sum payments, the hypothetical income of the City from Asiatic for the three years would have been greater than the net income from market collections for the same period. Asiatic also assumed expenses for salaries, wages, insurance, benefits, and claims under the Workmen’s Compensation Act, Minimum Wage Law, and Eight-Hour Labor Law, which were bound to increase. The Municipal Board resolution and Presidential Decree No. 345 recognized the benefits of the contract. No sufficient basis existed to hold the contract grossly disadvantageous.

• Amended Contract and Term Extension: Ordinance No. 7451 authorized the Mayor to lease patrimonial properties and other leasable patrimonial properties of the City for a period not exceeding twenty-five years. Public markets form part of the leasable patrimonial properties of the City. After the ordinance was enacted, the original and supplementary contracts were amended mainly to extend the term from ten to twenty-five years. The Mayor notified the Municipal Board of the amendment for its information and guidance, stating that the amended contract was executed in pursuance of Ordinance No. 7451. No showing was made that the Board repudiated the contract as outside its contemplation. In light of the Board’s earlier resolution signed by twelve members, it could hardly be expected to take a different attitude. The amended contract was therefore legal and valid.

• Requisite Interest to Impugn a Municipal Contract — A party must have a direct and substantial interest in the annulment of a contract. In this case, market employees retained their civil-service status under Paragraph VI, and the City remained primarily liable for salaries and benefits under Paragraphs XI and XII, while vendors’ stall rights and the awarding of stalls remained with the City authorities under Paragraph XIV and the supplementary contract. Employees and vendors whose rights were protected by the contract lacked the requisite interest to impugn it.

• Ultra Vires and Leasing of Public Markets — Municipal corporations have corporate or business functions, including the construction and maintenance of markets. Public markets owned by a city may be leased; Section 2318 of the Revised Administrative Code allows markets to be let for a stipulated return; Section 17(cc) of Republic Act No. 409 allows the Municipal Board to permit operation by another entity. Since markets can be leased, their management and operation may be contracted to private parties. The contract was not ultra vires.

• Ratification and Validation of Ultra Vires Acts — A municipal corporation is a creature of the national legislative authority, and that authority may validate and legalize legally deficient acts of municipal officials, including ultra vires acts. Presidential Decree No. 345, issued under the President’s legislative powers at the time, effectively sanctioned the contract. Ordinance No. 7451, the Municipal Board’s resolution, and its subsequent acquiescence further ratified the contract.

• Judicial Review of Contract Disadvantage — The determination of the reasonableness and propriety of contract terms rests primarily with city authorities, not with the courts. Courts may interfere only if the contract is ultra vires or clearly unreasonable. Here, no sufficient basis existed to hold the contract grossly disadvantageous to the City; the computation showed the City would have received slightly more under the contract than its net income for the same period.

• Civil Service Protection in Contracted Market Management — Contracting out the management and operation of public markets does not impair civil-service status where employees are retained, their rights and privileges respected, and dismissal for cause is subject to City approval. The City’s liability for salaries and benefits remains primary, with Asiatic reimbursing the City.

• Non-Impairment of Contracts and Non-Retroactivity — Presidential Decree No. 231, the Local Tax Code, took effect on June 28, 1973 and cannot apply retroactively to impair a contract executed in December 1972, as that would violate the non-impairment clause. Section II, Article IV, Bill of Rights.

• "We hold that the said contract is not ultra vires." — This states the Court’s direct rejection of the trial court’s ultra vires ruling, anchoring the contract’s validity in the city’s power to lease public markets and contract out their management and operation.

• "Accordingly, We hold that herein private respondents do not possess the requisite interest or personality to file the complaint herein. If for this reason alone, the same should be dismissed." — This is the threshold ruling on standing, holding that employees and vendors whose rights were protected by the contract could not impugn it.

• "A municipal corporation, such as the City of Manila, is a creature of the national legislative authority and, therefore, it is within the power of such authority to validate and legalize any legally deficient act of the municipal officials, including those that could otherwise be ultra vires." — This defines the ratification and validation doctrine applied to Presidential Decree No. 345 and the subsequent acts of the Municipal Board.

• "In respect to such contention, the first point to bear in mind is that the determination of the reasonableness and propriety of the terms and conditions embodied in the contract rests primarily with the city authorities and not with the courts. It is only in instances wherein the contract is ultra vires or clearly unreasonable that the courts can interfere." — This states the standard for judicial review of the contract’s alleged gross disadvantage.

• Salgado vs. de la Fuente, 87 Phil. 343 — Cited to establish that public markets owned by a municipality or city may be leased.
• Mendoza vs. de Leon, 33 Phil. 508 — Cited for the principle that municipal corporations have governmental and corporate or business functions, and the construction and maintenance of markets belongs to the latter.
• Chamber of Filipino Retailers, Inc. vs. Villegas, 44 SCRA 405 — Cited to hold that public markets in Manila are not for public use and are patrimonial property susceptible of lease.
• Esteban vs. City of Cabanatuan, G.R. No. L-13662, May 30, 1960, 108 Phil. 1245 — Cited for the rule that the operation of a market is not strictly a governmental function.
• Guillergan vs. Ganzon, 17 SCRA 257 — Cited with Esteban for the principle that market operation is not strictly governmental.
• Aprueba vs. Ganzon, 18 SCRA 8 — Cited to note that the leasing of a market stall is subject to police power.
• Co Chiong vs. Mayor of Manila, 83 Phil. 257 and Co Chiong vs. Cuaderno, 83 Phil. 251 — Cited to distinguish that for purposes of excluding aliens from public markets, establishment, maintenance, and operation are governmental functions, but this does not prevent leasing or contracting out management.
• Umali vs. City of Naga, 96 Phil. 379 — Cited for the standard that courts may interfere with a municipal contract only when it is ultra vires or clearly unreasonable.
• Zobel vs. City of Manila, 47 Phil. 169 — Cited in footnote for the rule that the municipal board’s action relative to a contract for the purchase of real property may be expressed in a resolution.
• Aquino et al. vs. Comelec, G.R. No. L-40004, January 31, 1975 and Aquino vs. Military Commission No. 2, G.R. No. L-37364, May 9, 1975 — Cited in footnote for the proposition that presidential decrees in the then constitutional situation amount to legislative enactments.

• Section 2318, Revised Administrative Code — Expressly authorizes that markets be let for a stipulated return to private parties; relied on to hold the contract not ultra vires.
• Section 17(cc), Republic Act No. 409 (Revised Charter of Manila) — Grants the Municipal Board power to prohibit or permit the establishment or operation within the city limits of public markets by any person, entity, association, or corporation other than the city; cited to support authority to contract out management.
• Republic Act No. 6039 — Amended Section 18(cc) of Republic Act No. 409, created the Market Committee, and required a sinking fund from thirty percent of annual gross receipts from market fees; its Market Committee recommendation and powers were considered in upholding the contract.
• Republic Act No. 37 — Nationalizes public markets and provides citizens preference in the award of stalls; held not violated because the awarding of stalls remained with City authorities and Asiatic had no authority over it.
• Presidential Decree No. 345 — Authorized the reversion of the accumulated thirty percent sinking fund to the City’s General Fund and recognized that Asiatic would undertake improvements under the contract; treated as equivalent to a legislative enactment validating the contract.
• Presidential Decree No. 231 (Local Tax Code) — Cited by respondents as vesting the city treasurer with powers over markets; held later than the contract and not retroactive, as retroactive application would impair the obligation of contracts.
• Section II, Article IV, Bill of Rights — Non-impairment clause; cited against retroactive application of Presidential Decree No. 231 to the December 1972 contract.
• Section 8, Article XVII, 1973 Constitution — Provides that pending cases shall be heard and determined under laws then in force; respondents invoked it against Presidential Decree No. 345, but the Court held it did not prevent the President or legislature from validating prior acts of local governments.
• Sections 9, 13 and 18(cc), Republic Act No. 409, as amended by Republic Act No. 6039 — Cited to note the Mayor’s inherent power of supervision and control and the Municipal Board’s legislative power over markets.
• Ordinance No. 7451 — Authorized the Mayor to lease patrimonial and other leasable properties of the City for not more than twenty-five years; relied on as ratification and authority for the amended contract.

Makalintal, C.J., Castro, Fernando, Muñoz Palma, Martin, Antonio, and Esguerra, JJ., concur. Makasiar and Aquino, JJ., concur in the result. Concepcion, J., is on leave.

• Justice Teehankee — Concurred qualifiedly with the main opinion insofar as it reversed the trial court’s decision of July 13, 1973 declaring the Management and Operating Contract null and void ab initio. He qualified his concurrence because the serious objections against the contract—lack of authority, ultra vires, and grossly disadvantageous—appeared to have been overridden by the President’s memorandum of January 12, 1973, but compliance therewith had not been satisfactorily shown. He noted that the Supplementary Contract of March 30, 1973 did not provide specifics for substantial compliance with the presidential requirements, particularly giving market vendors and the public an opportunity to become part owners through the sale of shares. He would reserve the right of respondents and other taxpayers to bring a suit for performance or cancellation if the conditions were not duly complied with. He dissented from the main opinion insofar as it declared the Amended Contract of February 13, 1974 legal and valid, extending the term from ten to twenty-five years, because this new issue was not raised in nor passed upon by the trial court, which had already rendered its decision on July 13, 1973. He identified new issues arising from Ordinance No. 7451 and the amended contract, including whether the ordinance applied to the lease of city markets, whether the contract violated the ordinance’s condition against creating a monopoly, and whether the twenty-five-year extension grossly disadvantaged the City. He would require these new matters to be the object of a new and separate case.