Primary Holding

The municipal council members are held jointly and severally liable for damages sustained by Marcos Mendoza due to the unlawful rescission of his ferry lease contract because their actions were not in good faith and were not a mere error in judgment, but a clear disregard of Mendoza's contractual rights for no valid reason.

Background

Marcos Mendoza was granted an exclusive ferry privilege by the municipality of Villasis under Act No. 1634. After operating the ferry for over a year, the municipal council, composed of the defendants, revoked his lease and awarded a franchise to another person, leading to Mendoza's forcible ejection. Mendoza then sued the individual council members for damages.

Facts

• 1. Marcos Mendoza was awarded an exclusive ferry lease privilege by the municipality of Villasis under Act No. 1634.
• 2. He operated the ferry for over a year.
• 3. The municipal council, including Francisco de Leon et al., passed a resolution revoking Mendoza's lease.
• 4. The council then granted a ferry franchise to another person.
• 5. Mendoza was forcibly ejected from the ferry.
• 6. The vice-president of the municipality had initially placed Mendoza in possession of the ferry.
• 7. The ferry from which Mendoza was dispossessed was the same one he had leased.
• 8. There was no justifiable reason for revoking Mendoza's lease, and the council’s claim that it was a different ferry was unsupported by evidence.

Arguments of the Petitioners

• 1. Marcos Mendoza, as the Plaintiff and Appellee, argued that the municipal council's revocation of his validly awarded ferry lease was unlawful and caused him damages. He sought to hold the individual council members personally liable for these damages.

Arguments of the Respondents

• 1. Francisco de Leon et al., as the Defendants and Appellants, attempted to justify their actions by claiming that the ferry Mendoza operated was not the one leased to him. They likely argued that as municipal councilors, they were acting in the municipality's best interest and should not be held personally liable for what they believed to be a valid official act.

Issues

• 1. Are the defendant municipal council members personally liable for damages resulting from the revocation of the plaintiff's ferry lease?
• 2. Did the revocation of the ferry lease constitute a valid exercise of governmental function or an act related to the municipality's corporate capacity?
• 3. Was the council's action a mere error in judgment, or did it constitute bad faith or malicious intent?

Ruling

• 1. The Supreme Court ruled that the defendant council members are personally liable for damages. The Court reasoned that leasing a municipal ferry is a corporate or proprietary function, not a governmental one. The councilors, acting in their corporate capacity, unlawfully rescinded a valid contract without justifiable reason, demonstrating bad faith and not mere error in judgment. Their actions were not protected as being within the realm of governmental immunity, and they are liable as directors of a private corporation would be for similar wrongful acts.

Doctrines

• 1. Governmental vs. Corporate Functions of Municipalities: Municipalities have dual roles - governmental (public peace, health, etc.) and corporate/proprietary (business functions like ferries, markets). Liability differs based on which function is involved.
• 2. Doctrine of Respondeat Superior: Municipalities are liable for the torts of their officers and agents when acting in a corporate capacity, similar to private corporations.
• 3. Liability of Corporate Directors/Officers: Directors/officers are generally not liable for honest mistakes of judgment but are liable for actions taken in bad faith, with malice, or outside the corporation's best interests.

Key Excerpts

• 1. "The broad general doctrine of the Maxmilian case...is that 'two kinds of duties are imposed on municipal corporations, the one governmental and a branch of the general administration of the state, the other quasi private or corporate;' and 'that in the exercise of the latter duties the municipality is liable for the acts of its officers and agents, while in the former it is not.'" (Quoting Wilcox vs. City of Rochester and Maxmilian vs. Mayor, etc., New York)
• 2. "With regard to the liability of a public municipal corporation for the acts of its officers, the distinction is between an exercise of those legislative powers which it holds for public purposes...and those private franchises which belong to it...But in regard to the latter, it is responsible for the acts of those who are in law its agents..." (Quoting Co. Comm's of Anne Arundel Co. vs. Duckett)
• 3. "A distinction is made between the liability of a municipal corporation for the acts of its officers in the exercise of powers which it possesses for public purpose and which it holds as agent of the state, and those powers which embrace private or corporate duties and are exercised for the advantage of the municipality and its inhabitants." (Quoting Cummings vs. Lobsitz)
• 4. "The state cannot, without its consent expressed through legislation, be sued for injuries resulting from an act done in the exercise of its lawful governmental powers and pertaining to the administration of government...Municipal corporations are agents of the state in the exercise of certain governmental powers. The preservation of the health and peace of its inhabitants and fire protection afforded the property owner, are governmental functions." (Quoting Burke vs. City of South Omaha)
• 5. "It is the well-settled rule that the state is not liable to private persons who suffer injuries through the negligence of its officers...while in the performance of state functions, imposed upon them by law." (Quoting Nicholson vs. Detroit)
• 6. "It is elementary that neither the state nor any of the subdivisions, like a municipality, through which it operates, is liable for torts committed by public officers, save in definitely excepted classes of cases." (Quoting Claussen vs. City of Luverne)
• 7. "Ordinances made by municipalities under charter or legislative authority, containing grants...are, after acceptance and performance by the grantee, contracts protected by the prohibition of the Federal Constitution against the enactment of any State law impairing the obligation of contracts." (Quoting Dillon on Municipal Corporations)
• 8. "Under the rule that directors are not liable for mistakes of judgment, it follows naturally that they are not liable for the mismanagement of the corporate affairs where such mismanagement is a mistake of judgment." (Quoting Thompson on Corporations)

Precedents Cited

• 1. Wilcox vs. City of Rochester (190 N. Y., 137): Used to illustrate the distinction between governmental and corporate duties of municipalities.
• 2. Maxmilian vs. Mayor, etc., New York (62 N. Y., 160): Established the doctrine of dual functions of municipalities.
• 3. Lefrois vs. Co. of Monroe (162 N. Y., 563, 567): Supports the dual function doctrine.
• 4. Bond vs. Royston (130 Ga., 646): Cited for approving the Maxmilian case.
• 5. Co. Comm's of Anne Arundel Co. vs. Duckett (20 Md., 468, 476; 83 Am. Dec., 557): Further explains the distinction between governmental and private functions in municipal liability.
• 6. Trammell vs. Russellville (34 Ark., 105; 36 Am. Rep., 1): Cited for approving Co. Comm's of Anne Arundel Co. vs. Duckett.
• 7. Mcllhenney vs. Wilmington (127 N. C, 146; 50 L. R. A., 470): Cited for approving Co. Comm's of Anne Arundel Co. vs. Duckett.
• 8. Cummings vs. Lobsitz (42 Okla., 704; L. R. A., N. S., B, p. 415): Further clarifies the distinction between governmental and corporate functions regarding municipal liability.
• 9. Burke vs. City of South Omaha (79 Neb., 793): Example of governmental functions like health and fire protection.
• 10. Nicholson vs. Detroit (129 Mich., 246; 56 L. R. A., 601): Reinforces the rule of state and municipal immunity for governmental functions.
• 11. Detroit vs. Blackeby (21 Mich., 84; 4 Am. Rep., 450): Case discussed in Nicholson supporting municipal immunity.
• 12. Claussen vs. City of Luverne (103 Minn., 491; 15 L. R. A., N. S., 698): Explains the sovereign immunity basis.
• 13. U. S. vs. Kirkpatrick (9 Wheat., 720; 6 L. ed., 199): Supports the principle that government doesn't guarantee officer fidelity.
• 14. Beers vs. Arkansas (20 How., 527; 15 L. ed., 991): Supports the principle that government doesn't guarantee officer fidelity.
• 15. People vs. May (251 Ill., 54): Cited for the principle that officers are not liable for honest errors in judgment in governmental duties.
• 16. Salt Lake County vs. Clinton (Utah, 1911), 117 Pac., 1075: Cited for the principle that officers are not liable for honest errors in judgment in governmental duties.
• 17. Comanche County vs. Burks (Tex. Civ. App., 1914), 166 S. W., 470: Cited for the principle that officers are not liable for honest errors in judgment in governmental duties.
• 18. Monnier vs. Godbold (116 La., 165; 5 L. R. A., N. S., 463): Cited for the principle that officers are not liable for honest errors in judgment in governmental duties.
• 19. Ray vs. Dodd (132 Mo. App., 444): Cited for the principle that officers are not liable for honest errors in judgment in governmental duties.
• 20. Johnson vs. Marsh (82 N. J. L., 4): Cited for the principle that officers are not liable for honest errors in judgment in governmental duties.
• 21. Gregory vs. Brooks (37 Conn., 365): Cited for the principle that officers are not liable for honest errors in judgment in governmental duties.
• 22. Lecourt vs. Gaster (50 La. Ann., 521): Cited for the principle that officers are not liable for honest errors in judgment in governmental duties.
• 23. Bartlett vs. City of Columbus (101 Ga., 300; 44 L. R. A., 795): Example of municipal immunity in governmental functions (false imprisonment by police).
• 24. Peters vs. City of Lindsborg (40 Kan., 654): Example of municipal immunity in governmental functions (false imprisonment by police).
• 25. Field vs. City of Des Moines (39 Iowa, 575): Example of municipal immunity for actions under governmental authority (destroying houses to stop fire).
• 26. Omaha Water Co. vs. Omaha (12 L. R. A., N. S., 736; 77 C. C. A., 267; 147 Fed., 1): Example of dual function agency - water system for fire protection and profit.
• 27. Judson vs. Borough of Winsted (80 Conn., 384; 15 L. R. A., N. S., 91): Example of dual function agency - water system for fire protection and profit.
• 28. Fisher vs. New Bern (140 N. C, 506; 111 Am. St. Rep., 867): Example of dual function agency - light plant for streets and private profit.
• 29. Woodhull vs. Mayor, etc., of New York (150 N. Y., 450): Example of dual function agent - police officer and toll bridge caretaker.
• 30. Municipality of Moncada vs. Cajuigan (21 Phil. Rep., 184): Case illustrating municipality’s handling of lessee eviction and counterclaim for damages.
• 31. Dennison vs. The Moro Province (R. G. No. 8173, March 28, 1914; not reported): Mentioned as considered but ultimately not controlling the present case.
• 32. In re Fay (15 Pick. [Mass.], 243): Used to illustrate the nature of municipal leases, particularly ferries.

Statutory and Constitutional Provisions

• 1. Act No. 1634 (Philippine Commission): Law under which the ferry lease was initially granted.
• 2. Municipal Code (Act No. 82): Defines powers of municipalities, distinguishing governmental and corporate functions.
• 3. Dillon on Municipal Corporations (5th ed.), sections 38, 39, 277, 1306, 1610, 1647: Treatise extensively cited to define municipal powers and liabilities.
• 4. Thompson on Corporations, section 1298: Treatise cited regarding the liability of corporate directors.