Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 191667               April 17, 2013
LAND BANK OF THE PHILIPPINES, Petitioner, 
vs.
EDUARDO M. CACAYURAN, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this Petition for Review on Certiorari1 is
the March 26, 2010 Decision2 of the Court of
Appeals (CA) in CA-G.R. CV. No. 89732 which
affirmed with modification the April 10, 2007
Decision3 of the Regional Trial Court (RTC) of Agoo,
La Union, Branch 31, declaring inter alia the nullity
of the loan agreements entered into by petitioner
Land Bank of the Philippines (Land Bank) and the
Municipality of Agoo, La Union (Municipality).
The Facts
From 2005 to 2006, the Municipality’s Sangguniang
Bayan (SB) passed certain resolutions to implement
a multi-phased plan (Redevelopment Plan) to
redevelop the Agoo Public Plaza (Agoo Plaza)
where the Imelda Garden and Jose Rizal Monument
were situated.
To finance phase 1 of the said plan, the SB initially
passed Resolution No. 68-20054 on April 19, 2005,
authorizing then Mayor Eufranio Eriguel (Mayor
Eriguel) to obtain a loan from Land Bank and
incidental thereto, mortgage a 2,323.75 square
meter lot situated at the southeastern portion of the
Agoo Plaza (Plaza Lot) as collateral. To serve as
additional security, it further authorized the
assignment of a portion of its internal revenue
allotment (IRA) and the monthly income from the
proposed project in favor of Land Bank.5 The
foregoing terms were confirmed, approved and
ratified on October 4, 2005 through Resolution No.
139-2005.6 Consequently, on November 21, 2005,
Land Bank extended a ₱4,000,000.00 loan in favor
of the Municipality (First Loan),7 the proceeds of
which were used to construct ten (10) kiosks at the
northern and southern portions of the Imelda
Garden. After completion, these kiosks were rented
out.8
On March 7, 2006, the SB passed Resolution No.
58-2006,9 approving the construction of a
commercial center on the Plaza Lot as part of phase
II of the Redevelopment Plan. To finance the project,
Mayor Eriguel was again authorized to obtain a loan
from Land Bank, posting as well the same securities
as that of the First Loan. All previous
representations and warranties of Mayor Eriguel
related to the negotiation and obtention of the new
loan10were ratified on September 5, 2006 through
Resolution No. 128-2006.11 In consequence, Land
Bank granted a second loan in favor of the
Municipality on October 20, 2006 in the principal
amount of ₱28,000,000.00 (Second Loan).12
Unlike phase 1 of the Redevelopment Plan, the
construction of the commercial center at the Agoo
Plaza was vehemently objected to by some
residents of the Municipality. Led by respondent
Eduardo Cacayuran (Cacayuran), these residents
claimed that the conversion of the Agoo Plaza into a
commercial center, as funded by the proceeds from
the First and Second Loans (Subject Loans), were
"highly irregular, violative of the law, and detrimental
to public interests, and will result to wanton
desecration of the said historical and public
park."13 The foregoing was embodied in a
Manifesto,14 launched through a signature campaign
conducted by the residents and Cacayuran.
In addition, Cacayuran wrote a letter15 dated
December 8, 2006 addressed to Mayor Eriguel, Vice
Mayor Antonio Eslao (Vice Mayor Eslao), and the
members of the SB namely, Violeta Laroya-Balbin,
Jaime Boado, Jr., Rogelio De Vera, James Dy,
Crisogono Colubong, Ricardo Fronda, Josephus
Komiya, Erwina Eriguel, Felizardo Villanueva, and
Gerard Mamuyac (Implicated Officers), expressing
the growing public clamor against the conversion of
the Agoo Plaza into a commercial center. He then
requested the foregoing officers to furnish him
certified copies of various documents related to the
aforementioned conversion including, among others,
the resolutions approving the Redevelopment Plan
as well as the loan agreements for the sake of public
information and transparency.
Unable to get any response, Cacayuran, invoking
his right as a taxpayer, filed a Complaint16 against
the Implicated Officers and Land Bank, assailing,
among others, the validity of the Subject Loans on
the ground that the Plaza Lot used as collateral
thereof is property of public dominion and therefore,
beyond the commerce of man.17
Upon denial of the Motion to Dismiss dated
December 27, 2006,18 the Implicated Officers and
Land Bank filed their respective Answers.
For its part, Land Bank claimed that it is not privy to
the Implicated Officers’ acts of destroying the Agoo
Plaza. It further asserted that Cacayuran did not
have a cause of action against it since he was not
privy to any of the Subject Loans.19
During the pendency of the proceedings, the
construction of the commercial center was
completed and the said structure later became
known as the Agoo’s People Center (APC).
On May 8, 2007, the SB passed Municipal
Ordinance No. 02-2007,20 declaring the area where
the APC stood as patrimonial property of the
Municipality.
The Ruling of the RTC
In its Decision dated April 10, 2007,21 the RTC ruled
in favor of Cacayuran, declaring the nullity of the
Subject Loans.22 It found that the resolutions
approving the said loans were passed in a highly
irregular manner and thus, ultra vires; as such, the
Municipality is not bound by the same.23 Moreover, it
found that the Plaza Lot is proscribed from
collateralization given its nature as property for
public use.24
Aggrieved, Land Bank filed its Notice of Appeal on
April 23, 2007.25 On the other hand, the Implicated
Officers’ appeal was deemed abandoned and
dismissed for their failure to file an appellants’ brief
despite due notice.26 In this regard, only Land Bank’s
appeal was given due course by the CA.
Ruling of the CA
In its Decision dated March 26, 2010,27 the CA
affirmed with modification the RTC’s ruling,
excluding Vice Mayor Eslao from any personal
liability arising from the Subject Loans.28
It held, among others, that: (1) Cacayuran had locus
standi to file his complaint, considering that (a) he
was born, raised and a bona fide resident of the
Municipality; and (b) the issue at hand involved
public interest of transcendental importance;29 (2)
Resolution Nos. 68-2005, 139-2005, 58-2006, 128-
2006 and all other related resolutions (Subject
Resolutions) were invalidly passed due to the SB’s
non-compliance with certain sections of Republic Act
No. 7160, otherwise known as the "Local
Government Code of 1991" (LGC); (3) the Plaza Lot,
which served as collateral for the Subject Loans, is
property of public dominion and thus, cannot be
appropriated either by the State or by private
persons;30 and (4) the Subject Loans are ultra vires
because they were transacted without proper
authority and their collateralization constituted
improper disbursement of public funds.
Dissatisfied, Land Bank filed the instant petition.
Issues Before the Court
The following issues have been raised for the
Court’s resolution: (1) whether Cacayuran has
standing to sue; (2) whether the Subject Resolutions
were validly passed; and (3) whether the Subject
Loans are ultra vires.
The Court’s Ruling
The petition lacks merit.
A. Cacayuran’s standing to sue
Land Bank claims that Cacayuran did not have any
standing to contest the construction of the APC as it
was funded through the proceeds coming from the
Subject Loans and not from public funds. Besides,
Cacayuran was not even a party to any of the
Subject Loans and is thus, precluded from
questioning the same.
The argument is untenable.
It is hornbook principle that a taxpayer is allowed to
sue where there is a claim that public funds are
illegally disbursed, or that public money is being
deflected to any improper purpose, or that there is
wastage of public funds through the enforcement of
an invalid or unconstitutional law. A person suing as
a taxpayer, however, must show that the act
complained of directly involves the illegal
disbursement of public funds derived from taxation.
In other words, for a taxpayer’s suit to prosper, two
requisites must be met namely, (1) public funds
derived from taxation are disbursed by a political
subdivision or instrumentality and in doing so, a law
is violated or some irregularity is committed; and (2)
the petitioner is directly affected by the alleged act.31
Records reveal that the foregoing requisites are
present in the instant case.
First, although the construction of the APC would be
primarily sourced from the proceeds of the Subject
Loans, which Land Bank insists are not taxpayer’s
money, there is no denying that public funds derived
from taxation are bound to be expended as the
Municipality assigned a portion of its IRA as a
security for the foregoing loans. Needless to state,
the Municipality’s IRA, which serves as the local
government unit’s just share in the national
taxes,32 is in the nature of public funds derived from
taxation. The Court believes, however, that although
these funds may be posted as a security, its
collateralization should only be deemed effective
during the incumbency of the public officers who
approved the same, else those who succeed them
be effectively deprived of its use.
In any event, it is observed that the proceeds from
the Subject Loans had already been converted into
public funds by the Municipality’s receipt thereof.
Funds coming from private sources become
impressed with the characteristics of public funds
when they are under official custody.33
Accordingly, the first requisite has been clearly met.
Second, as a resident-taxpayer of the Municipality,
Cacayuran is directly affected by the conversion of
the Agoo Plaza which was funded by the proceeds
of the Subject Loans. It is well-settled that public
plazas are properties for public use34 and therefore,
belongs to the public dominion.35 As such, it can be
used by anybody and no one can exercise over it
the rights of a private owner.36 In this light,
Cacayuran had a direct interest in ensuring that the
Agoo Plaza would not be exploited for commercial
purposes through the APC’s construction. Moreover,
Cacayuran need not be privy to the Subject Loans in
order to proffer his objections thereto. In Mamba v.
Lara, it has been held that a taxpayer need not be a
party to the contract to challenge its validity; as long
as taxes are involved, people have a right to
question contracts entered into by the government.37
Therefore, as the above-stated requisites obtain in
this case, Cacayuran has standing to file the instant
suit.
B. Validity of the Subject Resolutions
Land Bank avers that the Subject Resolutions
provided ample authority for Mayor Eriguel to
contract the Subject Loans. It posits that Section
444(b)(1)(vi) of the LGC merely requires that the
municipal mayor be authorized by the SB concerned
and that such authorization need not be embodied in
an ordinance.38
A careful perusal of Section 444(b)(1)(vi) of the LGC
shows that while the authorization of the municipal
mayor need not be in the form of an ordinance, the
obligation which the said local executive is
authorized to enter into must be made pursuant to a
law or ordinance, viz:
Sec. 444. The Chief Executive: Powers, Duties,
Functions and Compensation. -
xxxx
(b) For efficient, effective and economical
governance the purpose of which is the general
welfare of the municipality and its inhabitants
pursuant to Section 16 of this Code, the municipal
mayor shall:
xxxx
(vi) Upon authorization by the sangguniang bayan,
represent the municipality in all its business
transactions and sign on its behalf all bonds,
contracts, and obligations, and such other
documents made pursuant to law or ordinance;
(Emphasis and underscoring supplied)
In the present case, while Mayor Eriguel’s
authorization to contract the Subject Loans was not
contained – as it need not be contained – in the form
of an ordinance, the said loans and even the
Redevelopment Plan itself were not approved
pursuant to any law or ordinance but through mere
resolutions. The distinction between ordinances and
resolutions is well-perceived. While ordinances are
laws and possess a general and permanent
character, resolutions are merely declarations of the
sentiment or opinion of a lawmaking body on a
specific matter and are temporary in nature.39 As
opposed to ordinances, "no rights can be conferred
by and be inferred from a resolution."40 In this
accord, it cannot be denied that the SB violated
Section 444(b)(1)(vi) of the LGC altogether.
Noticeably, the passage of the Subject Resolutions
was also tainted with other irregularities, such as (1)
the SB’s failure to submit the Subject Resolutions to
the Sangguniang Panlalawigan of La Union for its
review contrary to Section 56 of the LGC;41 and (2)
the lack of publication and posting in contravention
of Section 59 of the LGC.42
In fine, Land Bank cannot rely on the Subject
Resolutions as basis to validate the Subject Loans.
C. Ultra vires nature of the Subject
Loans
Neither can Land Bank claim that the Subject Loans
do not constitute ultra vires acts of the officers who
approved the same.
Generally, an ultra vires act is one committed
outside the object for which a corporation is created
as defined by the law of its organization and
therefore beyond the powers conferred upon it by
law.43 There are two (2) types of ultra vires acts. As
held in Middletown Policemen's Benevolent
Association v. Township of Middletown:44
There is a distinction between an act utterly beyond
the jurisdiction of a municipal corporation and the
irregular exercise of a basic power under the
legislative grant in matters not in themselves
jurisdictional. The former are ultra vires in the
primary sense and void; the latter, ultra vires only in
a secondary sense which does not preclude
ratification or the application of the doctrine of
estoppel in the interest of equity and essential
justice. (Emphasis and underscoring supplied)
In other words, an act which is outside of the
municipality’s jurisdiction is considered as a void
ultra vires act, while an act attended only by an
irregularity but remains within the municipality’s
power is considered as an ultra vires act subject to
ratification and/or validation. To the former belongs
municipal contracts which (a) are entered into
beyond the express, implied or inherent powers of
the local government unit; and (b) do not comply
with the substantive requirements of law e.g., when
expenditure of public funds is to be made, there
must be an actual appropriation and certificate of
availability of funds; while to the latter belongs those
which (a) are entered into by the improper
department, board, officer of agent; and (b)do not
comply with the formal requirements of a written
contract e.g., the Statute of Frauds.45
Applying these principles to the case at bar, it is
clear that the Subject Loans belong to the first class
of ultra vires acts deemed as void.
Records disclose that the said loans were executed
by the Municipality for the purpose of funding the
conversion of the Agoo Plaza into a commercial
center pursuant to the Redevelopment Plan.
However, the conversion of the said plaza is beyond
the Municipality’s jurisdiction considering the
property’s nature as one for public use and thereby,
forming part of the public dominion. Accordingly, it
cannot be the object of appropriation either by the
State or by private persons.46 Nor can it be the
subject of lease or any other contractual
undertaking.47 In Villanueva v. Castañeda,
Jr.,48 citing Espiritu v. Municipal Council of
Pozorrubio,49 the Court pronounced that:
x x x Town plazas are properties of public dominion,
to be devoted to public use and to be made
available to the public in general. They are outside
the commerce of man and cannot be disposed of or
even leased by the municipality to private
parties.1âwphi1
In this relation, Article 1409(1) of the Civil Code
provides that a contract whose purpose is contrary
to law, morals, good customs, public order or public
policy is considered void50 and as such, creates no
rights or obligations or any juridical
relations.51 Consequently, given the unlawful
purpose behind the Subject Loans which is to fund
the commercialization of the Agoo Plaza pursuant to
the Redevelopment Plan, they are considered as
ultra vires in the primary sense thus, rendering them
void and in effect, non-binding on the Municipality.
At this juncture, it is equally observed that the land
on which the Agoo Plaza is situated cannot be
converted into patrimonial property – as the SB tried
to when it passed Municipal Ordinance No. 02-
200752 – absent any express grant by the national
government.53 As public land used for public use, the
foregoing lot rightfully belongs to and is subject to
the administration and control of the Republic of the
Philippines.54 Hence, without the said grant, the
Municipality has no right to claim it as patrimonial
property.
Nevertheless, while the Subject Loans cannot bind
the Municipality for being ultra vires, the officers who
authorized the passage of the Subject Resolutions
are personally liable. Case law states that public
officials can be held personally accountable for acts
claimed to have been performed in connection with
official duties where they have acted ultra vires,55 as
in this case.
WHEREFORE, the petition is DENIED. Accordingly,
the March 26, 2010 Decision of the Court of Appeals
in CA-G.R. CV. No. 89732 is hereby AFFIRMED.
SO ORDERED.
ESTELA M. PERLAS-BERNABE
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
MARIANO C. DEL
ARTURO D. BRION
CASTILLO
Associate Justice
Associate Justice
JOSE PORTUGAL PEREZ
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision
had been reached in consultation before the case
was assigned to the writer of the opinion of the
Court's Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the
Constitution, and the Division Chairperson's
Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before
the case was assigned to the writer of the opinion of
the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice