CITY OF QUEZON VS.

LEXBER INCORPORATED
Topic: Corporate Powers (Sec.22, LGC)
FACTS:
A Tri-Partite Memorandum of Agreement was drawn between petitioner City of Quezon, respondent Lexber, Inc. and the then
Municipality of Antipolo, whereby a 26,010 square meter parcel of land located in Antipolo was to be used as a garbage dumping
site by petitioner and other Metro Manila cities or municipalities authorized by the latter, for a 5-year period. Part of the agreement
was that the landowner, represented by respondent Lexber, shall be hired as the exclusive supplier of manpower, heavy equipment
and engineering services for the dumpsite and shall also have the right of first refusal for contracting such services.
This led to the drawing of the first negotiated contract between petitioner and respondent Lexber whereby the latter was engaged to
construct the necessary infrastructure at the dumpsite, designated as the Quezon City Sanitary Landfill. Construction of said
infrastructure was completed by respondent and the contract price agreed upon was accordingly paid to it by petitioner.
Meanwhile, a second negotiated contract was entered into by respondent Lexber with petitioner whereby it was agreed that
respondent Lexber shall provide maintenance services in the form of manpower, equipment and engineering operations for the
dumpsite. It was further agreed that petitioner shall pay respondent Lexber a reduced fee of fifty percent (50%) of the monthly
contract price in the event petitioner fails to dump the agreed volume of 54,000 cubic meters of garbage for any given month.
Respondent Lexber alleged that petitioner immediately commenced dumping garbage on the landfill site continuously from
December 1991 until May 1992. Thereafter, petitioner ceased to dump garbage on the said site for reasons not made known to
respondent Lexber. Consequently, even while the dumpsite remained unused, respondent Lexber claimed it was entitled to payment
for its services as stipulated in the second negotiated contract.
Respondent's counsel sent a demand letter to petitioner demanding the payment of at least 50% of its service fee under the said
contract. In view of the idle state of the dumpsite for more than a year, respondent also sought a clarification from petitioner
regarding its intention on the dumpsite project, considering the waste of equipment and manpower in the meantime, as well as its
loss of opportunity for the property.
Petitioner (this time acting through Mayor Ismael A. Mathay) denied any liability under the contract on the ground that the same was
invalid and unenforceable. According to Mayor Mathay, the subject contract was signed only by Mayor Simon and had neither the
approval nor ratification of the City Council, and it lacked the required budget appropriation.
Thus, a complaint for Breach of Contract, Specific Performance or Rescission of Contract and Damages was filed by respondent
Lexber against petitioner. Respondent Lexber averred that because petitioner stopped dumping garbage on the dumpsite, Lexber's
equipment and personnel were idle to its damage and prejudice. The lower court rendered judgment in favor of respondent. On
appeal to the Court of Appeals, the said Judgment was affirmed in toto. With the denial of its Motion for Reconsideration on January
26, 2000, petitioner now comes to this Court with the instant petition.
ISSUE: WON petitioner's refusal to honor the assailed contract is valid
HELD: Not valid
a. contract is not void ab initio (pursuant to law PD 1445
b. It is evident that petitioner dealt unfairly with respondent Lexber. By the mere pretext that the subject contract was not approved
nor ratified by the city council, petitioner refused to perform its obligations under the subject contract. Verily, the same was entered
into pursuant to law or specific statutory authority, funds therefor were initially available and allocated, and petitioner used the
sanitary landfill for several months. The present leadership cannot unilaterally decide to disregard the subject contract to the
detriment of respondent Lexber.
The mere fact that petitioner later refused to continue dumping garbage on the sanitary landfill does not necessarily prove that it did
not benefit at the expense of respondent Lexber. Whether or not garbage was actually dumped is of no moment, for respondent
Lexber's undertaking was to make available to petitioner the landfill site and to provide the manpower and machinery to maintain the
facility. Petitioner, by refusing to abide by its obligations as stipulated in the subject negotiated contract, should be held liable to
respondent Lexber in accordance with the terms of the subject contract.
Petitioner's refusal to abide by its commitments gave rise to an untenable situation wherein petitioner effectively denied the
existence and validity of the subject contract even while respondent Lexber was still bound by it. This situation is inconsistent with
the principle that obligations arising from contracts have the force of law between the contracting parties and each party is bound to
fulfill what has been expressly stipulated therein. Only respondent Lexber was bound by the contract while petitioner acted as if it
were free therefrom.
(Part of CA's decision)
The records will reveal that appellee never solicited upon the City government to utilize its properties for a landfill site, as
appellee originally conceived of devoting its property to a more viable undertaking, bamboo plantation in partnership with
foreign firm. On the other hand, it was the City government, then beset with serious garbage problem that enticed and
convinced Lexber, Inc. to offer its properties as a landfill site, with the assurance of the opportunities contained in the tripartite agreement.
Clearly, the equities of the case are with appellee Lexber, Inc. Even fair dealing alone would have required the appellant to
abide by its representations, which it did in the inception, but was later dishonored by the new administration of Mayor Mathay,
Jr. Appellee faithfully performed its undertakings set forth in the contract, upon the appellant's assurance that sufficient funds
shall come from the city's statutory contribution to the MMA. Had it not (sic) for the said assurance, Lexber, Inc. for sure, would
not have ventured into such costly business undertaking. No one in his right frame of mind would have entered into such kind

of contract and invest his fortune unless assured of the availability of funds to compensate its financial investment.
As correctly pointed out by the court a quo, appellant having taken advantage of and benefited from the appellee through the
assailed negotiated contract shall not be permitted to attack it on the ground that the contract did not bear the necessary
approval.
While the contracts were admittedly negotiated contracts, this fact was never raised by the petitioner before the trial court, Court of
Appeals, and in the instant petition. The question of the validity of the said contracts never hinged on the fact that there was no
public bidding. What is on record is that it was Mayor Simon who initiated the negotiations to convince respondent to allow the use
of its property as a dumpsite.
Public bidding may have been dispensed with, not only because "time is of the essence" but in recognition of the reality that offering
property to be used as a dumpsite is not an attractive nor lucrative option for property owners. This reality is all the more glaring in
the current situation where Metro Manila local government units are seemingly unable to cope with the disastrous lack of garbage
dumping sites. A major part of the problem is that no one wants to be the dumping ground of someone else's garbage. This problem
is compounded by recent events where tragedy has befallen scavengers and residents in a Quezon City dumpsite that should have
been closed years ago. It would no longer be prophetic to say that had Quezon City used the subject dumpsite and discontinued the
use of the Payatas dumpsite way back in 1991, tragedy therein would have been averted.
Finally, petitioner's refusal to honor the contract is not only contrary to law, but also grossly unfair to respondent Lexber. It was
petitioner that first offered and later persuaded respondent Lexber to convert the latter's property into a sanitary landfill for
petitioner's exclusive use. While the property could have been used for other more lucrative and pleasant purposes, petitioner
convinced respondent Lexber by its assurances and stipulations in the contract. In turn, respondent Lexber relied on petitioner to
abide by their contract, only to be rebuffed after petitioner had already taken initial advantage of the facilities. By virtue of the
infrastructure intended for the sanitary landfill that was erected thereon, respondent Lexber could not divert its use to other
purposes. It is but fair that respondent Lexber be compensated for the financial losses it has incurred in accordance with the
obligation of petitioner as stipulated in the second negotiated contract.