INTRODUCTION

Imagine a small business owner securing a stall in the public market, a lifeline for their family’s income. Then, suddenly, their right to that stall is challenged because of questions about who had the proper authority to sign their lease agreement. This scenario isn’t just hypothetical; it reflects the real-world stakes in Mallari v. Alsol. This case delves into a fundamental aspect of local governance: who within a city government is empowered to enter into contracts on its behalf? At the heart of this dispute is a public market stall in Cabanatuan City and a lease contract signed by the City Mayor. The central legal question: Was the Mayor the correct official to sign this lease, and is the contract valid as a result?

LEGAL BASIS FOR MAYOR’S CONTRACTUAL AUTHORITY

Philippine law meticulously outlines the powers and responsibilities of local government officials. In this case, the Supreme Court needed to determine if the City Mayor of Cabanatuan had the authority to sign a lease contract for a public market stall. This determination hinged on interpreting the relevant Local Government Code in effect at the time the contract was signed: Batas Pambansa Blg. 337 (BP 337), the old Local Government Code.

Petitioners argued that Republic Act No. 7160 (RA 7160), the Local Government Code of 1991, should apply, and that under RA 7160 or even BP 337, the City Treasurer, not the Mayor, should have signed the lease. However, the Supreme Court clarified that the Court of Appeals correctly applied BP 337, as it was the governing law when the Lease Contract was executed in 1990, before RA 7160 took effect in 1992.

Section 171(2)(g) of BP 337 is crucial here, stating that the city mayor shall:

“(g) Represent the city in its business transactions, and sign all warrants drawn on the city treasury and all bonds, contracts and obligations of the city;”

This provision explicitly grants the city mayor the power to represent the city in business dealings and to sign contracts. The Court emphasized that BP 337 does not assign such contractual authority to the City Treasurer. The Treasurer’s role, as defined in Section 181(4) of BP 337, primarily revolves around financial administration, tax collection, and custody of city funds, not contract execution.

Furthermore, the Court addressed the petitioner’s argument about notarization. Article 1358 of the New Civil Code discusses the necessity of public documents for certain contracts, primarily for convenience. The Supreme Court reiterated that the absence of proper form does not invalidate a contract. As the Court quoted from a previous case:

“x x x Article 1358 of the New Civil Code on the necessity of a public document is only for convenience, not for validity or enforceability. Failure to follow the proper form does not invalidate a contract. Where a contract is not in the form prescribed by law, the parties can merely compel each other to observe that form, once the contract has been perfected. This is consistent with the basic principle that contracts are obligatory in whatever form they may have been entered into, provided all essential requisites are present.”

Therefore, even if Mayor Perez did not personally appear before the notary public, the Lease Contract’s validity was not automatically negated. The core of contract validity lies in the agreement itself and the authority of the signatory, not strictly in the notarization process.

CASE CHRONOLOGY AND COURT’S REASONING

The dispute began with stalls in the Cabanatuan City Public Market originally awarded to Abelardo Mallari. Upon his death, these stalls were intended for his children, Manuel Mallari and Rebecca Alsol. Manuel and his wife, Millie Mallari (petitioners), occupied Stall No. 7, while Rebecca Alsol (respondent) and her husband occupied Stall No. 8.

Here’s a breakdown of the key events and legal proceedings:

1. Pre-1986: Abelardo Mallari awarded Stalls 7 & 8.
2. July 16, 1986: Abelardo Mallari dies, intending stalls for Manuel and Rebecca.
3. July 1988: Alsols temporarily leave Stall No. 8 for a medical emergency.
4. September 1988: Alsols return to find Petitioners occupying Stall No. 8 as well, with the partition removed and their merchandise gone.
5. May 5, 1989: City Market Committee grants Stall No. 7 to Manuel and Stall No. 8 to Rebecca via Kapasiyahan Blg. 1, s-1989.
6. June 4, 1990: Rebecca Alsol and Cabanatuan City, represented by Mayor Perez, execute the Lease Contract for Stall No. 8.
7. 1990: Petitioners file Civil Case No. 789-AF in RTC Branch 29 to annul the Lease Contract, but it is dismissed for non-exhaustion of administrative remedies.
8. October 17, 1990: Rebecca Alsol files Civil Case No. 870-AF in RTC Branch 27 for recovery and possession of Stall No. 8.
9. November 8, 1995: RTC Branch 27 rules in favor of Rebecca Alsol, ordering petitioners to vacate and pay damages.
10. August 9, 2001: Court of Appeals affirms RTC decision with modifications, removing actual and exemplary damages but upholding the lease and attorney’s fees.
11. November 12, 2001: Court of Appeals denies Petitioners’ Motion for Reconsideration.
12. Present Case: Petition for Review to the Supreme Court.

The Supreme Court upheld the Court of Appeals’ decision, emphasizing the validity of the Lease Contract signed by Mayor Perez. The Court stated:

“Applying BP 337, there is nothing in the powers and functions of the city treasurer that gives the city treasurer authority to sign contracts for the city government. Instead, Paragraph (g), Section 171(2), Article One, Chapter 3 of BP 337 clearly provides that the city mayor shall represent the city in its business transactions and sign contracts of the city. Hence, Mayor Perez has the authority to sign the Lease Contract on behalf of the City Government.”

Regarding the pending appeal before the Secretary of Finance concerning the stall award, the Supreme Court deemed it premature to rule on who the ‘proper awardee’ was. However, it clarified that the Lease Contract’s validity was independent of the award appeal and remained valid unless revoked by the City Government or annulled by a proper court action.

PRACTICAL IMPLICATIONS AND KEY TAKEAWAYS

This case provides crucial guidance for businesses and individuals dealing with local government contracts, particularly lease agreements in public markets or similar city-operated facilities. It underscores the importance of understanding the specific legal framework governing local government powers at the time of contract execution. Even though RA 7160 is now in effect, this case clarifies the authority structure under the older BP 337, which may still be relevant for contracts executed before 1992 or in interpreting local ordinances based on BP 337 principles.

For current and future contracts with city governments, especially concerning leases or permits:

• Identify the Authorized Signatory: Confirm who is legally authorized to sign contracts on behalf of the city. Generally, and especially under BP 337, it is the City Mayor. While RA 7160 might have nuanced provisions, this case reinforces the Mayor’s central role.
• Check the Governing Law: Determine which Local Government Code or local ordinances are applicable to the contract in question. The date of contract execution is key in determining the governing law.
• Notarization is for Convenience, Not Absolute Validity: While notarization is good practice and provides stronger evidentiary weight, a contract’s validity primarily rests on the agreement and authorized signatures, not solely on strict notarization procedures.
• Administrative Remedies: If disputes arise regarding awards or permits, exhaust administrative remedies within the local government structure before resorting to court actions.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q: Who is authorized to sign contracts for a city government in the Philippines?

A: Generally, the City Mayor is authorized to sign contracts on behalf of the city government, particularly under Batas Pambansa Blg. 337. Republic Act No. 7160 (the current Local Government Code) also vests significant executive powers in the Mayor, likely including contractual authority, although specific ordinances and the nature of the contract can be relevant.

Q: What is Batas Pambansa Blg. 337 (BP 337)?

A: BP 337 is the old Local Government Code of the Philippines, enacted before the current Local Government Code of 1991 (RA 7160). It was in effect for contracts executed before 1992 and defines the powers and duties of local government officials during that period.

Q: Does a contract need to be notarized to be valid in the Philippines?

A: Not necessarily for validity in all cases. While notarization converts a private document into a public document and provides stronger proof, certain contracts are valid even if not notarized, as long as essential requisites like consent, object, and cause are present. Notarization is often required for specific types of contracts by law (e.g., real estate transactions) or for evidentiary purposes.

Q: What happens if the person who signed a government contract was not authorized to do so?

A: A contract signed by an unauthorized person may be considered void or voidable, depending on the circumstances and applicable laws. It is crucial to verify the signatory’s authority before entering into contracts with government entities.

Q: What are administrative remedies and why are they important?

A: Administrative remedies are procedures available within the executive branch of government (like appeals to a department secretary, as in this case) to resolve disputes before going to court. Exhausting administrative remedies is often a legal prerequisite before filing a court case, as it allows the concerned government agency to initially review and potentially resolve the issue internally.

Q: How does this case affect future disputes over public market stalls or similar leases?

A: This case reinforces the authority of City Mayors in signing lease contracts under BP 337 and highlights the importance of checking the applicable Local Government Code. While RA 7160 is now in effect, the principles regarding mayoral authority and contract validity remain relevant. Disputes should still be addressed through administrative channels initially.

ASG Law specializes in Local Government Law and Contract Law. Contact us or email hello@asglawpartners.com to schedule a consultation.