G.R. No. L-28972 October 31, 1972
CITY COUNCIL OF CEBU CITY, represented by COUNCILORS FLORENCIO S. UROT, EULOGIO E. BORRES, RONALD DUTERTE, RAYMUNDO A. CRYSTAL, BIENVENIDO A. TUDTUD, JOHN H. OSMEÑA and MARIO R. VELOSO, in their capacity as the Majority Members of the City Council of Cebu and as Citizens of the said City, plaintiffs-appellants, vs. CARLOS J. CUIZON, Mayor of the City of Cebu, JESUS E. ZABATE, Acting City Treasurer of the City of Cebu, PHILIPPINE NATIONAL BANK and TROPICAL COMMERCIAL COMPANY, INCORPORATED, defendants-appellees.

FACTS

The plaintiffs-appellants, majority members of the Cebu City Council, filed a complaint seeking to declare null and void a contract entered into by defendant Mayor Carlos J. Cuizon with defendant Tropical Commercial Co., Inc. for the purchase of road construction equipment on a deferred payment basis. The council alleged that while it initially authorized the mayor to negotiate and contract for the equipment via public bidding through Resolution No. 1648, it later passed Resolution No. 122 requesting the forwarding of pertinent bidding papers for council ratification. The mayor, however, proceeded to sign the contract with Tropical on February 5, 1966, without submitting it for council ratification and allegedly without the city treasurer’s certification of availability of funds as required by the Revised Administrative Code. Subsequent council resolutions reiterating the request for documents and later revoking the original authority were ignored.
The defendants, including the mayor, the city treasurer, the Philippine National Bank (which opened letters of credit for the transaction), and Tropical, moved to dismiss the complaint. The Court of First Instance of Cebu granted the dismissal, ruling that the plaintiff councilors lacked the legal capacity to sue. The court held that the City of Cebu, not the councilors, was the real party in interest, and the councilors could not sue in their official capacity without the city’s authorization, which was withheld by the mayor.

ISSUE

Whether the plaintiff city councilors, suing in their official capacity as the majority of the city council and as citizens and taxpayers, possess the legal capacity to institute the action to annul the contract entered into by the city mayor.

RULING

Yes. The Supreme Court reversed the dismissal order, holding that the plaintiffs-appellants possessed the requisite legal capacity to sue. The Court clarified that the suit was not by the City of Cebu against third parties, but a representative suit on behalf of the city to prevent the disbursement of city funds under contracts alleged to be illegal for lack of authority and non-compliance with legal requirements. The Court applied the principle analogous to a stockholder’s derivative suit, where a stockholder may sue for the benefit of the corporation when the latter’s management refuses to act.
More importantly, the councilors, as the legislative body exclusively empowered by the city charter to make all appropriations for city expenses, have a direct and substantial interest in ensuring that city funds are expended only pursuant to lawful contracts and appropriations. Their complaint alleged that the contract was executed without the required council ratification and the city treasurer’s certification, potentially rendering it void under the Administrative Code. As the source of the authority initially granted and later revoked, and as citizens and taxpayers, they have a sufficient interest to file the suit to protect city funds from illegal disbursement. The case was remanded for trial on the merits.