xxx CASE DIGEST xxx

Case No. 3 Philippine Rock Industries, Inc. vs. Board of Liquidators, December 15, 1989

FACTS:
Petitioner, Philippine Rock Industries, Inc. (PHILROCK) filed in the Regional Trial Court of Manila,
a complaint against the Board of Liquidators as liquidator of the defunct Reparations Commission
(REPACOM), and prayed among others: that the defective rock pulverizing machinery which it purchased
from REPACOM be replaced with a new one, or to refund its value at 31% of its contract price; and for
actual damages for losses incurred, unrealized profits, exemplary damages, and attorney’s fees plus
expenses and costs of the suit. Thereafter, the RTC rendered a decision in favor of PHILROCK where
petitioner filed an urgent Motion for Execution Pending Appeal. Solicitor General, on behalf of the State,
filed a notice of appeal and an opposition to the motion on the ground that the funds sought to be
garnished by PHILROCK are public funds, hence, exempt from attachment and execution. Nevertheless,
the RTC judge issued a Writ of Execution, an order of Garnishment served to Philippine National Bank
against the funds of REPACOM in the account of the Board of Liquidators to satisfy judgment in favor of
PHILROCK. The Board filed a petition for certiorari and prohibition in the Court of Appeals where it set
aside the RTC’s order of execution. PHILROCK filed this petition for review and contended that the
proceeds from the disposal of the assets of REPACOM are funds appropriated by law.

ISSUE:
Whether the funds of REPACOM in the account of the Board of Liquidators, a government
agency, in the PNB may be garnished to satisfy a money judgment in favor of PHILROCK?

RULING:
No. The Board is a government agency under the direct supervision of the President of the
Republic created by EO 372. Pursuant to PDs 629 and 635-A, it is tasked with the specific duty of
administering the assets and paying the liabilities of the defunct REPACOM and not created for profit or
to engage in business. Although the sale of the rock pulverizing plant is proprietary in nature, it was
merely incidental to the performance of the Board’s primary governmental function of settling the
affairs of REPACOM. Hence, its funds in the PNB are public funds exempt from garnishment.
Furthermore, being an unincorporated government agency, it possesses no juridical personality, and suit
directed against it, is a suit against its principal, the State. The state enjoys immunity from suit except
when it conducts business thru a government-owned and controlled corporation or a non-corporate
agency set up primarily for a business purpose. Contention of PHILROCK is not tenable, for an executive
order is not an appropriation law which must only emanate from the legislature, not from the Chief
Executive.
 xxx FULL TEXT xxx

Case No. 3 Philippine Rock Industries, Inc. vs. Board of Liquidators, December 15, 1989

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 84992 December 15,1989

PHILIPPINE ROCK INDUSTRIES, INC. petitioner,

vs.
BOARD OF LIQUIDATORS, as Liquidator of the defunct REPARATIONS
COMMISSION, respondents.

GRIÑO-AQUINO, J.:

In its decision dated March 21, 1987 in CA-G.R. SP No. 12017, the Court of appeals set aside the
decision and order of execution pending appeal which the Regional Trial Court of Manila issued in
favor of the Philippine Rock Industries (Philrock for brevity) in Civil Case No. 82-11394, authorizing
the immediate execution of its decision against the funds deposited in the Philippine National Bank
(PNB) of the respondent Board of Liquidators as liquidator of the defunct Reparations Commission
(REPACOM for brevity).

On July 30, 1982, PHILROCK filed in the Regional Trial Court of Manila, Branch 38, a complaint
against the Board of Liquidators for Specific Performance or Revaluation with Damages, praying that
the defective rock pulverizing machinery which it purchased from REPACOM be replaced with a new
one in good and operable condition according to the specifications of their contract, or, in the
alternative, to refund the value of the defective rock pulverizing machinery at 31 % of its contract
price. PHILROCK also prayed for actual damages of P 5,000 per month for losses it allegedly
incurred due to the increased expenses of maintaining the plant, P 4,000 per day as unrealized
profits, exemplary damages, attorney fees of P 50,000, plus expenses and costs of the suit.

The Board of Liquidators, in its Answer with Counterclaim, alleged that REPACOM effected
complete delivery of the machinery and equipment to PHILROCK but no demand was made
regarding any hidden defect; that the machinery and equipment were inspected by reputable
companies pursuant to the Reparations Law, and the performance of the plant was reported to be
satisfactory at the time of delivery to PHILROCK; that PHILROCK failed to pay the first installment of
the equipment but a repossession was deferred, and the contractor/supplier was required to make
the necessary repairs; that the defect was attributed to PHILROCK's improper use of the machinery;
and that PHILROCK is now in estoppel and guilty of laches for not calling REPACOM's attention to
the alleged defects within the equipment's warranty period. In its counterclaim, the Board demanded
payment by PHILROCK of the first ten (10) amortizations in the sum of P 284,242, expenses of
litigation, moral and exemplary damages and costs (pp. 62-63, Rollo).
On April 23, 1987, the trial court rendered a decision in favor of PHILROCK and ordered REPACOM
and the Board of Liquidators-

1. To reimburse Plaintiff Philrock for the expenses it had invested and incurred in
connection with its purchase of the said rock pulverizing plant from REPACOM in the
total amount of P l02,837.66;

2. To pay Plaintiff Philrock compensatory damages for unrealized profits from May,
1966 and up to December 31, 1983 in the amount of P 33,896,844.47;

3. To pay Plaintiff Philrock the amount of P 671,925.32 as reimbursement for the

expenses incurred in storage and maintenance of the rock pulverizing plant at
Philrock's plant site from June 1, 1966 up to December 31, 1982;

4. To pay Plaintiff Philrock exemplary damages of P 200,000.00;

5. To pay Plaintiff Philrock's (sic) Attorney's fee of P 50,000.00;

6. To pay the costs of this suit. (p. 64, Rollo.)

On May 5, 1987, PHILROCK filed an urgent motion for execution pending appeal (p. 64, Rollo).

On May 14, 1987, the Solicitor General, on behalf of the State, filed a notice of appeal and an
opposition to the "Motion for Execution Pending Appeal" on the ground that the funds sought to be
garnished by PHILROCK are public funds, hence, exempt from attachment and execution (p. 66,
Rollo).

On May 19, 1987, Judge Natividad Adduru-Santillan issued a Writ of Execution. An order of
Garnishment was served to PNB against the funds of REPACOM in the account of the Board of
Liquidators to satisfy the judgment of P 34,894,607.45 in favor of PHILROCK (p. 68, Rollo).

On May 25, 1987, the Board filed a petition for certiorari and prohibition in the Court of Appeals.

On March 21, 1988, the Court of Appeals set aside the trial court's order of execution. It held that:

... the funds deposited by the Board of Liquidators in the Philippine National Bank
may not be garnished to satisfy a money judgment against the petitioner as these
funds are public funds. (p. 7, Rollo.)

PHILROCK filed this petition for review.

The issue raised in the petition is whether the funds of REPACOM in the account of the Board of
Liquidators in the Philippine National Bank may be garnished to satisfy a money judgment against
the BOARD.

PHILROCK relies on Executive Order No. 629, Series of 1980, which abolished REPACOM effective
December 31, 1980, and authorized the Board of Liquidators to undertake the liquidation of the
remaining assets and outstanding liabilities of REPACOM. Executive Order 635-A, amplifying the
said authority of the Board, expressly decreed:
 3. Subject to the provisions of existing laws and with the approval of the President of
the Philippines, the Board of Liquidators shall sell, lease, transfer, assign or
otherwise dispose of the assets of the REPACOM and from the proceeds thereof
pay, in accordance with the priorities established by law, all outstanding obligations
of the REPACOM including the operational expenses of the REPACOM Residual
Force. (Annex E, p. 32, Rollo.)

PHILROCK contends that the proceeds from the disposal of the assets of REPACOM are "funds
appropriated by law" for the specific purpose of paying the liabilities of REPACOM preparatory to its
permanent closure (pp. 15-16, Rollo).

The argument is not well taken. The Board of Liquidators is a government agency under the direct
supervision of the President of the Republic created by EO 372, dated November 24, 1950 (p. 39,
Rollo). Pursuant to PDs Nos. 629 and 635-A, it is tasked with the specific duty of administering the
assets and paying the liabilities of the defunct REPACOM. It was not created for profit or to engage
in business. Hence, when a suit is directed against said unincorporated government agency which,
because it is unincorporated, possesses no juridical personality of its own, the suit is against the
agency's principal, i.e., the State.

On the other hand, if the Government conducts a business through either a government-owned and
controlled corporation or a non- corporate agency set up primarily for a business purpose, the entity
enjoys no immunity from suit even if there is no express grant of authority to "sue or be sued."
Having a juridical personality separate and distinct from the government, the funds of such
government-owned and controlled corporation and non-corporate agency, although considered
public in character, are not exempt from garnishment. This doctrine was applied to suits filed against
the Philippine Virginia Tobacco Administration (PNB vs. Pabalan, et al., 83 SCRA 595); the National
Shipyard & Steel Corporation (NASSCO vs. CIR, 118 Phil. 782); the Manila Hotel Company (Manila
Hotel Employees Asso. vs. Manila Hotel Co., 73 Phil. 374); and the People's Homesite and Housing
Corporation (PNB vs. CIR, 81 SCRA 314).

The sale of the rock pulverizing plant to PHILROCK by the Board of liquidators, although proprietary
in nature was merely incidental to the performance of the Board's primary and governmental function
of settling and closing the affairs of the REPACOM. Hence, its funds in the Philippine National Bank
are public funds which are exempt from garnishment (p. 75, Rollo). This Court so ruled in
Commission of public Highways vs. San Diego (31 SCRA 616):

All government funds deposited with PNB by any agency or instrumentality of the
government, whether by way of general or special deposit, remain government
funds, since such government agencies or instrumentalities do not have any non-
public or private funds of their own. They are not subject to garnishment or levy; even
assuming that the funds become commingled with other funds of the bank, this does
not remove the character of the fund as a credit representing government funds thus
deposited. (Emphasis supplied.)

It should be mentioned that when the State consents to be sued, it does not necessarily concede its
liability. By consenting to be sued, it waives its immunity from suit, but it does not waive its lawful
defenses to the action (Meritt vs. Government, 31 SCRA 311, 318). Even when the government has
been adjudged liable in a suit to which it has consented, it does not necessarily follow that the
judgment can be enforced by execution against its hands for, as we held in Republic vs. Villasor, 54
SCRA 84, every disbursement of public funds must be covered by a corresponding appropriation
passed by the Legislature:
 ... where the State gives its consent to be sued by private parties either by general or
special law, it may limit claimant's action' only up to the completion of proceedings
anterior to the state of execution' and that the powers of the Courts ends when the
judgment is rendered, since government funds and properties may not be seized
under writs of execution or garnishment to satisfy such judgments. ... Disbursements
of public funds must be covered by the corresponding appropriation as required by
law. The functions and public services rendered by the State cannot be allowed to be
paralyzed or disrupted by the diversion of public funds from their legitimate and
specific objects, as appropriated by law. (p. 87.)

A judgment against the State, in a case where it consents to be sued, simply implies that the
Legislature will recognize the judgment as final and make provision for its satisfaction. The decision
of this Court in Republic vs. Palacio, 23 SCRA 899 is relevant:

The pump irrigation trust fund, deposited with the Philippine National Bank in the
account of the Irrigation Service Unit, may not be garnished to satisfy a money-
judgment against the latter. It needs no stressing that to allow the levying under
execution of the Irrigation Service funds would amount to diverting them from the
purpose originally contemplated by the P.I.-U.S. Bilateral Agreement, and would
amount to a disbursement without any proper appropriation as required by law.

Even though the rule as to immunity of a state from suit is relaxed, the power of the
courts ends when the judgment is rendered. Although the liability of the state has
been judicially ascertained, the state is at liberty to determine for itself whether to pay
the judgment or not, and execution can not issue on a judgment against the state.
Such statutes do not authorize a seizure of state property to satisfy judgments
recovered, and only convey an implication that the legislature will recognize such
judgment as final and make provision for the satisfaction thereof (49 Am. Jur., Sec.
104, pp. 312-320).

Executive Order 635 A. s. 1980, is not an appropriation law. Appropriations of public funds must
emanate from the legislature, not from the Chief Executive (Secs. 2-4, Article VI, Constitution).

The Court of appeals correctly annulled and set aside the writs of execution and garnishment issued
by the trial court against the funds of the Board of Liquidators in the PNB. Funds should be
appropriated by the legislature for the specific purpose of satisfying the judgment in favor of
PHILROCK before said judgment may be paid.

WHEREFORE, the decision of the Court of appeals is affirmed in toto. The order of garnishment
served by the Sheriff of Manila against REPACOM's funds in the account of the Board of Liquidators
in the Philippine National Bank, is hereby declared null and void. No costs.

SO ORDERED.

Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

 xxx CASE DIGEST xxx

Case No. 11 Torio vs. Fontanilla, October 23, 1978

FACTS:
On October 21, 1958, the Municipal Council of Malasiqui, Pangasinan passed two resolutions:
Resolution No. 159 for the management of 1959 town fiesta celebration; and Resolution No. 182
creating the 1959 Malasiqui Town Fiesta Executive Committee. In turn, the committee organized a
subcommittee on entertainment and stage. The Municipal Council appropriated the amount of P100 for
the construction of two stages, one for zarzuela and another for cancionan. On January 22, 1959, while
the zarzuela was being held, the stage collapsed pinning Vicente Fonatanilla and eventually died.
Fontanilla’s heirs filed a complaint for damages with the Court of First Instance in Manila against
defendants Muncipality of Malasiqui, its Municipal Council, and all the individual members of such
Council. Defendant municipality argued that it performs sovereign functions and holding a town fiesta is
an exercise of its governmental functions from which no liability arises. Defendant councilors
maintained that they merely acted as agents of the municipality in carrying out the ordinance for the
management of the town fiesta and are likewise cannot be held liable.

ISSUE:
1. Whether or not the celebration of a town fiesta authorized by a municipal council, a
governmental or a corporate function of a municipality; 2. Whether or not the councilors are to be held
liable for the death of Vicente Fontanilla.

RULING:
1. The holding of the town fiesta in 1959 by the municipality was an exercise of a private,
proprietary, or corporate function and in essence, an act for the special benefit of the community and
not for the general welfare of the public. Section 2282 of the Revised Administrative Code simply gives
authority to municipalities to celebrate a yearly fiesta but it does not impose upon it a duty to observe
one; 2. Under the doctrine of respondeat superior, the municipality is held liable for damages for the
death of Fontanilla. Since it is established that the municipality was acting a proprietary function, the
legal consequence thereof is that the Municipality stands on the same footing as an ordinary private
corporation with the municipal council acting as its board of directors. It is an elementary principle that
a corporation has a personality, separate and distinct from its officers, directors, or persons composing
it and the latter are not as a rule co-responsible in an action for damages for tort or negligence unless
there is a showing of bad faith or gross or wanton negligence on their part. The records do not show
that municipal councilors directly participated in the defective construction of the zarzuela stage or that
they personally permitted spectators to go up the platform. Thus, they are absolved from liability.
 xxx FULL TEXT xxx

Case No. 11 Torio vs. Fontanilla, October 23, 1978

FIRST DIVISION

[G.R. No. L-29993. October 23, 1978.]

LAUDENCIO TORIO, GUILLERMO EVANGELISTA, MANUEL DE GUZMAN, ALFONSO R. MAGSANOC,

JESUS MACARANAS, MAXIMO MANANGAN, FIDEL MONTEMAYOR, MELCHOR VIRAY, RAMON
TULAGAN, all Members of the Municipal Council of Malasiqui in 1959, Malasiqui,
Pangasinan, Petitioners, v. ROSALINA, ANGELINA, LEONARDO, EDUARDO, ARTEMIO, ANGELITA,
ANITA, ERNESTO, NORMA, VIRGINIA, REMEDIOS and ROBERTO, all surnamed FONTANILLA, and
THE HONORABLE COURT OF APPEALS, Respondents.

[G.R. No. L-30183. October 23, 1978.]

MUNICIPALITY OF MALASIQUI, Petitioner, v. ROSALINA, ANGELINA, LEONARDO, EDUARDO,

ARTEMIO, ANGELITA, ANITA, ERNESTO, NORMA, VIRGINIA, REMEDIOS and ROBERTO, all
surnamed FONTANILLA, and the Honorable COURT OF APPEALS, Respondents.

Julian M. Armas, Assistant Provincial Fiscal, for Petitioners.

Isidoro L. Padilla for Respondents.

SYNOPSIS

Pursuant to Section 2282 of the Revised Administrative Code, the Municipal Council of Malasiqui,
Pangasinan, resolved to celebrate the town fiesta and created a "Town Fiesta Executive Committee" to
undertake, manage and supervise the festivities. The Executive Committee created a sub-committee on
"Entertainment and Stage", which constructed two stages, one for the "zarzuela" and another for
"cancionan." During the program people went up the "zarzuela" stage and before the play was over the
stage collapsed, pinning underneath one of the performers, resulting in his death.

The heirs of the deceased sued the municipality and the councilors for damages. The municipality invoked
inter alia the principal defense that the holding of a town fiesta was an exercise of its governmental function
from which no liability can arise to answer for the negligence of any of its agents. The councilors maintained
that they merely acted as agents of the municipality in carrying out the municipal ordinance.

The trial court dismissed the complaint of a finding that the petitioners exercised due diligence and care of a
good father of a family in selecting a competent man to construct the stage and if it collapsed it was due to
forces beyond the control of the committee on entertainment and stage.

The Court of Appeals reversed the decision stating that petitioners were guilty of negligence when they
failed to take the necessary measures to prevent the mounting of onlookers on the stage resulting in the
collapse thereof.

The Supreme Court held that the holding of a town fiesta though not for profit is a proprietary function for
which a municipality is liable for damages to third persons ex contractu or ex delicto; that under the
principle of respondeat superior the principal is liable for the negligence of its agents acting within the scope
of their assigned tasks; and that the municipal councilors have a personally distinct and separate from the
municipality, hence, as a rule they are not co-responsible in an action for damages for tort or negligence
unless they acted in bad faith or have directly participated in the commission of the wrongful act.

Appealed decision affirmed with modification.

SYLLABUS

1. POLITICAL LAW; MUNICIPAL CORPORATIONS; MUNICIPALITIES MAY SUE AND BE SUED. — Under
Philippine laws municipalities are political bodies corporate and as such are endowed with the faculties of
municipal corporations to be exercised by and through their respective municipal governments in conformity
with law, and in their proper corporate name, they may inter alia, sue and be sued, and contract and be
contracted with.

2. ID.; ID.; dual CHARACTER OF MUNICIPALITIES. — Municipal corporations exist in a dual capacity and
their powers are twofold in character — public, governmental or political on the one hand, corporate private,
or proprietary on the other hand. Governmental powers are those exercised by the corporation in
administering the powers of the state and promoting the public welfare and they include the legislative,
judicial, public, and political. Municipal powers on the other hand are exercised for the special benefit and
advantage of the community and include those which are ministerial, private and corporate.

3. ID.; ID.; ID.; TEST; RULE IN DETERMINING NATURE OF FUNCTION PERFORMED. — A municipal
corporation proper has a public character as regards the state at large insofar as it is its agent in
government, and private insofar as it is to promote local necessities and conveniences for its own
community (McQuillin on Municipal Corporations). Stated differently, "Municipal corporations exist in a dual
capacity and their functions are twofold. In one way they exercise the right springing from sovereignty, and
while in the performance of the duties pertaining thereto, their acts are political and governmental. Their
officers and agents in such capacity, though elected or appointed by them, are nevertheless public
functionaries performing a public service, and as such they are officers, agents, and servants of the state. In
the other capacity the municipalities exercise a private, proprietary or corporate right, arising from their
existence as legal persons and not as public agencies. Their officers and agents in the performance of such
functions act in behalf of the municipalities in their corporate or individual capacity, and not for the state or
sovereign power." (City of Kokomo v. Boy, 112 NE 994).

4. ID.; ID.; ID.; LIABILITY; RULE ON LIABILITY OF MUNICIPAL CORPORATIONS. — If the injury is caused in
the course of the performance of a governmental function or duty no recovery, as a rule, can be had from
the municipality unless there is an existing statute on the matter, nor from its officers, so long as they
performed their duties honestly and in good faith or that they did not act wantonly and maliciously. With
respect to proprietary functions, the settled rule is that a municipal corporation can be held liable to third
persons ex contractu or ex delicto. The rule of law is a general one, that the superior or employer must
answer civilly for the negligence or want of skill of his agent or servant in the course or line of his
employment, by which another, who is free from contributory fault, is injured. Municipal corporations under
the conditions herein stated, fall within the operation of this rule of law, and are liable, accordingly, to civil
actions for damages when the requisite elements of liability coexist (Dillion on Municipal Corporations).
There can be no hard and fast rule for purposes of determining the true nature of an undertaking or function
of a municipality; the surrounding circumstances of a particular case are to be considered and will be
decisive. The basic element, however beneficial to the public the undertaking may be, is that it is
governmental in essence, otherwise the function becomes private or proprietary in character.

5. ID.; ID.; ID.; SECTION 2282, REVISED ADMINISTRATIVE CODE MERELY AUTHORITATIVE; HOLDING
FIESTAS, PROPRIETARY IN CHARACTER. — Section 2282 of the Revised Administrative Code simply gives
authority to the municipality to celebrate a yearly fiesta but it does not impose upon it a duty to observe
one. Holding a fiesta even if the purpose is to commemorate a religious or historical event of the town is in
essence an act for the special benefit of the community and not for the general welfare of the public
performed in pursuance of a policy of the state. It is an exercise of a private proprietary function. The mere
fact that the celebration was not to secure profit or gain but merely to provide entertainment to the town
inhabitants is not a conclusive test that the same is governmental in character.

6. ID.; ID.; RESPONDEAT SUPERIOR; MUNICIPALITY LIABLE FOR DAMAGES COMMITTED BY ITS AGENTS. —
The municipality cannot evade responsibility for the death of a stage performer arising from faulty
construction of the stage by the chairman of the entertainment and stage committee appointed by the
municipal council, in connection with a town fiesta, because under the doctrine of respondeat superior, a
municipality is responsible or liable for the negligence of its agent acting within his assigned tasks.

7. ID.; ID.; ID.; LIABILITY RESTS ON NEGLIGENCE. — The failure of the municipality or its agents despite
the necessary means within its command, to prevent the onlookers from mounting on the stage resulting in
its collapse and death of one of the performers constitutes negligence from which liability arises. Liability
rests on negligence which is "the want of such care as a person of ordinary prudence would exercise under
the circumstances of the case." cralaw virt ua1aw li bra ry

8. ID.; ID.; ID.; LIABILITY OF MUNICIPALITY TO "INVITEE." — Where a municipality, in connection with the
celebration of a town fiesta, accepted the donation of the services of an "extravaganza troupe" and
constructed precisely a "zarzuela stage" for the purpose, the participants in the stage show had the right to
expect that the municipality would build or put up a stage or platform strong enough to sustain the weight
or burden of the performance and take the necessary measures to insure the personal safety of the
participants.

9. ID.; ID.; ID.; ARTICLE 27 OF THE NEW CIVIL CODE, NOT APPLICABLE. — Article 27 of the New Civil Code
which allows action for damages against a public servant or employee who refuses or neglect without just
cause to perform his duties covers a case of non-feasance or non-performance by a public officer of his
official duty; it does not apply to a case of negligence or misfeasance in carrying out an official duty.

10. ID.; ID.; ID.; MUNICIPAL COUNCILORS NOT LIABLE FOR DAMAGES ARISING FROM THE WRONGFUL
ACT OF THE MUNICIPAL OFFICIALS UNLESS THEY PARTICIPATED IN THE COMMISSION THEREOF. — The
celebration of a town fiesta by a municipality is not a governmental function. The legal consequence is that
the municipality stands on the same footing as an ordinary private corporation with the municipal council
acting as its board of directors. It is an elementary principle that a corporation has a personality separate
and distinct from its officers, directors, or persons composing it and the latter are not as a rule co-
responsible in an action for damages for tort or negligence (culpa acquiliana) committed by the corporation’s
employees or agents unless there is a showing of bad faith or gross or wanton negligence on their part.

DECISION

MUÑOZ PALMA, J.:

These Petitions for review present the issue of whether or not the celebration of a town fiesta authorized by
a municipal council under Sec. 2282 of the Municipal Law as embodied in the Revised Administrative Code is
a governmental or a corporate or proprietary function of the municipality.

A resolution of that issue will lead to another, viz: the civil liability for damages of the Municipality of
Malasiqui, and the members of the Municipal Council of Malasiqui, province of Pangasinan, for a death which
occurred during the celebration of the town fiesta on January 22, 1959, and which was attributed to the
negligence of the municipality and its council members. cralawn ad

The following facts are not in dispute: chan rob1e s virtual 1aw lib rary

On October 21, 1958, the Municipal Council of Malasiqui, Pangasinan, passed Resolution No. 159 whereby "it
resolved to manage the 1959 Malasiqui town fiesta celebration on January 21, 22, and 23, 1959." Resolution
No. 182 was also passed creating the "1959 Malasiqui Town Fiesta Executive Committee" which in turn
organized a subcommittee on entertainment and stage, with Jose Macaraeg as Chairman. The council
appropriated the amount of P100.00 for the construction of 2 stages, one for the "zarzuela" and another for
the "cancionan." Jose Macaraeg supervised the construction of the stage and as constructed the stage for
the "zarzuela" was "5-1/2 meters by 8 meters in size, had a wooden floor high at the rear and was
supported by 24 bamboo posts — 4 in a row in front, 4 in the rear and 5 on each side — with bamboo
braces." 1

The "zarzuela" entitled "Midas Extravanganza" was donated by an association of Malasiqui employees of the
Manila Railroad Company in Caloocan, Rizal. The troupe arrived in the evening of January 22 for the
performance and one of the members of the group was Vicente Fontanilla. The program started at about
10:15 o’clock that evening with some speeches, and many persons went up the stage. The "zarzuela" then
began but before the dramatic part of the play was reached, the stage collapsed and Vicente Fontanilla who
was at the rear of the stage was pinned underneath. Fontanilla was taken to the San Carlos General Hospital
where he died in the afternoon of the following day.

The heirs of Vicente Fontanilla filed a complaint with the Court of First Instance of Manila on September 11,
1959 to recover damages. Named party-defendants were the Municipality of Malasiqui, the Municipal Council
of Malasiqui and all the individual members of the Municipal Council in 1959.

Answering the complaint defendant municipality invoked inter alia the principal defense that as a legally and
duly organized public corporation it performs sovereign functions and the holding of a town fiesta was an
exercise of its governmental functions from which no liability can arise to answer for the negligence of any
of its agents.

The defendant councilors in turn maintained that they merely acted as agents of the municipality in carrying
out the municipal ordinance providing for the management of the town fiesta celebration and as such they
are likewise not liable for damages as the undertaking was not one for profit; furthermore. they had
exercised due care and diligence in implementing the municipal ordinance. 2

After trial, the Presiding Judge, Hon. Gregorio T. Lantin, narrowed the issue to whether or not the
defendants exercised due diligence in the construction of the stage. From his findings he arrived at the
conclusion that the Executive Committee appointed by the municipal council had exercised due diligence and
care like a good father of the family in selecting a competent man to construct a stage strong enough for the
occasion and that if it collapsed that was due to forces beyond the control of the committee on
entertainment, consequently, the defendants were not liable for damages for the death of Vicente Fontanilla.
The complaint was accordingly dismissed in a decision dated July 10, 1962. 3

The Fontanillas appealed to the Court of Appeals. In a decision promulgated on October 31, 1968, the Court
of Appeals through its Fourth Division composed at the time of Justices Salvador V. Esguerra, Nicasio A.
Yatco and Eulogio S. Serrano reversed the trial court’s decision and ordered all the defendants-appellees to
pay jointly and severally the heirs of Vicente Fontanilla the sums of P12,000.00 by way of moral and actual
damages: P1,200.00 as attorney’s fees; and the costs. 4

The case is now before Us on various assignments of errors all of which center on the proposition stated at
the opening sentence of this Opinion and which We repeat: chanrob les vi rtual lawlib rary

Is the celebration of a town fiesta an undertaking in the exercise of a municipality’s governmental or public
function or is it of a private or proprietary character?

1. Under Philippine laws municipalities are political bodies corporate and as such as endowed with the
faculties of municipal corporations to be exercised by and through their respective municipal governments in
conformity with law, and in their proper corporate name, they may, inter alia, sue and be sued, and contract
and be contracted with. 5

The powers of a municipality are twofold in character — public, governmental, or political on the one hand,
and corporate, private, or proprietary on the other. Governmental powers are those exercised by the
corporation in administering the powers of the state and promoting the public welfare and they include the
legislative, judicial, public, and political, Municipal powers on the other hand are exercised for the special
benefit and advantage of the community and include those which are ministerial, private and corporate. 6

As to when a certain activity is governmental and when proprietary or private, that is generally a difficult
matter to determine. The evolution of the municipal law in American Jurisprudence, for instance, has shown
that none of the tests which have evolved and are stated in textbooks have set down a conclusive principle
or rule, so that each case will have to be determined on the basis of attending circumstances.

In McQuillin on Municipal Corporations, the rule is stated thus: "A municipal corporation proper has . . . a
public character as regards the state at large insofar as it is its agent in government, and private (so-cases)
insofar as it is to promote local necessities and conveniences for its own community." 7

Another statement of the test is given in City of Kokomo v. Loy, decided by the Supreme Court of Indiana in
1916, thus: jgc:chanrob les.com .ph
"Municipal corporations exist in a dual capacity, and their functions are twofold. In one they exercise the
right springing from sovereignty, and while in the performance of the duties pertaining thereto, their acts
are political and governmental. Their officers and agents in such capacity, though elected or appointed by
them, are nevertheless public functionaries performing a public service, and as such they are officers,
agents, and servants of the state. In the other capacity the municipalities exercise a private, proprietary or
corporate right, arising from their existence as legal persons and not as public agencies. Their officers and
agents in the performance of such functions act in behalf of the municipalities in their corporate or individual
capacity, and not for the state or sovereign power." (112 N.E., 994-995) chanroble s law li bra ry

In the early Philippine case of Mendoza v. de Leon, 1916, the Supreme Court, through Justice Grant T.
Trent, relying mainly on American Jurisprudence classified certain activities of the municipality as
governmental, e.g.: regulations against fire, disease, preservation of public peace, maintenance of municipal
prisons, establishment of schools, post-offices, etc. while the following are corporate or proprietary in
character, viz: municipal waterwork, slaughterhouses, markets, stables, bathing establishments, wharves,
ferries, and fisheries. 8 Maintenance of parks, golf courses, cemeteries and airports among others, are also
recognized as municipal or city activities of a proprietary character. 9

2. This distinction of powers becomes important for purposes of determining the liability of the municipality
for the acts of its agents which result in an injury to third persons.

If the injury is caused in the course of the performance of a governmental function or duty no recovery, as a
rule, can be had from the municipality unless there is an existing statute on the matter, 10 nor from its
officers, so long as they performed their duties honestly and in good faith or that they did not act wantonly
and maliciously. 11 In Palafox, Et. Al. v. Province of Ilocos Norte, Et Al., 1958, a truck driver employed by
the provincial government of Ilocos Norte ran over Proceto Palafox in the course of his work at the
construction of a road. The Supreme Court in affirming the trial court’s dismissal of the complaint for
damages held that the province could not be made liable because its employee was in the performance of a
governmental function — the construction and maintenance of roads — and however tragic and deplorable it
may be, the death of Palafox imposed on the province no duty to pay monetary consideration. 12

With respect to proprietary functions, the settled rule is that a municipal corporation can be held liable to
third persons ex contractu 13 or ex delicto. 14

"Municipal corporations are subject to be sued upon contracts and in tort. . . .

x x x

"The rule of law is a general one, that the superior or employer must answer civilly for the negligence or
want of skill of its agent or servant in the course or line of his employment, by which another, who is free
from contributory fault, is injured. Municipal corporations under the conditions herein stated, fall within the
operation of this rule of law, and are liable, accordingly, to civil actions for damages when the requisite
elements of liability coexist . . ." (Dillon on Municipal Corporations, 5th ed. Secs, 1610, 1647, cited in
Mendoza v. de Leon, supra, 514)

3. Coming to the case before Us, and applying the general tests given above, We hold that the holding of
the town fiesta in 1959 by the municipality of Malasiqui Pangasinan, was an exercise of a private or
proprietary function of the municipality.

Section 2282 of the Chapter on Municipal Law of the Revised Administrative Code provides: jgc: chan robles .com.p h

"Section 2282. Celebration of fiesta. — A fiesta may be held in each municipality not oftener than once a
year upon a date fixed by the municipal council. A fiesta shall not be held upon any other date than that
lawfully fixed therefor, except when, for weighty reasons, such as typhoons, inundations, earthquakes,
epidemics, or other public calamities, the fiesta cannot be held in the date fixed, in which case it may be
held at a later date in the same year, by resolution of the council."cralaw virtua1aw l ibra ry

This provision simply gives authority to the municipality to accelebrate a yearly fiesta but it does not impose
upon it a duty to observe one. Holding a fiesta even if the purpose is to commemorate a religious or
historical event of the town is in essence an act for the special benefit of the community and not for the
general welfare of the public performed in pursuance of a policy of the state. The mere fact that the
celebration, as claimed, was not to secure profit or gain but merely to provide entertainment to the town
inhabitants is not a conclusive test. For instance, the maintenance of parks is not a source of income for the
town, nonetheless it is private undertaking as distinguished from the maintenance of public schools, jails,
and the like which are for public service. chan roble s.com.p h : virt ual law li bra ry

As stated earlier, there can be no hard and fast rule for purposes of determining the true nature of an
undertaking or function of a municipality; the surrounding circumstances of a particular case are to be
considered and will be decisive. The basic element, however beneficial to the public the undertaking may be,
is that it is governmental in essence, otherwise, the function becomes private or proprietary in character.
Easily, no governmental or public policy of the state is involved in the celebration of a town fiesta. 15

4. It follows that under the doctrine of respondent superior, petitioner-municipality is to be held liable for
damages for the death of Vicente Fontanilla if that was attributable to the negligence of the municipality’s
officers, employees, or agents.

"Art. 2176, Civil Code: Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. . . ." cralaw virtua1aw lib ra ry

"Art. 2180. Civil Code: The obligation imposed by article 2176 is demandable not only for one’s own acts or
omission, but also for those of persons for whom one is responsible . . ." cralaw vi rtua 1aw lib rary

On this point, the Court of Appeals found and held that there was negligence.

The trial court gave credence to the testimony of Angel Novado, a witness of the defendants (now
petitioners), that a member of the "extravaganza troupe" removed two principal braces located on the front
portion of the stage and used them to hang the screen or "telon", and that when many people went up the
stage the latter collapsed. This testimony was not believed however by respondent appellate court, and
rightly so. According to said defendants, those two braces were "mother" or "principal" braces located semi-
diagonally from the front ends of the stage to the front posts of the ticket booth located at the rear of the
stage and were fastened with a bamboo twine. 16 That being the case, it becomes incredible that any
person in his right mind would remove those principal braces and leave the front portion of the stage
practically unsupported. Moreover, if that did happen, there was indeed negligence as there was lack of
supervision over the use of the stage to prevent such an occurrence.

At any rate, the guitarist who was pointed to by Novado as the person who removed the two bamboo braces
denied having done so. The Court of Appeals said. "Amor by himself alone could not have removed the two
braces which must be about ten meters long and fastened them on top of the stage for the curtain. The
stage was only five and a half meters wide Surely, it would be impractical and unwieldy to use a ten meter
bamboo pole, much more two poles, for the stage curtain." 17

The appellate court also found that the stage was not strong enough considering that only P100.00 was
appropriate for the construction of two stages and while the floor of the "zarzuela" stage was of wooden
planks, the posts and braces used were of bamboo material. We likewise observe that although the stage
was described by the petitioners as being supported by "24" posts, nevertheless there were only 4 in front,
4 at the rear, and 5 on each side. Where were the rest? c hanro bl es.com:c ralaw:red

The Court of Appeals thus concluded: jgc:cha nro bles.c om.ph

"The court a quo itself attributed the collapse of the stage to the great number of onlookers who mounted
the stage. The municipality and/or its agents had the necessary means within its command to prevent such
an occurrence. Having failed to take the necessary steps to maintain the safety of the stage for the use of
the participants in the stage presentation prepared in connection with the celebration of the town fiesta,
particularly, in preventing nonparticipants or spectators from mounting and accumulating on the stage which
was not constructed to meet the additional weight, the defendants-appellees were negligent and are liable
for the death of Vicente Fontanilla." (pp. 30-31, rollo, L-29993)

The findings of the respondent appellate court that the facts as presented to it establish negligence as a
matter of law and that the Municipality failed to exercise the due diligence of a good father of the family, will
not disturbed by Us in the absence of a clear showing of an abuse of discretion or a gross misapprehension
of facts. 18

Liability rests on negligence which is "the want of such care as a person of ordinary prudence would exercise
under the circumstances of the case." 19
Thus, private respondents argue that the "Midas Extravaganza" which was to be performed during the town
fiesta was a "donation" offered by an association of Malasiqui employees of the Manila Railroad Co. in
Caloocan, and that when the Municipality of Malasiqui accepted the donation of services and constructed
precisely a "zarzuela stage" for the purpose, the participants in the stage show had the right to expect that
the Municipality through its "Committee on entertainment and stage" would build or put up a stage or
platform strong enough to sustain the weight or burden of the performance and take the necessary
measures to insure the personal safety of the participants. 20 We agree.

Quite relevant to that argument is the American case of Sanders v. City of Long Beach, 1942, which was an
action against the city for injuries sustained from a fall when plaintiff was descending the steps of the city
auditorium. The city was conducting a "Know your City Week" and one of the features was the showing of a
motion picture in the city auditorium to which the general public was invited and plaintiff Sanders was one of
those who attended. In sustaining the award for damages in favor of plaintiff, the District Court of Appeal,
Second district, California, held inter alia that the "Know your City Week" was a "proprietary activity" and
not a "governmental one" of the city, that defendant owed to plaintiff, an "invitee", the duty of exercising
ordinary care for her safety, and plaintiff was entitled to assume that she would not be exposed to a danger
(which in this case consisted of lack of sufficient illumination of the premises) that would come to her
through a violation of defendant’s duty. 21

We can say that the deceased Vicente Fontanilla was similarly situated as Sanders. The Municipality of
Malasiqui resolved to celebrate the town fiesta in January of 1959; it created a committee in charge of the
entertainment and stage; an association of Malasiqui residents responded to the call for the festivities and
volunteered to present a stage show; Vicente Fontanilla was one of the participants who like Sanders had
the right to expect that he would be exposed to danger on that occasion. chanrobles vi rt ual lawli bra ry

Lastly, petitioner or appellant Municipality cannot evade responsibility and/or liability under the claim that it
was Jose Macaraeg who constructed the stage. The municipality acting through its municipal council
appointed Macaraeg as chairman of the sub-committee on entertainment and in charge of the construction
of the "zarzuela" stage. Macaraeg acted merely as an agent of the Municipality. Under the doctrine of
respondent superior mentioned earlier, petitioner is responsible or liable for the negligence of its agent
acting within his assigned tasks. 22

". . . when it is sought to render a municipal corporation liable for the act of servants or agents, a cardinal
inquiry is, whether they are the servants or agents of the corporation. If the corporation appoints or elects
them, can control them in the discharge of their duties, can continue or remove them, can hold them
responsible for the manner in which they discharge their trust, and if those duties relate to the exercise of
corporate powers, and are for the peculiar benefit of the corporation in its local or special interest, they may
justly be regarded as its agents or servants, and the maxim of respondent superior applies.." . . (Dillon on
Municipal Corporations, 5th Ed., Vol. IV, p. 2879)

5. The remaining question to be resolved centers on the liability of the municipal councilors who enacted the
ordinance and created the fiesta committee.

The Court of Appeals held the councilors jointly and solidarily liable with the municipality for damages under
Article 27 of the Civil Code which provides that "any person suffering material or moral loss because a public
servant or employee refuses or neglects, without just cause, to perform his official duty may file an action
for damages and other relief against the latter." 23

In their Petition for review the municipal councilors allege that the Court of Appeals erred in ruling that the
holding of a town fiesta is not a governmental function and that there was negligence on their part for not
maintaining and supervising the safe use of the stage, in applying Article 27 of the Civil Code against them,
and in not holding Jose Macaraeg liable for the collapse of the stage and the consequent death of Vicente
Fontanilla. 24

We agree with petitioners that the Court of Appeals erred in applying Article 27 of the Civil Code against
them, for this particular article covers a case of non-feasance or non-performance by a public officer of his
official duty; it does not apply to a case of negligence or misfeasance in carrying out an official duty.

If We are led to set aside the decision of the Court of Appeals insofar as these petitioners are concerned, it
is because of plain error committed by respondent court which however is not invoked in petitioners’ brief.
In Miguel v. The Court of Appeals, Et Al., the Court, through Justice, now Chief Justice, Fred Ruiz Castro,
held that the Supreme Court is vested with ample authority to review matters not assigned as errors in an
appeal if it finds that their consideration and resolution are indispensable or necessary in arriving at a just
decision in a given case, and that this is authorized under Sec. 7, Rule 51 of the Rules of Court. 25 We
believe that this pronouncement can well be applied in the instant case. chanroble s virtual lawlib rary

The Court of Appeals in its decision now under review held that the celebration of a town fiesta by the
Municipality of Malasiqui was not a governmental function. We upheld that ruling. The legal consequence
thereof is that the Municipality stands on the same footing as an ordinary private corporation with the
municipal council acting as its board of directors. It is an elementary principle that a corporation has a
personality, separate and distinct from its officers, directors, or persons composing it 26 and the latter are
not as a rule co-responsible in an action for damages for tort or negligence (culpa aquiliana) committed by
the corporation’s employees or agents unless there is a showing of bad faith or gross or wanton negligence
on their part. 27

x x x

"The ordinary doctrine is that a Director, merely by reason of his office, is not personally liable for the torts
of his corporation; he must be shown to have personally voted for or otherwise participated in them.." . .
(Fletcher Cyclopedia Corporations, Vol. 3A, Chapt. 11, p. 207)

"Officers of a corporation ‘are not held liable for the negligence of the corporation merely because of their
official relation to it, but because of some wrongful or negligent act by such officer amounting to a breach of
duty which resulted in an injury . . . To make an officer of a corporation liable for the negligence of the
corporation there must have been upon his part such a breach of duty as contributed to, or helped to bring
about, the injury; that is to say, he must be a participant in the wrongful act.." . . (pp. 207-208, ibid.)

x x x

"Directors who merely employ one to give n fireworks exhibition on the corporate grounds are not personally
liable for the negligent acts of the exhibitor." (p. 211, ibid.)

On these principles We absolve the municipal councilors from any liability for the death of Vicente Fontanilla.
The records do not show that said petitioners directly participated in the defective construction of the
"zarzuela" stage or that they personally permitted spectators to go up the platform.

6. One last point We have to resolve is on the award of attorney’s fees by respondent court. Petitioner-
municipality assails the award.

Under paragraph 11, Art. 2208 of the Civil Code attorney’s fees and expenses of litigation may be granted
when the court deems it just and equitable. In this case of Vicente Fontanilla, although respondent appellate
court failed to state the grounds for awarding attorney’s fees, the records show however that attempts were
made by plaintiffs, now private respondents, to secure an extrajudicial compensation from the municipality;
that the latter gave promises and assurances of assistance but failed to comply; and it was only eight
months after the incident that the bereaved family of Vicente Fontanilla was compelled to seek relief from
the courts to ventilate what was believed to be a just cause. 28

We hold, therefore, that there is no error committed in the grant of attorney’s fees which after all is a
matter of judicial discretion. The amount of P1,200.00 is fair and reasonable.

PREMISES CONSIDERED, We AFFIRM in toto the decision of the Court of Appeals insofar as the Municipality
of Malasiqui is concerned (L-30183), and We absolve the municipal councilors from liability and SET ASIDE
the judgment against them (L-29993).

Without pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez, and Guerrero, JJ., concur.