G.R. No. 233999 - Telephilippines, Inc. vs. Jacolbe

Marcos Mendoza (plaintiff and appellee) was awarded an exclusive ferry lease privilege by the municipal council of Villasis, Pangasinan, under Act No. 1634 of the Philippine Commission.
Marcos Mendoza used the leased ferry for a little more than one year.
The defendants and appellants, members of the municipal council, revoked the lease and forcibly ejected Mendoza from the ferry.
The defendants awarded the same ferry privilege to another person via a municipal council resolution.
Mendoza filed an action for damages against the individual municipal council members for the unlawful revocation of his exclusive ferry lease.

Municipalities under the Municipal Code (Act No. 82) have dual functions: governmental and corporate (business).

Governmental functions include: regulations on fire, disease, public peace, maintenance of prisons, establishment of primary schools, post offices, etc.
Corporate functions include: establishment and operation of municipal utilities such as waterworks, ferry services, slaughterhouses, markets, etc.

Act No. 1634 mandates the lease of municipal properties like ferries to the highest bidder annually or up to five years with provincial board approval.
Municipal council acts in matters involving management of property and local public utilities, analogous to a board of directors of a private corporation in corporate functions.

Distinction between governmental functions (immune from liability) and proprietary/corporate functions (liable for acts of agents/officers under respondeat superior).
Municipalities are immune from liability for acts performed in good faith within governmental functions unless explicitly made liable by statute.
On the performance of corporate or proprietary functions (leasing municipal ferry), the municipality is liable for torts and contractual obligations.
Individual municipal council members are generally not personally liable for honest mistakes or erroneous judgment akin to the immunity given directors of private corporations.
Personal liability arises only when there is bad faith, willful misconduct, or intent to injure, inconsistent with the municipality's interests.

The plaintiff had exclusive right to operate the ferry for the lease term.
The forcible eviction was done without valid cause.
The defendants claimed the ferry operated was not the leased one, despite evidence and operation for over a year with their knowledge.
There was no evidence of honest mistake or justification for contract rescission.
The plaintiff sustained damages from the wrongful rescission of the ferry lease.

Whether the municipal council members are personally liable for the damages resulting from the revocation of Mendoza’s ferry lease.
Whether the leasing of a municipal ferry is a governmental function (immune from liability) or a corporate/proprietary function (subject to liability).
Whether the forcible eviction and rescission of the lease without valid cause amounts to wrongful acts for which the municipal council members may be held liable.