G.R. No. L-25712 - Municipality of Paombong, Bulacan vs. Juan

The petitioner-appellant is the Municipality of Paombong, Bulacan, owner of a fishpond covering approximately 243.9153 hectares, composed of three lots situated in the barrios of Masukol and Sta. Cruz.
The respondent-appellee is Luis San Juan, who, through a public bidding held on February 26, 1959, became the highest bidder and subsequently entered into a lease agreement for the fishpond.

On March 10, 1960, the Municipality of Paombong, represented by its Mayor, executed a “Contract of Lease of Fishpond” with Luis San Juan.
The lease was for a five-year period from January 1, 1961, to December 31, 1965, at an annual rental of P101,500.00.

On July 2, 1961, a strong typhoon caused severe floods and destruction in Central Luzon, inflicting extensive damage to the fishpond.
In response to the damages and in order to recoup losses and expenses, on August 28, 1961, San Juan proposed extending the lease for another five years (i.e., from January 1, 1966, to December 31, 1970).
The extension proposal included a condition wherein San Juan would provide the petitioner with P20,000.00 for repairs of the destroyed dikes, as well as clear Lot 3 and convert it to another fishpond, all at his own expense.

The Municipal Council of Paombong approved the extension proposal via Resolution No. 237 on August 28, 1961.
This approval was subsequently confirmed by the Provincial Board of Bulacan in its Resolution No. 256 dated September 12, 1961, following the endorsement from the Provincial Treasurer.
A committee was formed by Resolution No. 166 (dated July 11, 1961) to ascertain compliance with the conditions set forth in the extension proposal.
With its favorable report and subsequent actions by the Municipal Council (Resolutions Nos. 167 and 168, Series of 1962), the “Extension of Lease Agreement” was executed on July 16, 1962 by the Acting Mayor, Graciano U. Valencia, on behalf of the municipality.
The agreement was approved by the Provincial Governor on July 30, 1962 under Section 2169 of the Revised Administrative Code and was duly registered and annotated on the certificate of title in accordance with the Land Registration Act.

Following the local elections in 1963, a new Municipal Council assumed office on January 1, 1964.
The new council, by Resolution No. 162 dated April 30, 1964, revoked the “Extension of Lease Agreement,” declaring it null and void on the grounds that it was contrary to law, public morals, public policy, and exceeded the municipal powers.
The resolution was forwarded to the Provincial Board and then to the Provincial Fiscal of Bulacan for an expert opinion.
The Provincial Fiscal, in his first indorsement dated August 17, 1964, opined that the extension was valid and legal and that its revocation could impair contractual obligations, potentially making the municipal or provincial officials liable for damages.
The Provincial Board, adhering to this opinion, saw no immediate further challenge until the petitioner filed a Petition for Declaratory Relief on November 23, 1964.

The petitioner sought a declaratory judgment that the “Extension of Lease Agreement” was null and void and requested the right to lease out the fishpond through public bidding upon expiration of the original lease on December 31, 1965.
The respondent opposed the petition, and both parties submitted pleadings and memoranda.
On September 28, 1965, the trial court ruled against the petitioner, declaring the extension contract null and void.
Dissatisfied with the decision, the municipality raised on appeal whether the original lease contract could be extended by agreement without resort to another public bidding.
The appellate court noted that the extended lease period had already expired on December 31, 1970, rendering the case moot and academic.

Whether the original lease contract, entered into after a public bidding, could be validly extended for an additional five-year period by mere agreement between the parties, without initiating a new public bidding process.
Whether the “Extension of Lease Agreement” was void ab initio for being contrary to law, public morals, public policy, and for exceeding the municipal powers.
Whether the subsequent revocation of the extended lease by the new Municipal Council could effectively nullify the contractual extension even though it had already been executed, registered, and approved by higher authorities.