Municipality of Gasan vs. Marasigan

A tacit contract for the enjoyment of a license or privilege, inferred from the conduct of the parties, is binding on the grantee even if the original written concession was cancelled, but sureties who guaranteed only the original written contract are not liable for obligations arising under the tacit contract. Suretyship cannot exist without a valid principal obligation and must be express, not presumed or extended by implication.

The Municipality of Gasan, Marinduque, auctioned the right to gather whitefish spawn (semillas de bañgus) in its jurisdictional waters for the year 1931. Two bidders participated: Graciano Napa, who bid ₱5,000, and Miguel Marasigan, who bid ₱4,200. Both attached tax clearance certificates as required by municipal resolution No. 42, series of 1930. The municipal council, by resolution No. 161 of December 11, 1930, rejected Napa’s bid because his certificate came from his home town of Lemery rather than Gasan, and awarded the privilege to Marasigan for ₱4,200, payable in quarterly installments of ₱1,050.

• The Auction and Award: On December 9, 1930, the Municipality of Gasan held a public auction for the exclusive right to gather whitefish spawn in its waters for one year from January 1, 1931. Graciano Napa offered ₱5,000; Miguel Marasigan offered ₱4,200. The municipal council, by resolution No. 161 of December 11, 1930, rejected Napa’s bid because his tax clearance certificate came from the municipality of Lemery, not Gasan, and awarded the privilege to Marasigan. A written contract (Exhibit A) was executed, and the sureties Angel R. Sevilla and Gonzalo L. Luna executed a bond (Exhibit B) on December 15, 1930, binding themselves to pay ₱8,400 if Marasigan failed to deposit the quarterly installments.

• Protest and Cancellation: Graciano Napa protested to the provincial board, arguing that the municipality violated section 2323 of the Administrative Code by rejecting his higher bid. The provincial board declared resolution No. 161 invalid and suggested the award go to Napa as the highest bidder. The Executive Bureau concurred. Although the municipality sought reconsideration, it ultimately accepted the rulings. On December 18, 1930, the municipal president notified Marasigan in writing that the contract was suspended and should be considered ineffective pending the resolution of the protest.

• Subsequent Award to Napa and His Renunciation: Through resolution No. 11, series of 1931, the municipality awarded the privilege to Napa and gave him until January 15, 1931, to deposit ₱500 as required by the auction conditions, warning that failure would cause Marasigan’s contract to take effect automatically. Napa failed to deposit and, through a representative, formally renounced the privilege in favor of Marasigan or any person chosen by the municipality.

• Revival of Marasigan’s Arrangement: On January 15, 1931, the municipal president wrote to Marasigan, advising that his original contract would become effective from January 14, 1931, and requesting him to appear for ratification and to pay the first quarterly installment of ₱1,050 within ten days.

• Marasigan’s Conduct and Payments: The parties submitted a stipulation of facts. Marasigan paid the municipal treasurer ₱420 on December 9, 1930, as a 10% deposit on his bid, and an additional ₱840 on June 29, 1931. On July 20, 1931, he paid ₱16.20 as internal revenue tax on sales of whitefish spawn amounting to ₱1,080 during April, May, and June 1931. His sales book, presented on August 22, 1931, showed sales of ₱85 in July 1931 and none in August or September. The stipulation also recorded that Marasigan was also the concessionaire in the neighboring municipality of Boac for the same year but had paid sales tax on whitefish spawn only in Gasan.

Appellants Marasigan, Sevilla, and Luna attributed the following errors to the trial court:

• Validity of Contract: They argued that resolution No. 161, the basis of the written contract and bond, had been declared null and void by the provincial board and the Executive Bureau; therefore, the contract and bond were invalid and unenforceable.

• Suretyship: They maintained that sureties Sevilla and Luna should be absolved because the resolution underlying the bond was void.

• De Facto Contract: They contended that even if the contract could not be considered valid de jure, it could not be treated as a de facto contract binding on Marasigan, much less on the sureties.

• Lack of Evidence of Enjoyment: They asserted that the plaintiff failed to present evidence that Marasigan actually exercised the privilege of gathering whitefish spawn during the period in question.

• Right to Refund: They argued that all defendants should be absolved and the municipality should be ordered to return the sums of ₱420 and ₱840 deposited by Marasigan, with interest.

The plaintiff-appellee Municipality of Gasan maintained that resolution No. 161 was within the municipal council’s powers and that the contract and bond were valid, making all defendants liable for the unpaid license fees. The trial court accepted this position, holding that even if the contract were not valid de jure, it constituted a de facto contract enforceable against Marasigan and his sureties. The municipality further insisted that Marasigan had taken advantage of the privilege during the full year 1931 and owed the entire sum of ₱3,780.

• Effect of Resolution’s Invalidity: Whether the declaration that resolution No. 161 was void rendered the original concession contract and the surety bond unenforceable.

• Liability of Sureties: Whether the sureties could be held liable under the bond after the provincial board and Executive Bureau invalidated the resolution and after the municipality itself treated the original contract as suspended and later cancelled.

• Existence of a Tacit Contract: Whether a binding tacit contract arose between Marasigan and the municipality after January 15, 1931.

• Extent of Marasigan’s Obligation: Whether Marasigan enjoyed the privilege for the entire year 1931 or only for part of it, and consequently what amount he owed.

• Credit for Deposits: Whether Marasigan was entitled to have the amounts he had deposited (₱420 and ₱840) credited against any liability.

• Effect of Resolution’s Invalidity: The question of resolution No. 161’s validity was rendered moot by the municipality’s own conduct. After the provincial board and Executive Bureau ruled against the award, the municipality itself considered Graciano Napa the highest bidder, required him to make a deposit, and expressly notified Marasigan that his contract was suspended and ineffective. These acts constituted a cancellation of the original contract, which ceased to bind either party regardless of the resolution’s original legality.

• Liability of Sureties: The sureties were absolved. Suretyship cannot exist without a valid principal obligation (Article 1824, Civil Code). The bond guaranteed exclusively the obligation in the cancelled contract of December 11, 1930. Since that obligation was extinguished, the bond likewise ceased to have effect. Furthermore, a guaranty is not presumed; it must be express and cannot be extended beyond its specified limits (Article 1827, Civil Code). The sureties intervened in no subsequent agreement.

• Existence of a Tacit Contract: From Marasigan’s payments of ₱840 on June 29, 1931, and ₱16.20 in July 1931, and his presentation of a sales book recording spawn sales in Gasan, a tacit contract was inferred. These acts demonstrated that Marasigan enjoyed the privilege from at least April to July 1931, inclusive, under terms consistent with the cancelled written agreement but without the sureties’ participation. Such a contract need not be in writing (section 335 of Act No. 190) and is binding because it possessed all the essential requisites of a valid contract (Article 1278, Civil Code).

• Extent of Marasigan’s Obligation: The evidence showed enjoyment of the privilege only for the period April through July 1931, equivalent to one and one-third quarters. Accordingly, Marasigan was bound to pay ₱1,400 (₱1,050 for one full quarter plus ₱350 for one-third of a quarter).

• Credit for Deposits: Marasigan was entitled to be credited with the ₱420 deposited at the auction and the ₱840 paid on June 29, 1931, totaling ₱1,260. These payments were made on account of the privilege in Gasan, not for the Boac concession. After applying the credit, the net amount due was ₱140.

• Suretyship Requisites (Articles 1824, 1827, Civil Code) — A surety’s liability is strictly limited to the principal obligation guaranteed. Suretyship cannot exist without a valid principal obligation; once that obligation is extinguished, the bond ceases to have effect. A guaranty is not presumed; it must be expressed and cannot extend beyond its specified limits. In this case, the sureties’ bond covered only the original written contract of December 11, 1930; when that contract was cancelled, the bond lapsed and could not be stretched to cover a later tacit contract.

• Tacit Contract (Article 1278, Civil Code; Section 335, Act No. 190) — A contract may arise tacitly from the conduct of the parties, and it need not be in writing if it possesses the essential requisites of consent, object, and cause. Here, Marasigan’s payments, his presentation of a sales book to the municipal treasurer, and the municipality’s acceptance of those acts established a tacit contract for the gathering privilege, binding on him for the period he actually enjoyed.

• “Guaranty is not presumed; it must be expressed and cannot be extended beyond its specified limits (art. 1827 of the Civil Code).” — This passage encapsulates the rule that sureties are only liable for the precise obligation they guaranteed, and their bond cannot be stretched to cover new or modified agreements.

• “[S]uretyship cannot exist without a valid obligation (art. 1824 of the Civil Code).” — The Court applied this to release the sureties after the principal obligation was cancelled.

• “The truth is that between him and the plaintiff, there was a tacit contract for the privilege of gathering whitefish spawn … based upon Exhibit A but without the intervention of the sureties.” — This clarifies that the subsequent agreement, though inferred from conduct, was legally independent and did not resurrect the sureties’ liability.

N/A — The decision does not cite prior case law; it relies solely on statutory provisions and the Civil Code.

• Article 1824, Civil Code — Suretyship cannot exist without a valid principal obligation. Applied to extinguish the sureties’ bond upon cancellation of the original contract.

• Article 1827, Civil Code — A guaranty is not presumed; it must be express and cannot be extended beyond its specified limits. Applied to preclude extending the bond to the subsequent tacit contract.

• Article 1278, Civil Code — Contracts are perfected by mere consent; a contract with all essential requisites is valid regardless of its form. Applied to uphold the tacit contract.

• Section 335, Act No. 190 (Code of Civil Procedure) — Contracts need not be in writing unless required by statute. Applied to allow the tacit contract’s enforceability.

• Sections 2319 and 2323, Administrative Code — Cited by the provincial board and Executive Bureau in determining that the highest bidder should be awarded the concession, contributing to the original contract’s cancellation.

Avanceña, C.J., Villa-Real, Abad Santos, Imperial, and Laurel, JJ., concurred.

None.