EAST ASIATIC CO., LTD., PLAINTIFF AND APPELLEE, VS. CITY OF DAVAO, ET AL., DEFENDANTS AND APPELLANTS.

On 3 November 1958 in the Court of First Instance of Manila the East Asiatic
Co., Ltd. brought an action against the City of Davao and Victor Clapano (civil
case No. 38389) to recover export taxes paid by it to the defendant City
amounting to P41,720.51 from 18 May 1949 to 12 December 1952, pursuant to
Ordinance No. 78 passed on 28 December 1948 and Ordinance No. 13 passed on 17
January 1951 by the City Council of Davao, lawful interest from the date of
collection, attorney’s fees, legal expenses, moral and exemplary damages and
costs, on the ground that such tax is illegal, as held by the Secretary of
Justice in an opinion rendered by him on 26 November 1954 (Opinion No. 321,
series of 1954), and alleged that a refund of such tax had been made to other
taxpayers similarly situated as the plaintiff. The other defendant, a member of
the City Council of Davao, is joined to make him jointly and severally liable
for the sums sought to be recovered from the City because of his vote that
denied the refund of the tax to the plaintiff despite his favorable vote on the
refund of the same tax to other taxpayers similarly situated as the
plaintiff.

In motions to dismiss the complaint and answers after the motions had been
denied, both defendants set up the defense that (1) the ordinances under which
the tax had been collected and paid have not judicially been declared illegal;
(2) the tax had not been paid under protest; and (3) the right or cause of
action to demand or claim for a refund thereof is barred by the statute of
limitations. Defendant Victor Clapano denies that he violated articles 21, 27
and 32 of the new Civil Code.

After hearing, the trial court rendered judgment—

* * * in favor of the plaintiff, the East Asiatic Co., against the
defendants, ordering the City of Davao to pay plaintiff, East Asiatic Co., the
amount of P41,720.51 with legal interest from the time when each of these
payments were (was) made as shown by Exhibits D-1 to D-29 until complete refund
thereof, plus attorney’s fees in the amount of P10,000.00, moral damages in the
amount of P30,000.00 and exemplary damages in the amount of P30,000.00; and
finding defendant Victor Clapano to be jointly and severally liable with the
City of Davao insofar as the interest, attorney’s fees and moral and exemplary
damages awarded herewith are concerned.

With costs against the defendants. Both defendants have appealed.

There is no dispute that a total sum of P41,720.51, the refund of which is
sought, was collected by the defendant City of Davao from the plaintiff during
the period above stated. The appellants contend that nowhere in the complaint is
there an allegation and prayer that the ordinances under which the tax was
collected and paid be held and declared illegal. The action brought by the
plaintiff for the refund of the tax is predicated upon the illegality of the
ordinances imposing the tax, as held by the Secretary of Justice in his opinion
above referred to, so that, if the plaintiff is entitled to his prayer for the
refund of the sums paid by it under the ordinances that imposed the tax, it must
be on the ground that the ordinances imposing the tax, are void, in restraint of
tracle, ultra vires and illegal. A judicial declaration or pronouncement
that the tax is ultra vires and unlawful would be the reason or ground
for a judicial order to make the refund of such illegally collected and paid
tax. As correctly held by the trie! court is ultra vires, unauthorized
and illegal, because the charter of the defendant City does not authorize or
empower dt to impose such tax and it is expressly prohibited by section 2287 of
the Revised Administrative Code which partly provides that—

It shall not be in the power of the municipal council to impose a tax in any
form whatever upon goods and merchandise carried into the municipality, or out
of the same, and any attempt to impose an import or export tax upon such goods
in the guise of an unreasonable charge for wharfage, use of bridges or
otherwise, shall be void.

The fact that the ordinances under which the tax had been collected and paid
were later repealed by Ordinance No. 132 adopted by the City Council of Davao on
24 December 1954 (Exhibit 2) does not relieve the Court from pronouncing that
the ordinances were unauthorized and illegal, a holding that must precede an
order for the refund of such illegally collected and paid taxes.

The appellants argue that the sum the refund of which is sought by the
appellee was not paid under protest and hence is not refundable. Again, the
trial court correctly held that being unauthorized it is not a tax assessed
under the charter of the appellant City of Davao and for that reason no protest
is necessary for a claim or demand for its refund.^[1] The trial court further held that the
payment of the tax was not made voluntarily, for aside from the surcharge of 20%
it imposed for non-payment thereof (section 4 of the ordinances), the business
of the appellee would be stopped as it could no longer engage in the business of
buying and/or selling copra, ramie and/or hemp without paying the tax.

On the point of prescription raised by the appellants the holding by the
trial court is in accord with law. It held—

* * * Under Article 1149 of the Civil Code, the prescriptive period of these
claims is five years which, under Article 1155, is interrupted by written
extrajudicial demand. Naturally, the Civil Code only refers to causes of action
available after August 30, 1950. Prior to this date, Section 44 of the Code of
Civil Procedure which then governed prescription provided for a prescriptive
period of ten years. In this case, the payments were made by the East Asiatic
Co. from 1949 to 1952. In other words, insofar as the payments made before the
enactment of the Civil Code is (are) concerned, the prescriptive period had not
expired when the present action was filed on November 6, 1958. Insofar as
payments made after the effectivity of the Civil Code of the Philippines were
concerned, the prescriptive period was interrupted by the written demand made on
the treasurer of the City of Davao on March 30, 1955. In other words, the entire
claim is well within the legal prescriptive period. * * *

As to the liability of the appellant Victor Clapano this Court is of the
opinion and so holds that, in view of the belief entertained by some of the city
officials that the tax was not an export tax but just a license fee “on the
business of buying and/or selling of copra, ramie and/or hemp and for other
purposes,” or an “imposition of storage fees on copra and hemp stored then
exported and not an export tax,” and of the fact that the refund of the tax
authorized by Resolution No. 610 adopted by the City Council of Davao on 18
October 1957 (Exhibit N or 5) was that collected from and paid by other
taxpayers from July to December 1954; that “refund of the balance of the taxes
paid by the exporters during the current fiscal year, subject to the
availability of funds;” “that refund of the rest of the claims of the exporters
for the amount as shall be decided by the court shall be made under the tax
credit system” (Resolution No. 851 adopted on 29 December 1954); and that at the
time of the deliberation by the City Council of Davao on the plaintiff’s claim
there was no available fund for the purpose or to make the refund, his liability
would be predicated on a doubtful ground. And if Resolution No. 720 adopted by
the City Council of Davao on 5 December 1958, which in part states—

Whereas, by virtue of the “Municipal Tax Ordinance” (Ordinance No. 78, series
of 1948 and Ordinance No. 13, series of 1951), the City of Davao, had collected
from several exporters doing business in this City the total sum of
P1,152,874.55 which were paid not under protest, except the amount of
P20,000.00.

Whereas, by virtue of Resolution No. 851, series of 1954, the City of Davao
is making a refund of the said amount;

Whereas, said Ordinance was premised on an opinion of the Honorable Secretary
of Justice declaring Sections 2, 3, and 4, of said Ordinance as ultra vires,
hence null and void;

Whereas, the foregoing opinion was never appealed to nor brought before the
Courts of Justice;

Whereas, in an unpublished decision in the case of Visayan Electric Company,
S.A., Plaintiff-Appellant, versus City of Dumaguete, et al.,
Defendants-Appellees, the Supreme Court held that taxes paid not under protest
is (are) not refundable;

Whereas, the taxes in question, even granting that the ordinances under which
they were collected are null and void are not refundable in view of the
above-mentioned Supreme Court decision;

Whereas, there has been no clear and categorical authority granted to the
City Treasurer to make the refund of said taxes except those paid under
protest.

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the City Treasurer immediately
stops or discontinues the refund;

AND BE IT FURTHER RESOLVED, That the City Attorney be requested to
immediately take legal steps to recover the sum of P475,436.89 already refunded;
(Exhibit Q or 6),

be taken into consideration the legality of the ground upon which the
liability of appellant Victor Clapano is to be predicated would be still more
doubtful.

The judgment appealed from is modified by dismissing the complaint against
the appellant Victor Clapano and ordering the appellant City of Davao to pay the
appellee East Asiatic Co., Ltd. the sum of P41,720.51, lawful interest thereon
from the dates of payments made, as shown in Exhibits D-1 to D-29, until
complete refund thereof^[1] and the
further sum of P5,000 as attorney’s fees, and costs. No amount of moral and
exemplary damages are awarded to the appellee.

Bengzon, C. J. Bautista Angelo, Labrador, Reyes, J. B. L., Barrera,
Paredes, Dizon, Regala, and Makalintal, JJ., concur.

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[1] Medina et al. vs. City of Baguio, 91 Phil., 854;
48 Off. Gaz., [11] 4769.

[1] Carcar Electric & Ice Plant Co., Inc. vs.
Collector of Internal Revenue, (100 Phil., 55).