G.R. No. L-23618. August 31, 1970
LUZON SURETY CO., INC., PLAINTIFF-APPELLANT, VS. THE CITY OF BACOLOD, ROMEO GUANZON, IN HIS CAPACITY AS MAYOR OF THE CITY OF BACOLOD AND PORFIRIO T. DE LEON, IN HIS CAPACITY AS…
CASTRO, J.:
On July 1,
1962 the city
council of the City of Bacolod approved Ordinance 158, series of 1962.[1] Pursuant to the said ordinance the plaintiff
Luzon Surety Co., Inc. was required to pay a fixed annual license fee of P300
and to apply for and obtain from the City Mayor a permit (upon payment of the sum of 20 to the City
Treasurer).[2]
In 1963 the plaintiff started to pay the said fees, but under protest.
On February 13, 1964
the plaintiff filed a complaint with h Court of First Instance of Negros Occidental, assailing the ordinance as
“illegal, invalid and unconstitutional,” and asking for the refund of
the amount of P430 it had previously paid under protest. The plaintiff alleged, inter alia, that the Bacolod city
council exceeded the power and authority granted to it by law in approving the
said ordinance, as the latter contravenes section 2, sub-section (j) of
Republic Act 2264[3]
which prohibits cities from taxing
insurance companies.
The defendants contended, however, that Commonwealth Act 326, as
amended, otherwise known as “The Charter of the City of Bacolod, ” grants the city council the power to enact
ordinances intended to regulate and fix the amounts of permit and license fees,
and that moreover the ordinance in question does not violate section 2,
sub-section (j) of the Local Autonomy Act because the plaintiff is a surety
company and not an insurance company.
On July 25, 1964
the lower court adjudged the plaintiff as a surety company and not an insurance
company and, therefore, as not entitled to claim exemption from the effects of
the controverted ordinance, which it declared valid,
legal and constitutional.
The plaintiff’s appeal to this Court poses in issue the validity
of the specific portions of the ordinance (see footnote 2) prescribing fixed
annual license and permit fees for “Fiadores (Casas y Companias),” insofar
as these provisions are construed by the City of Bacolod
to include surety companies within their purview and intendment, the plaintiff
insisting that a surety company is an insurance company, that no distinction of
consequence exists between the
two, and that therefore the plaintiff falls within the Mantle of the exemption
afforded by section 2, sub-section (j) of the Local Autonomy Act, which
explicitly prohibits chartered cities from levying or imposing “taxes of
any kind on banks, insurance
companies and persons
paying franchise tax.” (emphasis Supplied)
The defendants, on the
other hand, while admitting that plaintiff is a surety company,
nevertheless insist that fundamental distinctions
exist between a surety company and an insurance company, and that the
plaintiff, its principal business being one of surety ship does not fall under the exemption granted section
2, sub-section (j) of the Local Autonomy Act, the exemption exclusively being applicable only to companies doing purely
insurance business.
Resolution of this appeal
requires a determination of whether a surety company is an insurance company
within the meaning and intendment of section 2, sub-section (j) of the
Local Autonomy Act, both parties being in agreement that the license fee in
question in the nature and concept of a tax.
No doubt surfaces as to
the power of chartered cities to tax under the Local Autonomy Act. This Court has consistently upheld the
“doctrine that the grant of the power to tax to chartered cities under
section 2 of the Local Autonomy Act is sufficiently plenary to cover
everything, excepting those which are mentioned therein, subject only to the
limitation that the tax so
levied is for ‘public purposes, just and uniform’.”[4]
The hereunder quote the
pertinent provisions of the Local Autonomy Act:
“Section 2. Any
provision of the law to the contrary notwithstanding, all chartered cities … shall
have authority to impose municipal license taxes or tees upon persons engaged
in any occupation or business, or exercising privileges in chartered cities, …
Provided, however, That no city … may levy or impose any of the
following:
* * *
“(j) Taxes of any
kind on banks, insurance companies, and persons paying franchise tax; …”
Is the word “fiadores,” as used in item
B -17 of article 1 of section 3 of the ordinance, comprehended within the
meaning of the term “insurance companies” as used in section 2(j) of
the Local Autonomy Act?
To begin with, we look to
the provisions of Act 2427, as
amended (otherwise known as “The
Insurance Act”). Section 170 thereof provides that “for the purpose of this chapter [captioned
INSURANCE COMPANIES] unless the
context otherwise requires the terms ‘company’ or ‘insurance company’ shall
include all corporations, associations, partnerships, or individuals engaged
as principals in the insurance business, excepting fraternal and benevolent
orders and societies.” Section 194 of the same Act provides as
follows: “Corporations formed or
organized to save any person or person or other corporation harmless from loss,
damage or liability arising from any unknown or future or contingent event, or
to indemnify or to compensate any person or persons or other corporation for
any such loss, damage, or liability or to guarantee the contractual obligations
or debts of others, shall be known as
Insurance Corporations for the purposes of this chapter.”
Let us now examine
authoritative definitions of the word “fiador.”
Robb’s Dictionary of Legal Terms (1966), p. 56, gives the word “fiador” this meaning:
“bondsman, surety; guarantor, bailor, backer.”
The New Revised Velasquez Spanish
and English Dictionary (1965) states that a “fiador”
is “1. One, who trusts another 2. Bondsman, guarantor, surety, or one who becomes security for
another.” 36A C. J. S. 375 has this to say on the meaning of
the word “fiador“: “In Spanish law, surety.” XVI Enciclopedia Juridica Española 233 describes “fiador”
as “El que responde de la obligacion ajena, tomando sobre si
el cumplimiento de ella para el caso de que no la cumpla el que contrajo.” In our own
jurisprudence, “fiador” is defined in the Real Academia Castellana as
‘persona que fia a otra para la seguridad
de aqueIlo a que esta obligada.’”[5]
We now turn to American jurisprudence.
The Cyclopedia of
Insurance Law[6] states:
“A class of contracts written by guaranty or surety companies,
and generally designated as guaranty insurance, comprises principally contract,
credit, fidelity, title, bond, and security guaranty generally. Contracts of this kind are now almost
universally regarded as those of insurance where the underwriter engages in the
business for profit, especially since the terms of such contracts usually
closely resemble the essential elements of an insurance contract.”
On
the business of fidelity guaranty, the same authority declares that
“contracts of fidelity guaranty are contracts of indemnity, and, where the
business of underwriting is undertaken for profit, are essentially insurance
contracts, which, like other contracts of insurance, are construed against the
insurer.”[7] On the business of contract guaranty, the
same authority, comments that “the general rule that the bonds of guaranty
and surety companies, who engage in the business for profit, are essentially
insurance contracts and are governed by the rules of construction applicable thereto, rather than by the rules
applicable to strict or pure contracts of suretyship,
applies to bonds guaranteeing the carrying out or performance of contrasts to
do a particular act or carry out a particular project.”[8]
An American case[9] resolved, with meticulous care, the problem
of whether a surety company engages in insurance business for purposes of
taxation. The American Surety Company,
required by the laws of the State of Tennessee to pay privilege taxes based on its gross
premiums, brought suit against the Insurance Commissioner denying its liability for the payment of the
taxes, contending it was not an insurance company. The Supreme Court of
Tennessee rejected this contention on the basis of its finding that the
American Surety Company was authorized to conduct the business of
“guaranteeing the fidelity of persons holding places of public and private
trust, the performance of contracts other than insurance policies, and
executing or guaranteeing bonds and undertakings required or permitted in all
actions or proceedings or by law allowed,” and ruling that the contracts thus authorized to be made by the
American Surety Company are contracts of insurance and the making of them is
insurance business, as defined by the statutes of the State and the common
law. The court, in support of its opinion, quoted Frost’s Law of Guaranty Insurance, thus:
“In view of all that has been said in this immediate
connection, can it be affirmed that fidelity, commercial, and judicial bonds or
policies, as issued by the so-called surety companies, constitute contracts
of insurance within the legal signification of that term? The answer to the
foregoing query must be unqualifiedly in the affirmative.”
Thus, the conclusion seems rather irresistible that the
plaintiff, which is the holder of a “Certificate of Authority“ (issued by the Insurance Commissioner)[10]
as a “fire, marine, earthquake, typhoon, tidal wave, riot, flood, civil
commotion, war, civil war, revolutions, rebellions, military or usurped power,
use & occupancy, storm, bombardment, invasion, insurrection, motor car,
burglary, accident, and fidelity insurance company,” and is authorized
“to become a surety upon official recognizances,
stipulations, bonds and undertakings,”[11] (a)
is engaged in the insurance business, and (b) is an insurance company within
the intendment of section 2(j) of the Local Autonomy Act.
We therefore hold that the plaintiff is not liable for the payment of the annual license fee of P300
imposed by the ordinance in question.
As to the P20 annual permit fee, it is our view and we so hold that
the plaintiff was correctly adjudged liable for the payment thereof. The authority of the City of Bacolod to require persons and entities engaged in and
conducting any business within its jurisdictional territory to obtain permits
and pay the corresponding permit fees, is specifically granted by paragraph (ee) of section 17 of Commonwealth Act 326 (known as
“The Charter of the City of Bacolod“),
approved on June 18, 1938, which empowers the city council “to enact all
ordinances it may deem necessary and proper for the sanitation and safety, the
furtherance of the prosperity, and the promotion of the morality, peace, good
order, comfort, convenience, and general welfare of the city and its
inhabitants.”[12] In requiring permits and the payment
of nominal regulatory permit fees, the ordinance itself invokes police power,
stating explicitly that permits are necessary “for the proper supervision
and enforcement of existing laws and ordinances governing the sanitation,
security and welfare of the public and the health of the employees engaged in
the business therein specified.”
ACCORDINGLY, the judgment a quo is set
aside, and another is hereby entered (1) declaring that the item “B-17 Fiadores (Casas y Companias)… P300.00″ of Article 1 of Section 3 of
Ordinance 158, series of 1962, of the respondent City of Bacolod
does not embrace within its purview, and is not applicable to, surety
companies and corporations, such as the Luzon Surety Company, Inc., and (2)
ordering the respondent City to refund to the Luzon Surety Company, Inc. all
sums of money the latter has paid in virtue of the implementation and
enforcement of the said item by the respondent City. No pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor, and Makasiar, JJ., concur.
[1]
“An Ordinance Fixing the Classification and Schedule of Fees for the
Issuance of Permits and Licenses and the Conduct Thereof for the Opening,
Practice, Exercise, Conduct and/or Establishment of any Profession, Act or
Trade, Business, Occupation or Calling or Industry Within the Jurisdictional
Territory of the City of Bacolod.” The complete
text of this prolix ordinance is reproduced on pp. 5 to 91 of the Record on
Appeal.
[2]
The pertinent portions of the ordinance read as follows:
“Section 1.
– License, Permit Fees, Application Collections thereof, and
other purposes. Article 1. – A
License or Permit Fee must first be paid before any business, trade, occupation
or profession, or industry hereinbelow specified can
be lawfully began, established, conducted, exercised, or pursued, said
business, trade, occupation or profession, or industry is payable for every
separate or distinct establishment or place or location where business, trade,
occupation or profession, or industry, or line o any of them, does not become
exempt by being conducted with some other business, trade, occupation or
profession, or industry, for which such license has been paid.
* * *
“Article 2.
Permits necessary. – It
shall be unlawful for any person or entity to conduct or engage in any of the
businesses, trades, or occupations enumerated herein, and other businesses,
trades, or occupations for which a permit is required for the proper
supervision and enforcement of existing laws and ordinances governing the
sanitation, security and welfare of the public and the health of the employees
engaged in the business therein specified, without first having obtained a
permit therefor from the Mayor and the necessary
license from the City Treasurer.
* * *
“Article 4.
Fees. – There shall be paid to the City Treasurer for every permit
issued by the Mayor for that business, trade or occupation hereinbelow
enumerated, as in this Ordinance provided, an annual [permit] fee in accordance
with the following schedule:
* * *
83. All
other business, trade or occupation not mentioned
in this ordinance,
except those upon which the City
is not empowered to
license or to tax . . . . . . . . . . . . . .
P20.00
* * *
“Section 3.
Fixed Annual Fees.
“Article 1.
For purpose of the collection of fixed annual fees for the exercise, conduct,
establishment, occupation or profession, or industry as hereinabovestated
and which are not subject to fees based on gross sales or output realized by
the exercise or conduct of said business, trade, occupation or profession, or
industry, the following schedule shall be observed and followed:
* * *
FIXED ANNUAL
FEES
AGENCIAS
“P-17 Fiadores
(Casas y Cornpanias). . . .
. . . . . . . . . P 300.00″
[3]
“An Act Amending the Laws Governing Local Governments by Increasing their
Autonomy and Reorganizing Provincial Governments” (otherwise known as the
Local Autonomy Act).
[4]
Niniay Mining Company vs. Municipality of Roxas, Province of Palawan,
L-20125, July 20, 1965; C. N. Hodges vs. Municipal Board of the City of
Iloilo, et al., L-18276, Jan. 12, 1967; Ormoc Sugar
Company vs. Municipal Board
of Ormoc City, et al., L-24322, July 21, 1967.
[5]
Agcaoili vs. Vda. de
Agcaoili, 90 Phil. 100.
[6]
George C. Couch, Cyclopedia of Insurance Law, p. 45.
[7]
ibid., pp. 40-41.
[8]
ibid., p. 24.
[9]
American Surety Company of New York
vs. Folk, Insurance Commissioner, 135 SW 778.
[10]
Record on Appeal, pp. 98-99.
[11]
Record on Appeal, pp. 101-104.
[12]
Cf. section 2238 of the Revised Administrative Code which provides: “General
power of council to enact ordinances and make regulations. – The municipal
council shall enact such ordinances and make such regulations, not repugnant to
law, as may be necessary to carry into effect and discharge the powers and
duties conferred upon it by law and such as shall seem necessary and proper to
provide for the health and safety, promote the prosperity, improve the morals,
peace, good order, comfort, and convenience of the municipality and the
inhabitants thereof, the proper supervision and enforcement of existing laws
and ordinances governing the sanitation, security and welfare of the public
and the health of the employees engaged in the business therein specified.”
and for the protection of property therein.” This provision of law, to the
extent and scope of its terms, delegates police power to municipal
corporations.