LIWAYWAY VINZONS-CHATO, VS. FORTUNE TOBACCO CORPORATION, RESPONDENT.

Liwayway Vinzons-Chato versus Fortune Tobacco Corporation

The Case

This is a case about how far a taxpayer may go in suing a revenue official personally for damages. Liwayway Vinzons-Chato, then Commissioner of Internal Revenue, issued a revenue memorandum circular reclassifying certain cigarette brands and exposing Fortune Tobacco Corporation to a higher tax. That circular was later struck down as an invalid administrative issuance. Fortune Tobacco then sued the Commissioner in her private capacity for damages under Article 32 of the Civil Code, claiming that the circular deprived it of property without due process of law and denied it the equal protection of the laws. The case matters because it draws the boundary between a public officer's duty owed to the public at large and a duty owed to a particular individual, and it tells us when a constitutional tort action under Article 32 will lie against a rule-making official.

Procedural History

Fortune Tobacco filed a complaint for damages before the Regional Trial Court. The Commissioner moved to dismiss on three grounds: that she acted within her official function as an agent of the Republic, that the complaint alleged no malice or bad faith, and that the certification against forum shopping was defective. The trial court denied the motion, holding that ruling on the grounds would prematurely decide the merits, and that the certification defect was cured by the corporate secretary's certificate authorizing counsel to sign.

The Commissioner elevated the matter to the Court of Appeals through a petition for certiorari. The appellate court dismissed the petition, reasoning that under Article 32 of the Civil Code liability may arise even without malice or bad faith, that Section 38 of Book One of the Administrative Code is the general law while Article 32 is the special law, and that the certification defect had been cured. The Supreme Court initially affirmed in a Decision dated June 19, 2007, and directed the trial court to continue the proceedings. The Commissioner moved for reconsideration, which was denied with finality. She then moved to refer the case to the Court En Banc, and the Court granted the referral. On reconsideration, the Court reversed its earlier ruling.

Facts

On June 10, 1993, the legislature enacted Republic Act No. 7654, which took effect on July 3, 1993. Before its effectivity, the cigarette brands Champion, Hope, and More were treated as local brands subject to an ad valorem tax of twenty to forty-five percent. On July 1, 1993, two days before the new law took effect, the Commissioner issued Revenue Memorandum Circular No. 37-93, reclassifying those brands as locally manufactured cigarettes bearing a foreign brand, subject to the fifty-five percent ad valorem tax.

On July 2, 1993, a copy of the circular was sent by telefax to Fortune Tobacco but addressed to no one in particular. Fortune Tobacco received a certified copy by ordinary mail on July 15, 1993. It moved to recall the circular on July 20, 1993, but the request was denied in a letter dated July 30, 1993, which also assessed a deficiency ad valorem tax of nine million, five hundred ninety-eight thousand, three hundred thirty-four pesos and demanded payment within ten days.

Fortune Tobacco filed a petition for review with the Court of Tax Appeals, which issued an injunction and later ruled the circular defective, invalid, and unenforceable. The Court of Appeals affirmed, and the Supreme Court affirmed in Commissioner of Internal Revenue versus Court of Appeals, holding that the circular had fallen short of the requirements for a valid administrative issuance. Fortune Tobacco never paid a single centavo on the assessment. It then filed a complaint for damages against the Commissioner in her private capacity, invoking Article 32 of the Civil Code.

Issues

• Whether or not a public officer who issues an invalid administrative circular may be held personally liable for damages under Article 32 of the Civil Code when the duty violated is one owed to the public in general.
• Whether or not the complaint states a cause of action absent an allegation of a particular or special injury sustained by the plaintiff.
• Whether or not the complaint states a cause of action absent an allegation of malice or bad faith, given that the ruling in the earlier tax case did not declare the circular unconstitutional.

Applicable Provisions

Article 32 of the Civil Code provides:

Any public officer or employee, or any private individual, who directly or indirectly obstructs, defeats, violates or in any manner impedes or impairs any of the following rights and liberties of another person shall be liable to the latter for damages.

This is the provision Fortune Tobacco invoked, and the Court had to determine whether the elements of this liability were sufficiently alleged.

Section 38, Book One of the Administrative Code, as discussed in the decision, provides:

A public officer shall not be civilly liable for acts done in the performance of his official duties, unless there is a clear showing of bad faith, malice or gross negligence.

The Court weighed this general rule on official liability against the special remedy in Article 32.

Ruling

On the first issue, the Court held that the Commissioner cannot be held personally liable. Public officers exercise two kinds of duties: a duty owing to the public collectively, and a duty owing to particular individuals. A duty owing to the public in general cannot give rise to liability in favor of particular individuals. The Commissioner, vested with rule-making power, owed a duty to the public to promulgate rules compliant with the requirements of valid administrative regulations, but that duty was owed to the entire body politic, not to Fortune Tobacco alone. The remedy for a breach of such a public duty is political, not judicial.

On the second issue, the Court held that the complaint states no cause of action because it alleged no particular or special injury. The phrase financial and business difficulties is vague and cannot translate into a particular injury. The Court noted that the Commissioner took nothing from Fortune Tobacco, which did not pay a single centavo on the assessment. Without a particular injury, there is no delict or wrongful act attributable to the Commissioner that would violate the respondent's primary rights.

On the third issue, the Court held that the complaint's reliance on the earlier tax case must fail. In that case, the Court did not declare the circular unconstitutional, whether from the standpoint of due process or equal protection. The statement that the circular might have infringed on uniformity of taxation does not amount to a positive indictment for violation of a constitutional right, and non-uniformity of taxation falls under Section 28 of Article VI, not Section 1 of Article III, of the Constitution. What remains of the complaint, once stripped of its reliance on that case, are bare allegations that the circular was issued without due process and in violation of equal protection, which are conclusions of law not hypothetically admitted in a motion to dismiss. The Court also observed that the tax statutes and the law creating the Court of Tax Appeals provide ample remedies to aggrieved taxpayers, remedies that Fortune Tobacco in fact availed of, which contradicts its claim of due process infringement.

Doctrine

A public officer's duty owing to the public in general cannot give rise to a liability in favor of particular individuals. The failure to perform a public duty constitutes an individual wrong only when a person can show that, in the public duty, a duty to himself as an individual is also involved, and that he has suffered a special and peculiar injury by reason of its improper performance or non-performance. Damage alone does not constitute a wrong.

An individual may hold a public officer personally liable for damages under Article 32 of the Civil Code for an act or omission that violates a constitutional right only if it results in a particular wrong or injury to that individual. The complaint must allege that particular injury; absent such allegation, it fails to state a cause of action. A cause of action requires a right in favor of the plaintiff, an obligation on the part of the defendant to respect that right, and an act or omission violative of the right.

Disposition

The Court granted the Commissioner's motion for reconsideration, reversed its earlier decision, and dismissed the complaint for failure to state a cause of action, thereby freeing the Commissioner from personal liability.

Remember This

Memorize the line that a duty owing to the public in general cannot give rise to a liability in favor of particular individuals, and that Article 32 requires a particular injury, not mere damage. Examiners use this case to test the distinction between public and individual duties, the elements of a cause of action, and the limits of a constitutional tort suit against rule-making officials.