East Asiatic Co. v. City of Davao
REITERATIONFacts
The Antecedents: Plaintiff-appellee, East Asiatic Co., Ltd., filed an action against the City of Davao and Victor Clapano to recover export taxes amounting to P41,720.51 paid from May 18, 1949, to December 12, 1952, pursuant to Davao City Ordinances No. 78 and No. 13. The plaintiff alleged the tax was illegal, citing an opinion from the Secretary of Justice, and claimed other similarly situated taxpayers had received refunds. Procedural History: The defendants moved to dismiss, raising defenses that the ordinances were not judicially declared illegal, the tax was not paid under protest, and the action was barred by the statute of limitations. The trial court rendered judgment in favor of the plaintiff, ordering the City of Davao to pay the refund with legal interest, attorney's fees, moral damages, and exemplary damages. Both defendants appealed. The Petition: The defendants-appellants argued that the complaint lacked an allegation and prayer to declare the ordinances illegal, that the tax was not paid under protest, and that the claim was barred by prescription. Defendant Victor Clapano also denied violating specific articles of the Civil Code.
Issue(s)
Whether the plaintiff is entitled to a refund of export taxes paid under ordinances later repealed. Whether payment under protest is necessary for the refund of an unauthorized and illegal tax. Whether the claim for refund is barred by the statute of limitations. Whether defendant Victor Clapano is jointly and severally liable for the refund.
Ruling
The Supreme Court modified the trial court's decision by dismissing the complaint against Victor Clapano and ordering the City of Davao to pay East Asiatic Co., Ltd. the sum of P41,720.51 with lawful interest from the dates of payment, and P5,000.00 as attorney's fees. No moral and exemplary damages were awarded.
Ratio Decidendi
On the illegality and refundability of the tax: The Court affirmed the trial court's holding that the tax imposed by the ordinances was ultra vires, unauthorized, and illegal. This was because the charter of the City of Davao did not grant it the power to impose such a tax, and it was expressly prohibited by Section 2287 of the Revised Administrative Code, which prohibits municipal councils from imposing import or export taxes. The repeal of the ordinances did not absolve the Court from declaring them illegal, which is a prerequisite for ordering a refund of illegally collected taxes. The Court reiterated that a judicial declaration of the tax being ultra vires and unlawful is the basis for ordering its refund. On the necessity of payment under protest: The Court upheld the trial court's finding that protest was not necessary for the refund. Since the tax was unauthorized and illegal, it was not a tax assessed under the City's charter, thus negating the requirement for protest. Furthermore, the payment was not voluntary, as non-payment would incur a 20% surcharge, and the plaintiff's business operations would be halted, preventing it from engaging in the buying and selling of copra, ramie, and hemp. On the statute of limitations: The Court agreed with the trial court's application of the prescriptive periods. For payments made before August 30, 1950 (the effectivity of the Civil Code), the ten-year prescriptive period under the Code of Civil Procedure applied, and the action filed on November 6, 1958, was within this period. For payments made after August 30, 1950, the five-year period under Article 1149 of the Civil Code applied, and this period was interrupted by the written extrajudicial demand made on March 30, 1955, as per Article 1155 of the Civil Code. Therefore, the entire claim was found to be within the legal prescriptive period. On the liability of Victor Clapano: The Court found the grounds for holding Victor Clapano liable to be doubtful. It considered the belief of some city officials that the imposition was a license fee or storage fee, not an export tax. The Court also noted the City Council's resolutions authorizing refunds for other taxpayers under certain conditions and the lack of available funds at the time of the deliberation on the plaintiff's claim. Furthermore, Resolution No. 720, adopted later, indicated a policy to stop refunds for taxes not paid under protest, citing a Supreme Court decision, which further complicated the basis for Clapano's liability.
Main Doctrine
A tax imposed by a city ordinance that is ultra vires, unauthorized, and illegal, because the city's charter does not grant the power to impose such tax and it is expressly prohibited by law, is void and refundable even if not paid under protest. The prescriptive period for claims for refund is governed by the Civil Code, with interruptions for written extrajudicial demands.