Rural Bank of Makati, Inc. v. Municipality of Makati
REITERATIONFacts
The Antecedents: Atty. Victor A.L. Valero, municipal attorney of Makati, inquired about the Rural Bank of Makati's tax payments. The bank, through its corporate secretary Magdalena V. Landicho, claimed exemption under Republic Act No. 720. Subsequently, the Municipality of Makati filed complaints for violation of tax ordinances against bank president Esteban S. Silva and Landicho. While these cases were pending, the municipality ordered the closure of the bank. The bank paid P82,408.66 under protest to avoid closure. Procedural History: The bank filed a complaint for recovery of sum of money and damages, alleging oppressive, arbitrary, unjust, and illegal collection of taxes and fees, and that Atty. Valero acted ultra vires. The Regional Trial Court (RTC) dismissed the complaint and awarded moral damages and attorney's fees to Atty. Valero on his counterclaim. The Court of Appeals (CA) affirmed the RTC decision. The bank's motion for reconsideration was denied. The Petition: Petitioners assail the CA decision, arguing that the closure was an illegitimate exercise of police power, that the ordinances were void for lack of publication, and that they were entitled to a refund and damages. They also questioned the award of damages to Atty. Valero.
Issue(s)
Whether the petitioner bank is liable to pay the business taxes and mayor’s permit fees imposed by respondent municipality. Whether the closure of the petitioner bank was valid. Whether the petitioners are entitled to an award of unrealized profit and damages. Whether respondent Atty. Victor Valero is entitled to damages.
Ruling
The Supreme Court affirmed the CA decision in part, sustaining the denial of refunds and damages to the bank, but SET ASIDE the order decreeing the closure of the bank and DELETED the award of moral damages and attorney's fees to Atty. Victor A.L. Valero.
Ratio Decidendi
On the liability for business taxes and mayor's permit fees: The Court ruled that while Republic Act No. 720, as amended, initially exempted rural banks with net assets not exceeding P1,000,000.00 from taxes, Executive Order No. 93, issued on December 17, 1986, withdrew all tax and duty incentives, including those granted to rural banks. Therefore, the bank could no longer claim exemption after the issuance of EO 93. The Court also found the bank's claim for a refund of P57,854.00 for alleged overpayment to be unsubstantiated and lacking solid support, noting that factual findings of the CA, when supported by evidence, are binding on the Supreme Court. The Court reiterated that in a petition for review, only questions of law are properly raised, and the refund sought could not be entertained. On the validity of the closure of the bank: The Court held that the closure of the bank was an invalid exercise of police power. While the municipality has the power to regulate businesses through licenses and permits under its general welfare clause, the Local Tax Code, specifically Section 62, provided for civil remedies like distraint and legal action for the enforcement of delinquent taxes, but not closure. The Court found that the closure order violated the bank's right to due process, as it was an extrajudicial remedy not sanctioned by law for the violation of a municipal ordinance. The Court emphasized that even under the old Local Government Code (B.P. Blg. 337), which was in effect at the time, the general welfare clause did not grant the mayor the power to summarily close a business establishment for non-payment of fees without due process. On the entitlement to unrealized profit and damages: The Court denied the bank's claim for unrealized profits and damages. It reiterated the principle that moral damages cannot be awarded to a corporation, as it is an artificial person incapable of experiencing physical suffering and mental anguish. Furthermore, there was no sufficient basis for exemplary damages, as these are typically awarded only when moral damages are granted. The claim for attorney's fees was also denied due to lack of adequate support and proof, and because such fees are not recoverable as a matter of right but depend on the sound discretion of the courts. On the entitlement of Atty. Victor Valero to damages: The Court deleted the award of moral damages and attorney's fees to Atty. Valero. It found no illegal motive or malice in the bank impleading him as a party, as he was the official tasked with enforcing the municipality's ordinances. The bank filed the case in the honest belief of its exemption, and Atty. Valero was a necessary party in his official capacity. Therefore, he could not be faulted for performing his official duties, and the award of damages against the bank was baseless.
Main Doctrine
While rural banks were initially exempt from taxes under Republic Act No. 720, Executive Order No. 93 withdrew such exemptions. Furthermore, the closure of a business establishment for non-payment of taxes and fees, when not provided for as a remedy in the Local Tax Code and without due process, is an invalid exercise of police power.