VOL.

81, JANUARY 18, 99

1978
Philippine Match Co., Ltd.
vs. City of Cebu
*
No. L-30745. January 18, 1978.

PHILIPPINE MATCH CO., LTD., plaintiff-appellant, vs.THE CITY OF CEBU and JESUS E.
ZABATE, Acting City Treasurer, defendants-appellees.

Taxation; Local taxation; Tax on gross sales; Receipts or value of commodities sold, bartered on exchanged,
or manufactured in Cebu City; Imposition of gross sales tax on sales of matches perfected and paid for in Cebu
City but delivered to customers outside the said city; Reasons; Case at bar.—The city can validly tax the sales of
matches to customers outside of the city as long as the orders were booked and paid for in the company’s branch
office in the city. Those matches can be regarded as sold in the city, as contemplated in the ordinance, because the
matches were delivered to the carrier in Cebu Ci-

______________

*SECOND DIVISION.

100

100 SUPREME
COURT
REPORTS
ANNOTATED

Philippine Match Co.,

Ltd. vs. City of Cebu

ty. Generally, delivery to the carrier is delivery to the buyer. A different interpretation would defeat the tax
ordinance in question or encourage tax evasion through the simple expedient of arranging for the delivery of the
matches at the outskirts of the city although the purchases were effected and paid for in the company’s branch
office in the city. The municipal board of Cebu City is empowered “to provide for the levy and collection of taxes
for general and special purposes in accordance with law.”
Same; Same; Taxing power of cities, municipalities and municipal districts; Scope of.—The taxing power of
cities, municipalities and municipal districts may be used (1) “upon any person engaged in any occupation or
business, or exercising any privilege” therein; (2) for services rendered by those political subdivisions or rendered
in connection with any business, profession or occupation being conducted therein, and (3) to levy, for public
purposes, just and uniform taxes, licenses or fees.
Same; Same; Same; Only municipalities and municipal districts prohibited from imposing percentage taxes.—
The prohibition against the imposition of percentage taxes (formerly provided for in section 1 of Commonwealth
Act No. 472) refers to municipalities and municipal districts but not to chartered cities.
 Damages; Liability of public servant or employee who refuses or neglects, without just cause, to perform his
duty for damages; Refusal or omission should be attributable to malice or inexcusable negligence.—Article 27 of
the Civil Code provides that “any person suffering material or moral loss because a public servant or employee
refuses or neglects, without just cause, to perform his official duty may file an action for damages and other relief
against the latter, without prejudice to any disciplinary administrative action that may be taken.” Article 27
presupposes the refusal or omission of a public official is attributable to malice or inexcusable negligence. In this
case, it cannot be said that the city treasurer acted wilfully or was grossly negligent in not refunding to the plaintiff
the taxes which it paid under protest on out-of-town sales of matches.
Same; Same; Public servant or employee not personally liable for damages caused as a consequence of an act
performed within the scope of his official authority and in line with his official duty.—As a rule, a public officer,
whether judicial, quasi-judicial, or executive, is not personally liable to one injured in consequence of an act
perform-

101

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JANUARY 18,
1978

Philippine Match Co.,

Ltd. vs. City of Cebu

ed within the scope of his official authority, and in the line of his official duty. “Where an officer is invested
with discretion and is empowered to exercise his judgment in matters brought before him, he is sometimes called a
quasi-judicial officer, and when so acting he is usually given immunity from liability to persons who may be
injured as the result of an erroneous or mistaken decision, however erroneous his judgment may be, provided the
acts complained of are done within the scope of the officer’s authority, and without wilfulness, malice, or
corruption.
Same; Same; Erroneous interpretation of an ordinance does not constitute bad faith.—An erroneous
interpretation of an ordinance does not constitute nor does it amount to bad faith that would entitle an aggrieved
party to an award for damages.

APPEAL from a judgment of the Court of First Instance of Cebu. Villasor, J.

The facts are stated in the opinion of the Court.
Pelaez, Pelaez & Pelaezfor appellant.
Nazario Pacquiao, Metudio P. Belarmino & Ceferino Jomuad for appellees.

AQUINO, J.:

This case is about the legality of the tax collected by the City of Cebu on sales of matches stored by the
Philippine Match Co., Ltd. in Cebu City but delivered to customers outside of the city.
Ordinance No. 279 of Cebu City (approved by the mayor on March 10, 1960 and also approved by
the provincial board) is “an ordinance imposing a quarterly tax on gross sales or receipts of merchants,
dealers, importers and manufacturers of any commodity doing business” in Cebu City. It imposes a
sales tax of one percent (1%) on the gross sales, receipts or value of commodities sold, bartered,
exchanged or manufactured in the city in excess of P2,000 a quarter.
Section 9 of the ordinance provides that, for purposes of the tax, “all deliveries of goods or
commodities stored in the City of Cebu, or if not stored are sold” in that city, “shall be considered as
sales” in the city and shall be taxable.
102

102 SUPREME COURT

REPORTS
 ANNOTATED
Philippine Match Co., Ltd.
vs. City of Cebu

Thus, it would seem that under the tax ordinance sales of matches consummated outside of the city are
taxable as long as the matches sold are taken from the company’s stock stored in Cebu City.
The Philippine Match Co., Ltd., whose principal office is in Manila, is engaged in the manufacture
of matches. Its factory is located at Punta, Sta. Ana, Manila. It ships cases or cartons of matches from
Manila to its branch office in Cebu City for storage, sale and distribution within the territories and
districts under its Cebu-branch or the whole Visayas-Mindanao region. Cebu City itself is just one of
the eleven districts under the company’s Cebu City branch office.
The company does not question the tax on the sales of matches consummated in Cebu City, meaning
matches sold and delivered within the city.
It assails the legality of the tax which the city treasurer collected on out-of-town deliveries of
matches, to wit: (1) sales of matches booked and paid for in Cebu City but shipped directly to
customers outside of the city; (2) transfers of matches to salesmen assigned to different agencies
outside of the city and (3) shipments of matches to provincial customers pursuant to salesmen’s
instructions.
The company paid under protest to the city treasurer the sum of P12,844.61 as one percent sales tax
on those three classes of out-of-town deliveries of matches for the second quarter of 1961 to the second
quarter of 1963.
In paying the tax the company accomplished the verified forms furnished by the city treasurer’s
office. It submitted a statement indicating the four kinds of transactions enumerated above, the total
sales, and a summary of the deliveries to the different agencies, as well as the invoice numbers, names
of customers, the value of the sales, the transfers of matches to salesmen outside of Cebu City, and the
computation of taxes.
Sales of matches booked and paid for in Cebu City but shipped directly to customers outside of the
city refer to orders for matches made in the city by the company’s customers, by means of personal or
phone calls, for which sales invoices are issued, and then the matches are shipped from the bodega in
the city, where the matches had been stored, to the place of
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VOL. 81, JANUARY 103

18, 1978
Philippine Match Co., Ltd.
vs. City of Cebu

business or residences of the customers outside of the city, duly covered by bills of lading. The matches
are used and consumed outside of the city.
Transfers of matches to salesmen assigned to different agencies outside of the city embrace
shipments of matches from the branch office in the city to the salesmen (provided with panel cars)
assigned within the province of Cebu and in the different districts in the Visayas and Mindanao under
the jurisdiction or supervision of the Cebu City branch office. The shipments are covered by bills of
lading. No sales invoices whatsoever are issued. The matches received by the salesmen constitute their
direct cash accountability to the company. The salesmen sell the matches within their respective
territories. They issue cash sales invoices and remit the proceeds of the sales to the company’s Cebu
branch office. The value of the unsold matches constitutes their stock liability. The matches are used
and consumed outside of the city.
Shipments of matches to provincial customers pursuant to salesmen’s instructions embrace orders,
by letter or telegram, sent to the branch office by the company’s salesmen assigned outside of the city.
The matches are shipped from the company’s bodega in the city to the customers residing outside of the
city. The salesmen issue the sales invoices. The proceeds of the sale, for which the salesmen are
accountable, are remitted to the branch office. As in the first and second kinds of transactions above-
mentioned, the matches are consumed and used outside of the city.
 The company in its letter of April 15, 1961 to the city treasurer sought the refund of the sales tax
paid for out-of-town deliveries of matches. It invoked Shell Company of the Philippines, Ltd. vs.
Municipality of Sipocot, Camarines Sur, 105 Phil. 1263. In that case sales of oil and petroleum products
effected outside the territorial limits of Sipocot were held not to be subject to the tax imposed by an
ordinance of that municipality.
The city treasurer denied the request. His stand is that under section 9 of the ordinance all out-of-
town deliveries of matches stored in the city are subject to the sales tax imposed by the ordinance.
104

104 SUPREME COURT

REPORTS
ANNOTATED
Philippine Match Co., Ltd.
vs. City of Cebu

On August 12, 1963 the company filed the complaint herein, praying that the ordinance be declared
void insofar as it taxed the deliveries of matches outside of Cebu City, that the city be ordered to refund
to the company the said sum of P12,844.61 as excess sales tax paid, and that the city treasurer be
ordered to pay damages.
After hearing, the trial court sustained the tax on the sales of matches booked and paid for in Cebu
City although the matches were shipped directly to customers outside of the city. The lower court held
that the said sales were consummated in Cebu City because delivery to the carrier in the city is deemed
to be a delivery to the customers outside of the city.
But the trial court invalidated the tax on transfers of matches to salesmen assigned to different
agencies outside of the city and on shipments of matches to provincial customers pursuant to the
instructions of the salesmen. It ordered the defendants to refund to the plaintiff the sum of P8,923.55 as
taxes paid on the said out-of-town deliveries with legal rate of interest from the respective dates of
payment.
The trial court characterized the tax on the other two transactions as a “storage tax” and not a sales
tax. It assumed that the sales were consummated outside of the city and, hence, beyond the city’s taxing
power.
The city did not appeal from that decision. The company appealed from that portion of the decision
upholding the tax on sales of matches to customers outside of the city but which sales were booked and
paid for in Cebu City, and also from the dismissal of its claim for damages against the city treasurer.
The issue is whether the City of Cebu can tax sales of matches which were perfected and paid for in
Cebu City but the matches were delivered to customers outside of the City.
We hold that the appeal is devoid of merit because the city can validly tax the sales of matches to
customers outside of the city as long as the orders were booked and paid for in the company’s branch
office in the city. Those matches can be regarded as sold in the city, as contemplated in the ordinance,
because the matches were delivered to the carrier in Cebu City.
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18, 1978
Philippine Match Co., Ltd.
vs. City of Cebu

Generally, delivery to the carrier is delivery to the buyer (Art. 1523, Civil Code; Behn, Meyer & Co. vs.
Yangco, 38 Phil. 602).
A different interpretation would defeat the tax ordinance in question or encourage tax evasion
through the simple expedient of arranging for the delivery of the matches at the outskirts of the city
through the purchases were effected and paid for in the company’s branch office in the city.
 The municipal board of Cebu City is empowered “to provide for the levy and collection of taxes for
general and special purposes in accordance with law” (Sec. 17[a], Commonwealth Act No. 58; Sec.
31[1], Rep. Act No. 3857, Revised Charter of Cebu City).
The taxing power validly delegated to cities and municipalities is defined in the Local Autonomy
Act, Republic Act No. 2264 (Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of
Tanauan, Leyte, L-31156, February 27, 1976, 69 SCRA 460), which took effect on June 19, 1959 and
which provides:
“SEC. 2. Taxation.—Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and
municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any
occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by
requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal
council of the municipality, or the municipal district council of the municipal district; to collect fees and charges
for services rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for
services rendered in connection with any business, profession or occupation being conducted within the city,
municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or
fees;
“Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax on sales or
other taxes in any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under
the provisions of the National International Revenue Code;

106

106 SUPREME COURT

REPORTS
ANNOTATED
Philippine Match Co., Ltd.
vs. City of Cebu

“Provided, however, That no city, municipality or municipal district may levy or impose any of the following: (here
follows an enumeration of internal revenue taxes)
**
xxx xxx xxx x x x”

Note that the prohibition against the imposition of percentage taxes (formerly provided for in section 1
of Commonwealth Act No. 472) refers to municipalities and municipal districts but not to chartered
cities. (See sec. 5[1], Local Tax Code, P.D. No. 231. Marinduque Iron Mines Agents, Inc. vs. Municipal
Council of Hinabangan, Samar, 120 Phil. 413; Ormoc Sugar Co., Inc. vs. Treasurer of Ormoc City, L-
23794, February 17, 1968, 22 SCRA 603).
Note further that the taxing power of cities, municipalities and municipal districts may be used (1)
“upon any person engaged in any occupation or business, or exercising any privilege” therein; (2) for
services rendered by those political subdivisions or rendered in connection with any business,
profession or occupation being conducted therein, and (3) to levy, for public purposes, just and uniform
taxes, licenses or fees (C. N. Hodges vs. Municipal Board of the City of Iloilo, 117 Phil. 164, 167. See
sec. 31[25], Revised Charter of Cebu City).
Applying that jurisdictional test to the instant case, it is at once obvious that sales of matches to
customers outside of Cebu City, which sales were booked and paid for in the company’s branch office
in the city, are subject to the city’s taxing power. The instant case is easily distinguishable from
the Shell Company case where the price of the oil sold was paid outside of the municipality of Sipocot,
the entity imposing the tax.
On the other hand, the ruling in Municipality of Jose Panganiban, Province of Camarines Norte vs.
Shell Company of the Philippines, Ltd., L-18349, July 30, 1966, 17 SCRA 778

_______________
**Sec. 5, Article XI of the Constitution provides that “each local government unit shall have the power to create its own

sources of revenue and to levy taxes, subject to such limitations as may be provided by law”.
 That constitutional provision was implemented by Presidential Decree No. 231, the Local Tax Code, which took effect on July
1, 1973.

107

VOL. 81, JANUARY 107

18, 1978
Philippine Match Co., Ltd.
vs. City of Cebu

that the place of delivery determines the taxable situs of the property to be taxed cannot properly be
invoked in this case. Republic Act No. 1435, the law which enabled the Municipality of Jose
Panganiban to levy the sales tax involved in that case, specifies that the tax may be levied upon oils
“distributed within the limits of the city or municipality”, meaning the place where the oils were
delivered. That feature of the Jose Panganiban case distinguishes it from this case.
The sales in the instant case were finalized in the city and the matches sold were stored in the city.
The fact that the matches were delivered to customers, whose places of business were outside of the
city, would not place those sales beyond the city’s taxing power. Those sales formed part of the
merchandising business being carried on by the company in the city. In essence, they are the same as
sales of matches fully consummated in the city.
Furthermore, because the seller’s place of business is in Cebu City, it cannot be sensibly argued that
such sales should be considered as transactions subject to the taxing power of the political subdivisions
where the customers resided and accepted delivery of the matches sold.
The company in its second assignment of error contends that the trial court erred in not ordering
defendant acting city treasurer to pay exemplary damages of P20,000 and attorney’s fees.
The claim for damages is predicated on articles 19, 20, 21, 27 and 2229 of the Civil Code. It is
argued that the city treasurer refused and neglected without just cause to perform his duty and to act
with justice and good faith. The company faults the city treasurer for not following the opinion of the
city fiscal, as legal adviser of the city, that all out-of-town deliveries of matches are not subject to sales
tax because such transactions were effected outside of the city’s territorial limits.
In reply, it is argued for defendant city treasurer that in enforcing the tax ordinance in question he
was simply complying with his duty as collector of taxes (Sec. 50, Revised Charter of Cebu City).
Moreover, he had no choice but to enforce the ordinance because according to section 357 of the
Revised Manual of Instructions to Treasurer’s, “a tax ordinance will be
108

108 SUPREME COURT

REPORTS
ANNOTATED
Philippine Match Co., Ltd.
vs. City of Cebu

enforced in accordance with its provisions” until declared illegal or void by a competent court, or
otherwise revoked by the council or board from which it originated.
Furthermore, the Secretary of Finance had reminded the city treasurer that a tax ordinance approved
by the provincial board is operative and must be enforced without prejudice to the right of any affected
taxpayer to assail its legality in the judicial forum. The fiscal’s opinion on the legality of an ordinance
is merely advisory and has no binding effect.
Article 27 of the Civil Code provides that “any person suffering material or moral loss because a
public servant or employee refuses or neglects, without just cause, to perform his official duty may file
an action for damages and other relief against the latter, without prejudice to any disciplinary
administrative action that may be taken.”
 Article 27 presupposes that the refusal or omission of a public official is attributable to malice or
inexcusable negligence. In this case, it cannot be said that the city treasurer acted wilfully or was
grossly negligent in not refunding to the plaintiff the taxes which it paid under protest on out-of-town
sales of matches.
The record clearly reveals that the city treasurer honestly believed that he was justified under section
9 of the tax ordinance in collecting the sales tax on out-of-town deliveries, considering that the
company’s branch office was located in Cebu City and that all out-of-town purchase orders for matches
were filled up by the branch office and the sales were duly reported to it.
The city treasurer acted within the scope of his authority and in consonance with his bona
fide interpretation of the tax ordinance. The fact that his action was not completely sustained by the
courts would not render him liable for damages. We have upheld his act of taxing sales of matches
booked and paid for in the city.
“As a rule, a public officer, whether judicial, quasi-judicial, or executive, is not personally liable to
one injured in consequence of an act performed within the scope of his official authority, and in the line
of his official duty.” “Where an of-
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18, 1978
Philippine Match Co., Ltd.
vs. City of Cebu

ficer is invested with discretion and is empowered to exercise his judgment in matters brought before
him, he is sometimes called a quasi-judicial officer, and when so acting he is usually given immunity
from liability to persons who may be injured as the result of an erroneous or mistaken decision,
however erroneous his judgment may be, provided the acts complained of are done within the scope of
the officer’s authority, and without wilfulness, malice, or corruption.” (63 Am Jur 2nd 798, 799 cited
in Philippinne Racing Club, Inc. vs. Bonifacio, 109 Phil. 233, 240-241).
It has been held that an erroneous interpretation of an ordinance does not constitute nor does it
amount to bad faith that would entitle an aggrieved party to an award for damages (Cabungcal vs.
Cordova, 120 Phil. 567, 572-3). That salutary rule may be applied in this case.
Exemplary damages may be claimed in addition to moral, temperate, liquidated or compensatory
damages (Art. 2229, Civil Code). Attorney’s fees are being claimed herein as actual damages. We find
that it would not be just and equitable to award attorney’s fees in this case against the City of Cebu and
its treasurer (See Art. 2208, Civil Code).
WHEREFORE, the trial court’s judgment is affirmed. No costs.
SO ORDERED.

Fernando (Chairman), Antonio and Concepcion Jr., JJ., concur.

Barredo, J., concurs. Anent appellant’s claim for damages, it should be happy the trial court did
not sustain the city fully, which in my opinion, could have been possible.
Santos, J., is on leave.

Judgment affirmed.

Notes.—A municipal ordinance imposing a fee “for the selling and distribution of refined and
manufactured oils” based on the monthly allocation of the taxpayer is a sales tax ordinance. (Arabay,
Inc. vs. Court of First Instance of Zamboanga del Norte, 66 SCRA 617).
110

110 SUPREME COURT

REPORTS
ANNOTATED
 People vs. Cagod

The ordinance in question imposes tax on the sale or disposal of every “bottle or container” of “liquor
or intoxicating beverages,” and, as such, is a typical tax or revenue measure, whereas the sum of P600
it pays annually is for a “second-class wholesale liquor license,” which is a license to engage in the
business of wholesale liquor in Cebu City, and, accordingly, constitutes a regulatory measure, in the
exercise of police power. (San Miguel Brewery, Inc. vs. City of Cebu, 43 SCRA 275).
A municipal corporation may charge “parking fees” on vehicles that stop and load or unload on
public streets. (City of Ozamis vs. Lumapas, 65 SCRA 33).
A manufacturer selling at wholesale both at its factory and at its store located some four blocks
away from the factory, is liable to the payment of wholesale dealer’s tax, notwithstanding its having
paid the corresponding manufacturer’s license. (Co Tuan vs. City of Manila, 2 SCRA 1070).
For the recovery of taxes later on held by the courts to have been illegally imposed by a municipal
corporation, a protest is a condition precedent when the charter so requires. (Santos Lumber Co. vs. City
of Cebu, 2 SCRA 173).
A municipality has under Section 2 of Republic Act No. 2264 and its exceptions, the power to levy
by ordinance an inspection and verification fee of P0.10 per ton of silica sand excavated within its
territory, although it be in the nature of an export tax. (Nin Bay Mining Co. vs. Municipality of Roxas,
Palawan, 14 SCRA 660).
A local percentage tax on the production of centrifugal sugar and on the gross sales of its derivatives
and by-products is valid. (Ormoc Sugar Co., Inc. vs. Municipal Board of Ormoc City,20 SCRA 739).

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