ENVIRONMENTAL LAW & NATURAL RESOURCES Session 6
G.R. No. 146622. April 24, 2009.* void and may be attacked anytime. It creates no rights and produces no effect. In
LEONORA P. CALANZA, EVA M. AMOREN, GENE P. ROÑO, SANNY C.
CALANZA, GREGORIO C. YNCIERTO II and ANGEL M. PUYO, petitioners, vs.
PAPER INDUSTRIES CORPORATION OF THE PHILIPPINES (PICOP), GOOD
EARTH MINERAL CORP. (GEMCOR), EVARISTO NARVAEZ, JR., RICARDO G.
SANTIAGO, ROBERTO A. DORMENDO and REYDANDE D. AZUCENA,
respondents.
Local Government Units; Boundary Disputes; Jurisdiction; Courts; The settlement of a
boundary dispute involving municipalities or component cities of different provinces
shall be jointly referred for settlement to the respective sanggunians or the provincial
boards of the different provinces involved, with the dissatisfied party being given an
avenue to question the decision of the sanggunian to the Regional Trial Court (RTC)
having jurisdiction over the area.— Under paragraph (c) of Section 118, the
settlement of a boundary dispute involving municipalities or component cities of
different provinces shall be jointly referred for settlement to the respective
sanggunians or the provincial boards of the different provinces involved. Section 119
of the Local Government Code gives a dissatisfied party an avenue to question the
decision of the sanggunian to the RTC having jurisdiction over the area, viz.: Section
119. Appeal.—Within the time and manner prescribed by the Rules of Court, any
party may elevate the decision of the sanggunian concerned to the proper Regional
Trial Court having jurisdiction over the area in dispute x x x. Article 17, Rule III of the
Rules and Regulations Implementing The Local Government Code of 1991 outlines
the procedures governing boundary disputes, which succinctly includes the filing of
the proper petition, and in case of failure to amicably settle, a formal trial will be
conducted and a decision will be rendered thereafter. An aggrieved party can appeal
the decision of the sanggunian to the appropriate RTC.
Same; Same; Same; Same; Since the Regional Trial Court (RTC) has no original
jurisdiction on the boundary dispute between two provinces, its decision is a total
nullity.—The records of the case reveal that the instant case was initiated by
petitioners against respondents predicated on the latter’s refusal to allow the former
entry into the disputed mining areas. This is not a case where the Sangguniang
Panlalawigans of Davao Oriental and Surigao del Sur jointly rendered a decision
resolving the boundary dispute of the two provinces and the same decision was
elevated to the RTC. Clearly, the RTC cannot exercise appellate jurisdiction over the
case since there was no petition that was filed and decided by the Sangguniang
Panlalawigans of Davao Oriental and Surigao del Sur. Neither can the RTC assume
original jurisdiction over the boundary dispute since the Local Government Code
allocates such power to the Sangguniang Panlalawigans of Davao Oriental and
Surigao del Sur. Since the RTC has no original jurisdiction on the boundary dispute
between Davao Oriental and Surigao del Sur, its decision is a total nullity. We have
repeatedly ruled that a judgment rendered by a court without jurisdiction is null and
Page |1
fact it remains a basic fact in law that the choice of the proper forum is crucial as the
decision of a court or tribunal without jurisdiction is a total nullity. A void judgment
for want of jurisdiction is no judgment at all. It cannot be the source of any right nor
the creator of any obligation. All acts performed pursuant to it and all claims
emanating from it have no legal effect.
Same; Mining Permits; Pursuant to Republic Act No. 7076, which took effect on 18
July 1991, approval of the applications for mining permits and for mining contracts
are vested in the Provincial/City Mining Regulatory Board; Since a governor is without
legal authority to issue mining permits, such permits are null and void.— Petitioners’
small-scale mining permits are legally questionable. Under Presidential Decree No.
1899, applications of small-scale miners are processed with the Director of the Mines
and Geo-Sciences Bureau. Pursuant to Republic Act No. 7076, which took effect on
18 July 1991, approval of the applications for mining permits and for mining contracts
are vested in the Provincial/City Mining Regulatory Board. Composed of the DENR
representative, a representative from the small-scale mining sector, a representative
from the big-scale mining industry and a representative from an environmental
group, this body is tasked to approve small-scale mining permits and contracts. In
the case under consideration, petitioners filed their small-scale mining permits on 23
August 1991, making them bound by the procedures provided for under the
applicable and prevailing statute, Republic Act No. 7076. Instead of processing and
obtaining their permits from the Provincial Mining Regulatory Board, petitioners were
able to get the same from the governor of Davao del Norte. Considering that the
governor is without legal authority to issue said mining permits, the same permits are
null and void.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
  Torreon, De Vera-Torreon Law Firm for petitioners.
  Factoran, Tria & De Leon for respondents.
CHICO-NAZARIO, J.:
This Petition for Review under Rule 45 of the Rules of Court seeks to reverse and set
aside the 19 June 2000 Decision1 of the Court of Appeals in CA-G.R. CV No. 45234
which annulled the Decision of the Regional Trial Court (RTC) of Banganga, Davao
Oriental, Branch 7, granting the Complaint for Injunction filed by petitioners.
On 23 August 1991, petitioners Leonora P. Calanza, Eva M. Amoren, Gene P. Roño,
Sanny C. Calanza, Gregorio C. Yncierto II, and Angel M. Puyo filed with the Mines and
Geo-Sciences Development Service, Department of Environment and Natural
 ENVIRONMENTAL LAW & NATURAL RESOURCES
Resources (DENR), Region XI, of Davao City, applications for small-scale mining
permits for the purpose of extracting gold. In their applications, petitioners stated
that the area where they will conduct mining operations was in the Municipality of
Boston, Davao Oriental.2
On 22 December 1992, the governor of Davao Oriental, Rosalind Y. Lopez, approved
the applications and issued six small-scale mining permits in favor of the
petitioners.3 Since the mining areas applied for by petitioners were within the
respondent Paper Industries Corporation of the Philippines’ (PICOP) logging
concession area under Timber License Agreements (TLAs) that covered large tracts of
forest lands of the Provinces of Surigao del Sur, Agusan del Sur, Davao Oriental and
Davao del Norte, petitioners negotiated with PICOP for their entry into the mining site
at Barangay Catihan, Municipality of Boston, Davao Oriental. PICOP, through its
officer Roberto A. Dormendo, refused petitioners’ entry into the mining area on the
grounds that it has the exclusive right of occupation, possession and control over the
area being a logging concessionaire thereof; that petitioners’ mining permits are
defective since they were issued by the governor of Davao Oriental when in fact the
mining area is situated in Barangay Pagtilaan, Municipality of Lingig, Surigao del Sur;
and that mining permits cannot be issued over areas covered by forest rights such as
TLAs or forest reservations unless their status as such is withdrawn by competent
authority.
On 7 May 1993, petitioners filed a Complaint for Injunction with Prayer for the
Issuance of a Restraining Order, Damages and Attorney’s Fees against PICOP and its
officers before the RTC of Banganga, Davao Oriental, praying that PICOP or its agent
be enjoined from preventing and prohibiting them from entering into the mining site.
PICOP countered that the RTC of Davao Oriental has no jurisdiction over the
complaint of petitioners since the disputed area is situated in the Province of Surigao
del Sur. PICOP also claimed that the issuance of petitioners’ permits were void ab
initio since the same violated Section 5 of Republic Act No. 7076, otherwise known as
the People’s Small-Scale Mining Act of 1991, which allegedly prohibits the issuance of
mining permits over areas covered by forest rights such as TLAs or forest
reservations unless their status as such is withdrawn by the competent authority.
In the Pre-Trial Order dated 4 October 1993, the following are identified as the
issues:
1. Whether the mining areas claimed by petitioners are found within the
territories of Davao Oriental or Surigao del Sur.
2. Whether the small-scale mining permits of petitioners are valid.
3. Whether PICOP has the right and authority to deny petitioners access to,
possession of and the authority to conduct mining activities within the
disputed areas.4
Session 6 Page |2
In a decision dated 26 November 1993, the RTC ruled in favor of the petitioners. The
RTC opined that Barangay Pagtilaan (as claimed by PICOP) or Catihan (as claimed by
petitioners) is within the territory of the Province of Davao Oriental. Citing Section
465, paragraph (b), Sub-paragraph (3)iv of Republic Act No. 7160 or the Local
Government Code of 1991 which states to the effect that the governor has the power
to issue licenses and permits, the RTC ruled that the governor is vested with the
power to issue the small-scale mining permits to the petitioners. The decretal portion
of the RTC decision provides:
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered:
1. Declaring that all the [petitioners] have the rights under the laws to
extract and remove gold ore from their permit area as particularly described
by its technical descriptions found in their respective permits subject to the
terms and conditions stipulated therein;
2. Finding that [respondents] have no rights to deny [petitioners] entry into
the mining permit areas and hereby enjoining [respondents], their agents,
representatives, their attorneys, the SCAA or any persons acting in their
behalf to allow petitioners/permittees, their agents, representatives and
vehicles to enter, travel into the mining site areas of plaintiffs without any
restrictions, preventions and/or harassment of the purpose of conducting
mining activities thereat;
3. Further restraining and enjoining the respondents, their attorneys, agents
and/or representatives, the SCAA or its officers and such other persons
acting for and in their behalf from preventing, prohibiting or harassing the
[petitioners], their agents or authorized representatives, their vehicles, tools
and other mining paraphernalia’s from entering, traveling into the mining
site using and passing through the most accessible concession roads of
[respondents], such as but not limited to Road 5M and spurs within PICOP’s
TLA 43 areas.
There being no evidentiary proof of actual and compensatory damages, and in the
absence of fraud or evident bad faith on the part of defendants, especially PICOP,
which apparently is exercising its right to litigate, this Court makes no finding as to
actual, compensatory and moral damages nor attorney’s fees. 5
Respondent PICOP appealed the RTC decision.
In a Decision dated 19 June 2000, the Court of Appeals reversed the RTC Decision
and dismissed the complaint of respondents.
In setting aside the RTC Decision, the Court of Appeals stated that the RTC erred in
passing upon the issue of the boundary dispute between the provinces of Davao
Oriental and Surigao del Sur since the resolution of the boundary dispute primarily
resides with the sangguniang panlalawigans of the two provinces and the RTC has
 ENVIRONMENTAL LAW & NATURAL RESOURCES
only appellate jurisdiction over the case, pursuant to the Local Government Code of
1991. The Court of Appeals also said that the governor has no power to issue small-
scale mining permits since such authority under Section 9 of Republic Act No. 7076 is
vested with the Provincial Mining Regulatory Board.
The disposition of the Court of Appeals reads:
WHEREFORE, premises considered, the appealed decision in Civil Case No. 489 is
hereby REVERSED and SET ASIDE and a new one is hereby rendered dismissing the
complaint filed by [petitioners].6
Petitioners filed a motion for reconsideration, which was denied by the Court of
Appeals in its Order dated 10 November 2000.
Hence, the instant petition.
The petition is not meritorious.
There is boundary dispute when a portion or the whole of the territorial area of a
Local Government Unit (LGU) is claimed by two or more LGUs. 7 In settling boundary
disputes, Section 118 of the 1991 Local Government Code provides:
Sec. 118. Jurisdictional Responsibility for Settlement of Boundary Dispute. – Boundary
disputes between and among local government units shall, as much as possible, be
settled amicably. To this end:
(a) Boundary disputes involving two (2) or more barangays in the same city
or municipality shall be referred for settlement to the sangguniang
panlungsod or sangguniang bayan concerned.
(b) Boundary disputes involving two (2) or more municipalities within the
same province shall be referred for settlement to the sangguniang
panlalawigan concerned.
(c) Boundary disputes involving municipalities or component cities of
different provinces shall be jointly referred for settlement to
the sanggunians of the provinces concerned.
(d) Boundary disputes involving a component city or municipality on the one
hand and a highly urbanized city on the other, or two (2) or more highly
urbanized cities, shall be jointly referred for settlement to the
respective sanggunians of the parties.
(e) In the event the sanggunian fails to effect an amicable settlement within
sixty (60) days from the date the dispute was referred thereto, it shall issue
a certification to that effect. Thereafter, the dispute shall be formally tried by
the sanggunian concerned which shall decide the issue within sixty (60) days
from the date of the certification referred to above. 1avvphi1
Session 6 Page |3
Under paragraph (c) of Section 118, the settlement of a boundary dispute involving
municipalities or component cities of different provinces shall be jointly referred for
settlement to the respective sanggunians or the provincial boards of the different
provinces involved. Section 119 of the Local Government Code gives a dissatisfied
party an avenue to question the decision of the sanggunian to the RTC having
jurisdiction over the area, viz:
Section 119. Appeal. - Within the time and manner prescribed by the Rules of Court,
any party may elevate the decision of the sanggunian concerned to the proper
Regional Trial Court having jurisdiction over the area in dispute x x x.
Article 17, Rule III of the Rules and Regulations Implementing The Local Government
Code of 1991 outlines the procedures governing boundary disputes, which succinctly
includes the filing of the proper petition, and in case of failure to amicably settle, a
formal trial will be conducted and a decision will be rendered thereafter. An aggrieved
party can appeal the decision of the sanggunian to the appropriate RTC. Said rules
and regulations state:
Article 17. Procedures for Settling Boundary Disputes. – The following procedures
shall govern the settlement of boundary disputes:
(a) Filing of petition - The sanggunian concerned may initiate action by filing
a petition, in the form of a resolution, with the sanggunian having
jurisdiction over the dispute.
(b) Contents of petition - The petition shall state the grounds, reasons or
justifications therefore.
(c) Documents attached to petition - The petition shall be accompanied by:
1. Duly authenticated copy of the law or statute creating the LGU
or any other document showing proof of creation of the LGU;
2. Provincial, city, municipal, or barangay map, as the case may be,
duly certified by the LMB.
3. Technical description of the boundaries of the LGUs concerned;
4. Written certification of the provincial, city, or municipal assessor,
as the case may be, as to territorial jurisdiction over the disputed
area according to records in custody;
5. Written declarations or sworn statements of the people residing
in the disputed area; and
 ENVIRONMENTAL LAW & NATURAL RESOURCES
6. Such other documents or information as may be required by
the sanggunian hearing the dispute.
(d) Answer of adverse party - Upon receipt by the sanggunian concerned of
the petition together with the required documents, the LGU or LGUs
complained against shall be furnished copies thereof and shall be given
fifteen (15) working days within which to file their answers.
(e) Hearing - Within five (5) working days after receipt of the answer of the
adverse party, the sanggunian shall hear the case and allow the parties
concerned to present their respective evidences.
(f) Joint hearing - When two or more sanggunians jointly hear a case, they
may sit en banc or designate their respective representatives. Where
representatives are designated, there shall be an equal number of
representatives from each sanggunian. They shall elect from among
themselves a presiding officer and a secretary. In case of disagreement,
selection shall be by drawing lot.
(g) Failure to settle - In the event the sanggunian fails to amicably settle the
dispute within sixty (60) days from the date such dispute was referred
thereto, it shall issue a certification to the effect and copies thereof shall be
furnished the parties concerned.
(h) Decision - Within sixty (60) days from the date the certification was
issued, the dispute shall be formally tried and decided by
the sanggunian concerned. Copies of the decision shall, within fifteen (15)
days from the promulgation thereof, be furnished the parties concerned,
DILG, local assessor, COMELEC, NSO, and other NGAs concerned.
(i) Appeal - Within the time and manner prescribed by the Rules of Court,
any party may elevate the decision of the sanggunian  concerned to the
proper Regional Trial Court having jurisdiction over the dispute by filing
therewith the appropriate pleading, stating among others, the nature of the
dispute, the decision of the sanggunian concerned and the reasons for
appealing therefrom. The Regional Trial Court shall decide the case within
one (1) year from the filing thereof. Decisions on boundary disputes
promulgated jointly by two (2) or more sangguniang panlalawigans shall be
heard by the Regional Trial Court of the province which first took cognizance
of the dispute.
The records of the case reveal that the instant case was initiated by petitioners
against respondents predicated on the latter’s refusal to allow the former entry into
the disputed mining areas. This is not a case where the sangguniang panlalawigans
of Davao Oriental and Surigao del Sur jointly rendered a decision resolving the
boundary dispute of the two provinces and the same decision was elevated to the
RTC. Clearly, the RTC cannot exercise appellate jurisdiction over the case since there
Session 6 Page |4
was no petition that was filed and decided by the sangguniang panlalawigans of
Davao Oriental and Surigao del Sur. Neither can the RTC assume original jurisdiction
over the boundary dispute since the Local Government Code allocates such power to
the sangguniang panlalawigans of Davao Oriental and Surigao del Sur. Since the RTC
has no original jurisdiction on the boundary dispute between Davao Oriental and
Surigao del Sur, its decision is a total nullity. We have repeatedly ruled that a
judgment rendered by a court without jurisdiction is null and void and may be
attacked anytime.8 It creates no rights and produces no effect. In fact it remains a
basic fact in law that the choice of the proper forum is crucial as the decision of a
court or tribunal without jurisdiction is a total nullity. A void judgment for want of
jurisdiction is no judgment at all. It cannot be the source of any right nor the creator
of any obligation. All acts performed pursuant to it and all claims emanating from it
have no legal effect.9
Moreover, petitioners’ small-scale mining permits are legally questionable. Under
Presidential Decree No. 1899, applications of small-scale miners are processed with
the Director of the Mines and Geo-Sciences Bureau. Pursuant to Republic Act No.
7076, which took effect10 on 18 July 1991, approval of the applications for mining
permits and for mining contracts are vested in the Provincial/City Mining Regulatory
Board. Composed of the DENR representative, a representative from the small-scale
mining sector, a representative from the big-scale mining industry and a
representative from an environmental group, this body is tasked to approve small-
scale mining permits and contracts.
In the case under consideration, petitioners filed their small-scale mining permits on
23 August 1991, making them bound by the procedures provided for under the
applicable and prevailing statute, Republic Act No. 7076. Instead of processing and
obtaining their permits from the Provincial Mining Regulatory Board, petitioners were
able to get the same from the governor of Davao del Norte. Considering that the
governor is without legal authority to issue said mining permits, the same permits are
null and void.
Based on the discussions above, the Court of Appeals is correct in finding that
petitioners have no right to enter into and to conduct mining operations within the
disputed lands under the infirmed small-scale mining permits.
In fine, this Court defers to the findings of the Court of Appeals, there being no
cogent reason to veer away from such findings.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 19
June 2000 and its Resolution dated 10 November 2000 reversing the 26 November
1993 Decision of the Regional Trial Court of Banganga, Davao Oriental, Branch 7, are
hereby AFFIRMED. No costs.
SO ORDERED.
 ENVIRONMENTAL LAW & NATURAL RESOURCES
G.R. No. 114091. June 29, 1995.*
BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners, vs. HON.
COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.
Agency; Contracts; Obligations; Every person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent.— Every person
dealing with an agent is put upon inquiry and must discover upon his peril the
authority of the agent. If he does not make such inquiry, he is chargeable with
knowledge of the agent’s authority, and his ignorance of that authority will not be
any excuse. Persons dealing with an assumed agent, whether the assumed agency
be a general or special one, are bound at their peril, if they would hold the principal,
to ascertain not only the fact of the agency but also the nature and extent of the
authority, and in case either is controverted, the burden of proof is upon them to
establish it.
Same; Same; Same; The Authorization is a special power of attorney for it refers to a
clear mandate specifically authorizing the performance of a specific power and of
express acts subsumed therein.—The conclusion then of the Court of Appeals that
the Authorization includes the power to enter into the Trip Charter Party because the
“five prerogatives” are prefaced by such clause, is seriously flawed. It fails to note
that the broadest scope of Savellon’s authority is limited to the use of the coal
operating contract and the clause cannot contemplate any other power not included
in the enumeration or which are unrelated either to the power to use the coal
operating contract or to those already enumerated. In short, while the clause allows
some room for flexibility, it can comprehend only additional prerogatives falling within
the primary power and within the same class as those enumerated. The trial court,
however, went further by hastily making a sweeping conclusion that “a company such
as a coal mining company is not prohibited to engage in entering into a Trip Charter
Party contract.” But what the trial court failed to consider was that there is no
evidence at all that Bacaltos Coal Mines as a coal mining company owns and operates
vessels, and even if it owned any such vessels, that it was allowed to charter or lease
them. The trial court also failed to note that the Authorization is not a general power
of attorney. It is a special power of attorney for it refers to a clear mandate
specifically authorizing the performance of a specific power and of express acts
subsumed therein.
Session 6 Page |5
Mines and Mining; Coal Operating Contract; Coal operating contract is one of the
authorized ways of active exploration, development, and production of coal resources
in a specified contract area.— A coal operating contract is governed by P.D. No. 972
(The Coal Development Act of 1976), as amended by P.D. No. 1174. It is one of the
authorized ways of active exploration, development, and production of coal resources
in a specified contract area.
Agency; Contracts; Obligations; Rule that between two innocent parties, the one who
made it possible for the wrong to be done should be the one to bear the resulting
loss. In the present case, SMC is guilty of not ascertaining the extent and limits of the
authority of Savellon. In not doing so, SMC dealt with Savellon at its own peril.— We
agree with the petitioners that SMC committed negligence in drawing the check in the
manner aforestated. It even disregarded the request of Savellon that it be drawn in
favor of BACALTOS COAL MINES/RENE SAVELLON. Furthermore, assuming that the
transaction was permitted in the Authorization, the check should still have been
drawn in favor of the principal. SMC then made possible the wrong done. There is an
equitable maxim that between two innocent parties, the one who made it possible for
the wrong to be done should be the one to bear the resulting loss. For this rule to
apply, the condition precedent is that both parties must be innocent. In the present
case, however, SMC is guilty of not ascertaining the extent and limits of the authority
of Savellon. In not doing so, SMC dealt with Savellon at its own peril.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
     Zosa & Quijano Law Offices for petitioners.
     Angara, Abello, Concepcion, Regala & Cruz for San Miguel Corporation.
DAVIDE, JR., J.:
Petitioners seek the reversal of the decision of 30 September 1993 of the Court of
Appeals in CA-G.R. CV No. 35180, 1 entitled "San Miguel Corporation vs. Bacaltos Coal
Mines, German A. Bacaltos and Rene R. Savellon," which affirmed the decision of 19
August 1991 of the Regional Trial Court (RTC) of Cebu, Branch 9, in Civil Case No.
CEB-81872 holding petitioners Bacaltos Coal Mines and German A. Bacaltos and their
co-defendant Rene R. Savellon jointly and severally liable to private respondent San
Miguel Corporation under a Trip Charter Party.
The paramount issue raised is whether Savellon was duly authorized by the
petitioners to enter into the Trip Charter Party (Exhibit "A") 3 under and by virtue of
an Authorization (Exhibit "C" and Exhibit "1"), 4 dated 1 March 1988, the pertinent
portions of which read as follows:
 ENVIRONMENTAL LAW & NATURAL RESOURCES
I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and residing at
second street, Espina Village, Cebu City, province of Cebu, Philippines, do
hereby authorize RENE R. SAVELLON, of legal age, Filipino and residing at
376-R Osmeña Blvd., Cebu City, Province of Cebu, Philippines, to use the
coal operating contract of BACALTOS COAL MINES of which I am the
proprietor, for any legitimate purpose that it may serve. Namely, but not by
way of limitation, as follows:
(1) To acquire purchase orders for and in behalf of BACALTOS COAL
MINES;
(2) To engage in trading under the style of BACALTOS COAL
MINES/RENE SAVELLON;
(3) To collect all receivables due or in arrears from people or companies
having dealings under BACALTOS COAL MINES/RENE SAVELLON;
(4) To extend to any person or company by substitution the same
extent of authority that is granted to Rene Savellon;
(5) In connection with the preceeding paragraphs to execute and sign
documents, contracts, and other pertinent papers.
Further, I hereby give and grant to RENE SAVELLON full authority to do and
perform all and every lawful act requisite or necessary to carry into effect
the foregoing stipulations as fully to all intents and purposes as I might or
would lawfully do if personally present, with full power of substitution and
revocation.
The Trip Charter Party was executed on 19 October 1988 "by and between
BACALTOS COAL MINES, represented by its Chief Operating Officer, RENE ROSEL
SAVELLON" and private respondent San Miguel Corporation (hereinafter SMC),
represented by Francisco B. Manzon, Jr., its "SAVP and Director, Plant Operations-
Mandaue" Thereunder, Savellon claims that Bacaltos Coal Mines is the owner of the
vessel M/V Premship II and that for P650,000.00 to be paid within seven days after
the execution of the contract, it "lets, demises" the vessel to charterer SMC "for three
round trips to Davao."
As payment of the aforesaid consideration, SMC issued a check (Exhibit "B") 5 payable
to "RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES" for which Savellon
issued a receipt under the heading of BACALTOS COAL MINES with the address at No
376-R Osmeña Blvd., Cebu City (Exhibit "B-1"). 6
The vessel was able to make only one trip. Its demands to comply with the contract
having been unheeded, SMC filed against the petitioners and Rene Savellon the
complaint in Civil Case No. CEB-8187 for specific performance and damages. In their
Answer,7 the petitioners alleged that Savellon was not their Chief Operating Officer
Session 6 Page |6
and that the powers granted to him are only those clearly expressed in the
Authorization which do not include the power to enter into any contract with SMC.
They further claimed that if it is true that SMC entered into a contract with them, it
should have issued the check in their favor. They setup counterclaims for moral and
exemplary damages and attorney's fees.
Savellon did not file his Answer and was declared in default on 17 July 1990. 8
At the pre-trial conference on 1 February 1991, the petitioners and SMC agreed to
submit the following issues for resolution:
Plaintiff —
1. Whether or not defendants are jointly liable to plaintiff for damages on
account of breach of contract;
2. Whether or not the defendants acted in good faith in its representations
to the plaintiff;
3. Whether or not defendant Bacaltos was duly enriched on the payment
made by the plaintiff for the use of the vessel;
4. Whether or not defendant Bacaltos is estopped to deny the authorization
given to defendant Savellon;
Defendants —
1. Whether or not the plaintiff should have first investigated the ownership
of vessel M/V PREM [SHIP] II before entering into any contract with
defendant Savellon;
2. Whether or not defendant Savellon was authorized to enter into a
shipping contract with the [plaintiff] corporation;
3. Whether or not the plaintiff was correct and not mistaken in issuing the
checks in payment of the contract in the name of defendant Savellon and
not in the name of defendant Bacaltos Coal Mines;
4. Whether or not the plaintiff is liable on defendants'
counterclaim.9
After trial, the lower court rendered the assailed decision in favor of SMC and against
the petitioners and Savellon as follows:
WHEREFORE, by preponderance of evidence, the Court hereby renders
judgment in favor of plaintiff and against defendants, ordering defendants
Rene Savellon, Bacaltos Coal Mines and German A. Bacaltos, jointly and
severally, to pay to plaintiff:
 ENVIRONMENTAL LAW & NATURAL RESOURCES
1. The amount of P433,000.00 by way of reimbursement of the
consideration paid by plaintiff, plus 12% interest to start from date of
written demand, which is June 14, 1989;
2. The amount of P20,000.00 by way of exemplary damages;
3. The amount of P20,000.00 as attorney's fees and P5,000.00 as Litigation
expenses. Plus costs. 10
It ruled that the Authorization given by German Bacaltos to Savellon necessarily
included the power to enter into the Trip Charter Party. It did not give credence to
the petitioners' claim that the authorization refers only to coal or coal mining and not
to shipping because, according to it, "the business of coal mining may also involve
the shipping of products" and "a company such as a coal mining company is not
prohibited to engage in entering into a Trip Charter Party contract." It further
reasoned out that even assuming that the petitioners did not intend to authorize
Savellon to enter into the Trip Charter Party, they are still liable because: (a) SMC
appears to be an innocent party which has no knowledge of the real intent of the
parties to the Authorization and has reason to rely on the written Authorization
submitted by Savellon pursuant to Articles 1900 and 1902 of the Civil Code; (b)
Savellon issued an official receipt of Bacaltos Coal Mines (Exhibit "B-1") for the
consideration of the Trip Charter Party, and the petitioners denial that they caused
the printing of such official receipt is "lame" because they submitted only a cash
voucher and not their official receipt; (c) the "Notice of Readiness" (Exhibit "A-1") is
written on a paper with the letterhead "Bacaltos Coal Mines" and the logo therein is
the same as that appearing in their voucher; (d) the petitioners were benefited by
the payment because the real payee in the check is actually Bacaltos Coal Mines and
since in the Authorization they authorized Savellon to collect receivables due or in
arrears, the check was then properly delivered to Savellon; and, (e) if indeed Savellon
had not been authorized or if indeed he exceeded his authority or if the Trip Charter
Party was personal to him and the petitioners have nothing to do with it, then
Savellon should have "bother[ed] to answer" the complaint and the petitioners should
have filed "a cross-claim" against him.
In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the petitioners
asserted that the trial court erred in: (a) not holding that SMC was negligent in (1)
not verifying the credentials of Savellon and the ownership of the vessel, (2) issuing
the check in the name of Savellon in trust for Bacaltos Coal Mines thereby allowing
Savellon to encash the check, and, (3) making full payment of P650,000.00 after the
vessel made only one trip and before it completed three trips as required in the Trip
Charter Party; (b) holding that under the authority given to him Savellon was
authorized to enter into the Trip Charter Party; and, (c) holding German Bacaltos
jointly and severally liable with Savellon and Bacaltos Coal Mines. 11
As stated at the beginning, the Court of Appeals affirmed in toto the judgment of the
trial court. It held that: (a) the credentials of Savellon is not an issue since the
Session 6 Page |7
petitioners impliedly admitted the agency while the ownership of the vessel was
warranted on the face of the Trip Charter Party; (b) SMC was not negligent when it
issued the check in the name of Savellon in trust for Bacaltos Coal Mines since the
Authorization clearly provides that collectibles of the petitioners can be coursed
through Savellon as the agent; (c) the Authorization includes the power to enter into
the Trip Charter Party because the "five prerogatives" enumerated in the former is
prefaced by the phrase "but not by way of limitation"; (d) the petitioners' statement
that the check should have been issued in the name of Bacaltos Coal Mines is another
implicit admission that the Trip Charter Party is part and parcel of the petitioners'
business notwithstanding German Bacaltos's contrary interpretation when he testified,
and in any event, the construction of obscure words should not favor him since he
prepared the Authorization in favor of Savellon; and, (e) German Bacaltos admitted in
the Answer that he is the proprietor of Bacaltos Coal Mines and he likewise
represented himself to be so in the Authorization itself, hence he should not now be
permitted to disavow what he initially stated to be true and to interpose the defense
that Bacaltos Coal Mines has a distinct legal personality.
Their motion for a reconsideration of the above decision having been denied, the
petitioners filed the instant petition wherein they raise the following errors:
I. THE RESPONDENT COURT ERRED IN HOLDING THAT RENE
SAVELLON WAS AUTHORIZED TO ENTER INTO A TRIP CHARTER
PARTY CONTRACT WITH PRIVATE RESPONDENT INSPITE OF ITS
FINDING THAT SUCH AUTHORITY CANNOT BE FOUND IN THE FOUR
CORNERS OF THE AUTHORIZATION;
II. THE RESPONDENT COURT ERRED IN NOT HOLDING THAT BY
ISSUING THE CHECK IN THE NAME OF RENE SAVELLON IN TRUST FOR
BACALTOS COAL MINES, THE PRIVATE RESPONDENT WAS THE
AUTHOR OF ITS OWN DAMAGE; AND
III. THE RESPONDENT COURT ERRED IN HOLDING PETITIONER
GERMAN BACALTOS JOINTLY AND SEVERALLY LIABLE WITH RENE
SAVELLON AND CO-PETITIONER BACALTOS COAL MINES IN SPITE OF
THE FINDING OF THE COURT A QUO THAT PETITIONER BACALTOS
COAL MINES AND PETITIONER BACALTOS ARE TWO DISTINCT AND
SEPARATE LEGAL PERSONALITIES. 12
After due deliberations on the allegations, issues raised, and arguments adduced in
the petition, and the comment thereto and reply to the comment, the Court resolved
to give due course to the petition.
Every person dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent. If he does not make such inquiry, he is chargeable
with knowledge of the agent's authority, and his ignorance of that authority will not
be any excuse. Persons dealing with an assumed agent, whether the assumed
agency be a general or special one, are bound at their peril, if they would hold the
 ENVIRONMENTAL LAW & NATURAL RESOURCES
principal, to ascertain not only the fact of the agency but also the nature and extent
of the authority, and in case either is controverted, the burden of proof is upon them
to establish it. 13 American jurisprudence 14 summarizes the rule in dealing with an
agent as follows:
A third person dealing with a known agent may not act negligently with
regard to the extent of the agent's authority or blindly trust the agent's
statements in such respect. Rather, he must use reasonable diligence
and prudence to ascertain whether the agent is acting and dealing with
him within the scope of his powers. The mere opinion of an agent as to
the extent of his powers, or his mere assumption of authority without
foundation, will not bind the principal; and a third person dealing with a
known agent must bear the burden of determining for himself, by the
exercise of reasonable diligence and prudence, the existence or
nonexistence of the agent's authority to act in the premises. In other
words, whether the agency is general or special, the third person is
bound to ascertain not only the fact of agency, but the nature and
extent of the authority. The principal, on the other hand, may act on
the presumption that third persons dealing with his agent will not be
negligent in failing to ascertain the extent of his authority as well as the
existence of his agency.
Or, as stated in Harry E. Keller Electric Co. vs. Rodriguez, 15 quoting
Mechem on Agency:
The person dealing with the agent must also act with ordinary prudence
and reasonable diligence. Obviously, if he knows or has good reason to
believe that the agent is exceeding his authority, he cannot claim
protection. So if the suggestions of probable limitations be of such a
clear and reasonable quality, or if the character assumed by the agent
is of such a suspicious or unreasonable nature, or if the authority which
he seeks to exercise is of such an unusual or improbable character, as
would suffice to put an ordinarily prudent man upon his guard, the
party dealing with him may not shut his eyes to the real estate of the
case, but should either refuse to deal with the agent at all, or should
ascertain from the principal the true condition of affairs . [emphasis
supplied].
In the instant case, since the agency of Savellon is based on a written document, the
Authorization of 1 March 1988 (Exhibits "C" and "1"), the extent and scope of his
powers must be determined on the basis thereof. The language of the Authorization
is clear. It pertinently states as follows:
I. GERMAN A. BACALTOS do hereby authorize RENE R. SAVELLON . . . to use the
coal operating contract of BACALTOS COAL MINES, of which I am the proprietor, for
any legitimate purpose that it may serve . Namely, but not by way of limitation, as
follows  . . . [emphasis supplied].
Session 6 Page |8
There is only one express power granted to Savellon, viz., to use the coal
operating contract for any legitimate purpose it may serve. The enumerated
"five prerogatives" — to employ the term used by the Court of Appeals —
are nothing but the specific prerogatives subsumed under or classified as
part of or as examples of the power to use the coal operating contract. The
clause "but not by way of limitation " which precedes the enumeration could
only refer to or contemplate other prerogatives which must exclusively
pertain or relate or be germane to the power to use the coal operating
contract. The conclusion then of the Court of Appeals that the Authorization
includes the power to enter into the Trip Chapter Party because the "five
prerogatives" are prefaced by such clause, is seriously flawed. It fails to note
that the broadest scope of Savellon's authority is limited to the use of the
coal operating contract  and the clause cannot contemplate any other power
not included in the enumeration or which are unrelated either to the power
to use the coal operating contract or to those already enumerated. In short,
while the clause allows some room for flexibility, it can comprehend only
additional prerogatives falling within the primary power and within the same
class as those enumerated. The trial court, however, went further by hastily
making a sweeping conclusion that "a company such as a coal mining
company is not prohibited to engage in entering into a Trip Charter Party
contract." 16 But what the trial court failed to consider was that there is no
evidence at all that Bacaltos Coal Mines as a coal mining company owns and
operates vessels, and even if it owned any such vessels, that it was allowed
to charter or lease them. The trial court also failed to note that the
Authorization is not a general power of attorney . It is a special power of
attorney  for it refers to a clear mandate specifically authorizing the
performance of a specific power and of express acts subsumed therein. 17 In
short, both courts below unreasonably expanded the express terms of or
otherwise gave unrestricted meaning to a clause which was precisely
intended to prevent unwarranted and unlimited expansion of the powers
entrusted to Savellon. The suggestion of the Court of Appeals that there is
obscurity in the Authorization which must be construed against German
Bacaltos because he prepared the Authorization has no leg to stand on
inasmuch as there is no obscurity or ambiguity in the instrument. If any
obscurity or ambiguity indeed existed, then there will be more reason to
place SMC on guard and for it to exercise due diligence in seeking
clarification or enlightenment thereon, for that was part of its duty to
discover upon its peril the nature and extent of Savellon's written agency.
Unfortunately, it did not.
Howsoever viewed, the foregoing conclusions of the Court of Appeals and the trial
court are tenuous and farfetched, bringing to unreasonable limits the clear
parameters of the powers granted in the Authorization.
Furthermore, had SMC exercised due diligence and prudence, it should have known in
no time that there is absolutely nothing on the face of the Authorization that confers
 ENVIRONMENTAL LAW & NATURAL RESOURCES
upon Savellon the authority to enter into any Trip Charter Party. Its conclusion to the
contrary is based solely on the second prerogative under the Authorization, to wit:
(2) To engage in trading under the style of BACALTOS COAL
MINES/RENE SAVELLON;
unmindful that such is but a part of the primary authority to use the coal
operating contract which it did not even require Savellon to produce. Its
principal witness, Mr. Valdescona, expressly so admitted on cross-
examination, thus:
Atty. Zosa (to witness — ON CROSS)
Q You said that in your office Mr. Rene Savellon presented to you
this authorization marked Exhibit "C" and Exhibit "1" for the
defendant?
A Yes, sir.
Q Did you read in the first part[y] of this authorization Mr.
Valdescona that Mr. Rene Savellon was authorized as the coal
operating contract of Bacaltos Coal Mines?
A Yes, sir.
Q Did it not occur to you that you should have examined further
the authorization of Mr. Rene Savellon, whether or not this coal
operating contract allows Mr. Savellon to enter into a trip charter
party?
A Yes, sir. We discussed about the extent of his authorization and
he referred us to the number 2 provision of this authorization which
is to engage in trading under the style of Bacaltos Coal Mines/Rene
Savellon, which we followed up to the check preparation because it
is part of the authority.
Q In other words, you examined this and you found out that Mr.
Savellon is authorized to use the coal operating contract of Bacaltos
Coal Mines?
A Yes, sir.
Q You doubted his authority but you found out in paragraph 2 that
he is authorized that's why you agreed and entered into that trip
charter party?
A We did not doubt his authority but we were questioning as to the
extent of his operating contract.
Session 6 Page |9
Q Did you not require Mr. Savellon to produce that coal operating
contract of Bacaltos Coal Mines?
A No sir. We did not. 18
Since the principal subject of the Authorization is the coal operating contract, SMC
should have required its presentation to determine what it is and how it may be used
by Savellon. Such a determination is indispensable to an inquiry into the extent or
scope of his authority. For this reason, we now deem it necessary to examine the
nature of a coal operating contract.
A coal operating contract is governed by P.D. No. 972 (The Coal Development Act of
1976), as amended by P.D. No. 1174. It is one of the authorized ways of active
exploration, development, and production of coal resources 19 in a specified contract
area. 20 Section 9 of the decree prescribes the obligation of the contractor, thus:
Sec. 9. Obligations of Operator in Coal Operating Contract . — The operator
under a coal operating contract shall undertake, manage and execute the
coal operations which shall include:
(a) The examination and investigation of lands supposed to contain coal, by
detailed surface geologic mapping, core drilling, trenching, test pitting and
other appropriate means, for the purpose of probing the presence of coal
deposits and the extent thereof;
(b) Steps necessary to reach the coal deposit so that it can be mined,
including but not limited to shaft sinking and tunneling; and
(c) The extraction and utilization of coal deposits.
The Government shall oversee the management of the operation
contemplated in a coal operating contract and in this connection, shall
require the operator to:
(a) Provide all the necessary service and technology;
(b) Provide the requisite financing;
(c) Perform the work obligations and program prescribed in the coal
operating contract which shall not be less than those prescribed in this
Decree;
(d) Operate the area on behalf of the Government in accordance with good
coal mining practices using modern methods appropriate for the geological
conditions of the area to enable maximum economic production of coal,
avoiding hazards to life, health and property, avoiding pollution of air, lands
 ENVIRONMENTAL LAW & NATURAL RESOURCES
and waters, and pursuant to an efficient and economic program of
operation;
(e) Furnish the Energy Development Board promptly with all information,
data and reports which it may require;.
(f) Maintain detailed technical records and account of its expenditures;
(g) Conform to regulations regarding, among others, safety demarcation of
agreement acreage and work areas, non-interference
with the rights of the other petroleum, mineral and natural resources
operators; —
(h) Maintain all necessary equipment in good order and allow access to
these as well as to the exploration, development and production sites and
operations to inspectors authorized by the Energy Development Board;
(i) Allow representatives authorized by the Energy Development Board full
access to their accounts, books and records for tax and other fiscal
purposes.
Section 11 thereof provides for the minimum terms and conditions of a coal operating
contract.
From the foregoing, it is obvious that a scrutiny of the coal operating contract of
Bacaltos Coal Mines would have provided SMC knowledge of the activities which are
germane, related, or incident to the power to use it. But it did not even require
Savellon to produce the same.
SMC's negligence was further compounded by its failure to verify if Bacaltos Coal
Mines owned a vessel. A party desiring to charter a vessel must satisfy itself that the
other party is the owner of the vessel or is at least entitled to its possession with
power to lease or charter the vessel. In the instant case, SMC made no such attempt.
It merely satisfied itself with the claim of Savellon that the vessel it was leasing is
owned by Bacaltos Coal Mines and relied on the presentation of the Authorization as
well as its test on the sea worthiness of the vessel. Valdescona thus declared on
direct examination as follows:
A In October, a certain Rene Savellon called our office offering us
shipping services. So I told him to give us a formal proposal and
also for him to come to our office so that we can go over his
proposal and formally discuss his offer.
Q Did Mr. Rene Savellon go to your office?
A Few days later he came to our office and gave us his proposal
verbally offering a vessel for us to use for our cargo.
Session 6 P a g e | 10
Q Did he mention the owner of that vessel?
A Yes, sir. That it is Bacaltos.
Q Did he present a document to you?
A Yes, sir. He presented to us the authorization.
Q When Mr. Rene Savellon presented to you the authorization what
did you do?.
A On the strength of that authorization we initially asked him for us
to check the vessel to see its sea worthiness, and we assigned our
in-house surveyor to check the sea worthiness of the vessel which
was on dry dock that time in Danao.
Q What was the result of your inspection?
A We found out the vessel's sea worthiness to be our cargo carrier.
Q After that what did you do?
A After that we were discussing the condition of the contract.
Q Were you able to execute that contract?
A Yes, sir .21
He further declared as follows:
Q When you entered into a trip charter contract did you check the
ownership of M/V Premship?
A The representation made by Mr. Rene Savellon was that Bacaltos Coal
Mines operates the vessel and on the strength of the authorization he
showed us we were made to believe that it was Bacaltos Coal Mines
that owned it.
COURT: (to witness)
Q In other words, you just believed Rene Savellon?
A Yes, sir.
COURT: (to witness)
Q You did not check with Bacaltos Coal Mines?
 ENVIRONMENTAL LAW & NATURAL RESOURCES Session 6 P a g e | 11

drawn in favor of the principal. SMC then made possible the wrong done. There is an
A That is the representation he made. equitable maxim that between two innocent parties, the one who made it possible for
the wrong to be done should be the one to bear the resulting loss.  28 For this rule to
Q Did he show you document regarding this M/V Premship II? apply, the condition precedent is that both parties must be innocent. In the present
case, however, SMC is guilty of not ascertaining the extent and limits of the authority
A No document shown.22 of Savellon. In not doing so, SMC dealt with Savellon at its own peril.

The Authorization itself does not state that Bacaltos Coal Mines owns any vessel, and Having thus found that SMC was the author of its own damage and that the
since it is clear therefrom that it is not engaged in shipping but in coal mining or in petitioners are, therefore, free from any liability, it has become unnecessary to
coal business, SMC should have required the presentation of pertinent documentary discuss the issue of whether Bacaltos Coal Mines is a corporation with a personality
proof of ownership of the vessel to be chartered. Its in-house surveyor who saw the distinct and separate from German Bacaltos.
vessel while drydocked in Danao and thereafter conducted a sea worthiness test
could not have failed to ascertain the registered owner of the vessel. The petitioners WHEREFORE, the instant petition is GRANTED and the challenged decision of 30
themselves declared in open court that they have not leased any vessel for they do September 1993 of the Court of Appeals in CA-G.R. CV No. 35180 is hereby
not need it in their coal operations23 thereby implying that they do not even own one. REVERSED and SET ASIDE and another judgment is hereby rendered MODIFYING the
judgment of the Regional Trial Court of Cebu, Branch 9, in Civil Case No. CEB-8187
The Court of Appeals' asseveration that there was no need to verify the ownership of by setting aside the declaration of solidary liability, holding defendant RENE R.
the vessel because such ownership is warranted on the face of the trip charter party SAVELLON solely liable for the amounts adjudged, and ordering the dismissal of the
begs the question since Savellon's authority to enter into that contract is the very case as against herein petitioners.
heart of the controversy.
We are not prepared to accept SMC's contention that the petitioners' claim that they SO ORDERED.
are not engaged in shipping and do not own any ship is belied by the fact that they
maintained a pre-printed business form known as a "Notice of Readiness" (Exhibit "A- Bellosillo, Quiason, and Kapunan, JJ., concur.
1"). 24 This paper is only a photocopy and, despite its reservation to present the Padilla, J., took no part.
original for purposes of comparison at the next hearing, 25 SMC failed to produce the
latter. This "Notice of Readiness" is not, therefore, the best evidence, hence Petition granted.
inadmissible under Section 3, Rule 130 of the Rules of Court. It is true that when SMC
made a formal offer of its exhibits, the petitioners did not object to the admission of Notes.—Agent acting as such is not personally liable unless he expressly binds himself
Exhibit "A-1," the "Notice of Readiness," under the best evidence rule but on the or exceeds his authority. (Development Bank of the Philippines vs. Court of Appeals,
ground that Savellon was not authorized to enter into the Trip Charter Party and that 231 SCRA 370 [1994])
the party who signed it, one Elmer Baliquig, is not the petitioners' employee but of
Premier Shipping Lines, the owner of the vessel in question. 26 The petitioners raised
Liability of the agent who exceeds the scope of his authority depends upon whether
the issue of inadmissibility under the best evidence rule only belatedly in this petition.
But although Exhibit "A-1" remains admissible for not having been timely objected to, the 3rd person is aware of the limits of agent’s powers. (Ibid.)
it has no probative value as to the ownership of the vessel.
———o0o———
There is likewise no proof that the petitioners received the consideration of the Trip
Charter Party. The petitioners denied having received it. 27 The evidence for SMC
established beyond doubt that it was Savellon who requested in writing on 19
October 1988 that the check in payment therefor be drawn in favor of BACALTOS
COAL MINES/RENE SAVELLON (Exhibit "B-3") and that SMC drew the check in favor
of RENE SAVELLON IN TRUST FOR BACALTOS COALMINES (Exhibit "B") and
delivered it to Savellon who there upon issued a receipt (Exhibit "B-1"). We agree
with the petitioners that SMC committed negligence in drawing the check in the
manner aforestated. It even disregarded the request of Savellon that it be drawn in
favor of BACALTOS COAL MINES/RENE SAVELLON. Furthermore, assuming that the
transaction was permitted in the Authorization, the check should still have been
 ENVIRONMENTAL LAW & NATURAL RESOURCES
No. L-28329. August 7, 1975.*
COMMISSIONER OF CUSTOMS, petitioner, vs. ESSO STANDARD EASTERN,
INC., (Formerly: Standard-Vacuum Refining Corp. (Phil.), respondent.
Taxation; Special import tax; Exemption from payment of customs duties under
Republic Act No. 387 includes exemption from payment of special import tax;
Reasons.—Considering the manner in which extrinsic aids, the history of the
enactment of the statute and purpose of the legislature in employing a clause or
provision in the law had been applied in determining the true intent of the lawmaking
body, R.A. No. 387, The Petroleum Act of 1949, was intended to encourage the
exploitation, exploration and development of the petroleum resources of the country
by giving it the necessary incentive in the form of tax exemptions. This is the raison d
etre for the generous grant of tax exemptions to those who would invest their
financial resources towards the achievement of this national economic goal.
Statutes; Interpretation of; Use of aids in interpretation of ambiguous statute.— It is a
well accepted principle that where a statute is ambiguous, courts may examine both
the printed pages of the published Act as well as those extrinsic matters that may aid
in construing the meaning of the statute, such as the history of its enactment, the
reasons for the passage of the bill and purposes to be accomplished by the measure.
Same; Same; Determination of legislative intent; Examination of origin and history of
statute.—Courts may take judicial notice of the origin and history of the statutes
Session 6 P a g e | 12
which they are called upon to construe and administer, and of facts which affect their
derivation, validity and operation.
Same; Same; Same; Consideration of whole and every part of the law.— In order to
determine the true intent of the legislature, the particular clauses and phrases of the
statute should not be taken as detached and isolated expressions, but the whole and
every part thereof must be considered in fixing the maning of any of its parts.
Same; Same; Same; Adoption of construction that will harmonize law in question
with other laws.—In fact every statute should receive such construction as will make
it harmonize with the pre-existing body of laws. Antagonism between the Act to be
interpreted and existing or previous laws is to be avoided, unless it was clearly the
intention of the legislature that such antagonism should arise and one amends or
repeals the other, either expressly or by implication.
Same; Same; Repeal by implication not favored.— Repeal by implication is not favored
unless it is manifested that the legislature so intended. As laws are presumed to be
passed with deliberation and with full knowledge of all existing ones on the subject, it
is logical to conclude that in passing a statute it was not intended to interfere with or
abrogate any former law relating to the same matter, unless the repugnancy between
the two is not only irreconcilable but also clear and convincing as a result of the
language used, or unless the latter actfully embraces the subject matter of the
earlier.
Same; Petroleum Act of 1949; Intent of legislature.— The title of Republic Act No. 387
and the provisions of its three articles give a clue to the intent of the Philippine
Legislature, which is to encourage the exploitation and development of the petroleum
resources of the country. Through the instrumentality of said law, it declared in no
uncertain terms that the intensification of the exploration for petroleum must be
carried on unflinchingly even if, for the time being, no taxes, both national and local,
may be collected from the industry. This is the unequivocal intention of the Philippine
Congress when the language of the Petroleum Act is examined. Until this law or any
substantial portion thereof is clearly amended or repealed by subsequent statutes,
the intention of the legislature must be upheld.
Same; Special Import Tax Law; Special Import Tax Law repealed six prior statutes.—
Republic Act No. 1394 repealed and revoked six earlier statutes which had something
to do with the imposition of special levies and/or exemption of certain importations
from the burden of the special import taxes or levies. On the other hand, it is
apparent that R.A. No. 387, the Petroleum Act, had been spared from the pruning
knife of Congress, although this latter law had granted more concessions and tax-
exemption privileges than any of the statutes that were amended, repealed or
revoked by R.A. No. 1394. The answer must be that the Congress of the Philippines
 ENVIRONMENTAL LAW & NATURAL RESOURCES
saw fit to preserve the privileges granted under the Petroleum Law of 1949 in order
to keep the door open to the exploitation and such development of the petroleum
resources of the country with such incentives as are given under that law.
APPEAL from a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
     Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio A. Torres
and Solicitor Antonio M. Martinez for petitioner.
     Carlos J. Valdez & Associates for respondent.
ESGUERRA, J.:
Appeal from the decision of the Court of Tax Appeals reversing the Commissioner of
Customs' decision holding respondent ESSO Standard Eastern, Inc., (formerly the
Standard-Vacuum Refining Corporation (Phil.) and hereinafter referred to as ESSO)
liable in the total sum of P775.62 as special import tax on certain articles imported by
the latter under Republic Act No. 387, otherwise known as the Petroleum Act of 1949.
Respondent ESSO is the holder of Refining Concession No. 2, issued by the Secretary
of Agriculture and Natural Resources on December 9, 1957, and operates a
petroleum refining plant in Limay Bataan. Under Article 103 of Republic Act No. 387
which provides: "During the five years following the granting of any concession, the
concessionaire may import free of customs duty, all equipment, machinery, material,
instruments, supplies and accessories," respondent imported and was assessed the
special import tax (which it paid under protest) on the following separate
importations:
1) One carton, scientific instruments with C & F value of assessed a special
import tax in the amount of P31.98 (Airport Protest No. 10);
2) One carton of recorder parts with C & F value of $221.56; assessed
special import tax in the amount of P43.82 (Airport Protest No. 11);
3) One carton of valves with C & F value of $310.58; assessed special import
tax in the amount of P60.72 (Airport Protest No. 12);
4) One box of parts for Conversion boilers and Auxiliary Equipment with C &
F value of $2,389.69; assessed special import tax in the amount of P467.00
(Airport Protest No. 15);
5) One carton of X-ray films with C & F value of $132.80; assessed special
import tax in the amount of P26.00 (Airport Protest No. 16); and
6) One carton of recorder parts with C & F value of $750.39; assessed
special import tax in the amount of P147.00 (Airport Protest No. 17). 1
Session 6 P a g e | 13
The Collector of Customs on February 16, 1962, held that respondent ESSO was
subject to the payment of the special import tax provided in Republic Act No. 1394,
as amended by R.A. No. 2352, and dismissed the protest. 2
On March 1, 1962, respondent appealed the ruling of the Collector of Customs to the
Commissioner of Customs who, on March 19, 1965, affirmed the decision of said
Collector of Customs.3
On July 2, 1965, respondent ESSO filed a petition with the Court of Tax Appeals for
review of the decision of the Commissioner of Customs.
The Court of Tax Appeals, on September 30, 1967, reversed the decision of herein
petitioner Commissioner of Customs and ordered refund of the amount of P775.62 to
respondent ESSO which the latter had paid under protest.4
This decision of the Court of Tax Appeals is now before this Court for review.
Petitioner contends that the special import tax under Republic Act No. 1394 is
separate and distinct from the customs duty prescribed by the Tariff and Customs
Code, and that the exemption enjoyed by respondent ESSO from the payment of
customs duties under the Petroleum net of 1949 does not include exemption from the
payment of the special import tax provided in R.A. No. 1394. 5
For its stand petitioner puts forward this rationale:
A perusal of the provisions of R.A. No. 1394 will show that the legislature
considered the special import tax as a tax distinct from customs duties as
witness the fact that Section 2(a) of the said law made separate mention of
customs duties and special import tax when it provided that ... if as a result
of the application of the schedule therein, the total revenue derived from the
customs duties and from the special import tax on goods, ... imported from
the United States is less in any calendar year than the proceeds from the
exchange tax imposed under Republic Act Numbered Six Hundred and One,
as amended, on such goods, articles or products during the calendar year
1955, the President may, by proclamation, suspend the reduction of the
special import tax for the next succeeding calendar year ....
If it were the intention of Congress to exempt the holders of petroleum
refinery concessions like the protestant (respondent herein), such exemption
should have been clearly stated in the statute. Exemptions are never
presumed. They must be expressed in the clearest and most unambiguous
language and not left to mere implication.6
Specifically, petitioner in his brief submitted two assignment of errors allegedly
committed by the Court of Tax Appeals in the controverted decision, to wit:
 ENVIRONMENTAL LAW & NATURAL RESOURCES
1st assignment of error:
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE TERM
"CUSTOMS DUTY" IN ARTICLE 103 OF REPUBLIC ACT NO. 387 INCLUDES
THE SPECIAL IMPORT TAX IMPOSED BY REPUBLIC ACT NO. 1394;
2nd assignment of error:
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT EXEMPTION FROM
PAYMENT OF CUSTOMS DUTIES UNDER REPUBLIC ACT NO. 387 INCLUDES
EXEMPTION FROM PAYMENT OF THE SPECIAL IMPORT TAX.
On the other hand, the Court of Tax Appeals rationalized the ground for its ruling
thus:
If we are to adhere, as we should, to the plain and obvious meaning of
words in consonance with settled rules of interpretation, it seems clear that
the special import tax is an impost or a charge on the importation or
bringing into the Philippines of all goods, articles or products subject
thereto, for the phrase "import tax on all goods, articles or products
imported or brought into the Philippines" in explicit and unambiguous terms
simply means customs duties. It is hardly necessary to add that "customs
duties" are simply taxes assessed on merchandise imported from, or
exported to a foreign country.
And being a charge upon importation, the special import tax is essentially a
customs duty, or at least partakes of the character thereof.
Citing numerous American decisions and definitions of terms "customs duties,"
"duties," "imposts," "levies," "tax," and "tolls," and their distinctions, including some
pronouncements of this Court on the subject, the Court of Tax Appeals in its decision,
went to great lengths to show that the term "special import tax" as used in R.A. No.
1394 includes customs duties. It sees the special import tax as nothing but an impost
or a charge on the importation or bringing into the Philippines of goods, articles or
products.7
To clinch its theory the Court of Tax Appeals cited the similarity in the basis of
computation of the customs duty as well as the similarity in the phraseology of
Section 3 of Republic Act No. 1394 (which established the special import tax) and
Section 9-01 of the Tariff & Customs code (the basic law providing for and regulating
the imposition of customs duties and imposts on importations). 8
For its part, private respondent, ESSO, in its answer to the petition, leaned heavily on
the same arguments as those given by the Tax Court, the burden of which is that the
special import tax law is a customs law. 9
It is clear that the only issue involved in this case is whether or not the exemption
enjoyed by herein private respondent ESSO Standard Eastern, Inc. from customs
duties granted by Republic Act No. 387, or the Petroleum Act of 1949, should
Session 6 P a g e | 14
embrace or include the special import tax imposed by R.A. No. 1394, or the Special
Import Tax Law.
We have examined the records of this case thoroughly and carefully considered the
arguments presented by both parties and We are convinced that the only thing left to
this Court to do is to determine the intention of the legislature through interpretation
of the two statutes involved, i.e., Republic Act No. 1394 and Republic Act No. 387.
It is a well-accepted principle that where a statute is ambiguous, as Republic Act No.
1394 appears to be, courts may examine both the printed pages of the published Act
as well as those extrinsic matters that may aid in construing the meaning of the
statute, such as the history of its enactment, the reasons for the passage of the bill
and purposes to be accomplished by the measure. 10
Petitioner in the first assignment of error took exception to the finding of the Court of
Tax Appeals that "The language of Republic Act No. 1394 seems to leave no room for
doubt that the law intends that the phrase 'Special import tax' is taken to include
customs duties" and countered with the argument that "An examination of the
provisions of Republic Act No. 1394 will indubitably reveal that Congress considered
the special import tax as a tax different from customs duties, as may be seen from
the fact that Section 2(a) of said law made separate mention of customs duties and
special import tax ..." Thus:
... if as a result of the application of the schedule therein the total revenue
derived from the customs duties and from the special import tax on
goods, ... imported from the United States is less in any calendar year than
the proceeds from the exchange tax imposed under Republic Act Numbered
Six Hundred and One, as amended, on such goods, articles or products
during the calendar year 1955, the President may, by proclamation, suspend
the reduction of the special import tax for the next succeeding calendar year
...
Petitioner further argues:
Customs duties are prescribed by the Tariff and Customs Code, while the
special import tax is provided for by Republic Act No. 1394. If our legislature
had intended to classify the special import tax as customs duty, the said Art
would not have expressly exempted from payment of the special Import tax
importations of machinery, equipment, accessories, and spare parts for use
of industries, without distinguishing whether the industries referred to are
the industries exempt from the payment of Customs duties or the non-
exempt ones (Sec. 6). It is sufficient that the imported machinery, etc., is
for the use of any industry. 11
A study of petitioner's two assignments of errors shows that one is anchored on
practically the same ground as the other: both involve the interpretation of R.A. No.
 ENVIRONMENTAL LAW & NATURAL RESOURCES
387 (The Petroleum Act of 1949) in relation with R.A. No. 1394 (The Special Import
Tax Law).
While the petitioner harps on particular clauses and phrases found in the two cited
laws, which in a way was likewise resorted to by the respondent ESSO, it would do
Us well to restate the fundamental rule in the construction of a statute.
In order to determine the true intent of the legislature, the particular clauses and
phrases of the statute should not be taken as detached and isolated expressions, but
the whole and every part thereof must be considered in fixing the meaning of any of
its parts. In fact every statute should receive such construction as will make it
harmonize with the pre-existing body of laws. Antagonism between the Act to be
interpreted and existing or previous laws is to be avoided, unless it was clearly the
intention of the legislature that such antagonism should arise and one amends or
repeals the other, either expressly or by implication.
Another rule applied by this Court is that the courts may take judicial notice of the
origin and history of the statutes which they are called upon to construe and
administer, and of facts which affect their derivation, validity and operation. 12
Applying the above stated rules and principles, let us consider the history, the
purpose and objectives of Republic Act No. 387 as it relates to Republic Act No. 1394
and other laws passed by the Congress of the Philippines insofar as they relate to
each other.
Republic Act No. 387, the Petroleum Act of 1949, has this for its title, to wit:
AN ACT TO PROMOTE THE EXPLORATION, DEVELOPMENT, EXPLOITATION,
AND UTILIZATION OF THE PETROLEUM RESOURCES OF THE PHILIPPINES;
TO ENCOURAGE THE CONSERVATION OF SUCH PETROLEUM RESOURCES;
TO AUTHORIZE THE SECRETARY OF AGRICULTURE AND NATURAL
RESOURCES TO CREATE AN ADMINISTRATION UNIT AND A TECHNICAL
BOARD IN THE BUREAU OF MINES; TO APPROPRIATE FUNDS THEREFORE;
AND FOR OTHER PURPOSES.
Art. 103 of said Act reads:
ART. 103. Customs duties. — During the five years following the granting of
any concessions, the concessionaire may import free of customs duty, all
equipment, machinery, material, instruments, supplies and accessories.
xxx xxx xxx
Art. 102 of the Same law insofar as pertinent, provides:
ART. 102. Work obligations, taxes, royalties not to be charged . — ...; nor
shall any other special taxes or levies be applied to such concessions, nor
Session 6 P a g e | 15
shall concessionaires under this Act be subjected to any provincial,
municipal, or other local taxes or levies; nor shall any sales tax be charged
on any petroleum produced from the concession or portion thereof,
manufactured by the concessionaire and used in the working of his
concession. ....
Art. 104, still of the same Act, reads:
ART. 104. No export to be imposed. — No export tax shall be levied upon
petroleum produced from concessions granted under this Act.
The title of Republic Act No. 387 and the provisions of its three articles just cited give
a clue to the intent of the Philippine legislature, which is to encourage the
exploitation and development of the petroleum resources of the country. Through the
instrumentality of said law, it declared in no uncertain terms that the intensification of
the exploration for petroleum must be carried on unflinchingly even if, for the time
being, no taxes, both national and local, may be collected from the industry. This is
the unequivocal intention of the Philippine Congress when the language of the
Petroleum Act is examined. Until this law or any substantial portion thereof is clearly
amended or repealed by subsequent statutes, the intention of the legislature must be
upheld.
Against this unambiguous language of R.A. No. 387, there is the subsequent
legislation, R.A. No. 1394, the Special Import Tax Law, which, according to the herein
petitioner, shows that the legislature considered the special import tax as a tax
distinct from customs duties.
Republic Act No. 1394, otherwise known as the Special Import Tax Law, is entitled as
follows:
AN ACT TO IMPOSE A SPECIAL IMPORT TAX ON ALL GOODS, ARTICLES OR
PRODUCTS IMPORTED OR BROUGHT INTO THE PHILIPPINES, AND TO
REPEAL REPUBLIC ACTS NUMBERED SIX HUNDRED AND ONE, EIGHT
HUNDRED AND FOURTEEN, EIGHT HUNDRED AND SEVENTY-ONE, ELEVEN
HUNDRED AND SEVENTY-FIVE. ELEVEN HUNDRED AND NINETY-SEVEN
AND THIRTEEN HUNDRED AND SEVENTY FIVE.
The title indicates unmistakably that it is repealing six prior statutes. As will be seen
later, all these laws dealt with the imposition of a special excise tax on foreign
exchange or other form of levy on importation of goods into the country.
Section I of Republic Act No. 1394 reads as follows:
SECTION 1. Except as herein otherwise provided, there shall be levied,
collected and paid as special import tax on all goods, articles or products
imported or brought into the Philippines, irrespective of source, during the
 ENVIRONMENTAL LAW & NATURAL RESOURCES
period and in accordance with the rates provided for in the following
schedule:
xxx xxx xxx
It would appear that by the provision of Section 1 of this Act, the pertinent provision
of the Petroleum Law, for which there appears to be no proviso to the contrary has
been modified or altered.
Section 6 of Republic Act No. 1394 declares that the tax provided for in its Section I
shall not be imposed against importation into the Philippines of machinery and/or raw
materials to be used by new and necessary industries as determined in accordance
with R A. No. 901 and a long list of other goods, articles, machinery, equipment,
accessories and others.
We shall now examine the six statutes repealed by R.A. No. 1394, namely:
R.A. No. 601  is an Act imposing a special excise tax of 17% on foreign
exchange sold by the Central Bank or its agents. This is known as the
Exchange Tax Law;
R.A. No. 814  amended Sections one, two and five and repealed Sections
three and four of R.A. No. 601;
R.A. No. 871  amended Sections one and two of R.A. No. 601, as amended
earlier by R.A. No. 814;
R.A. No. 1175  amended further Sections one and two of R.A. No. 601, as
amended;
R.A. No. 1197  amended furthermore R.A. No. 601 as amended previously by
R.A. No. 1175;
R.A. No. 1375  amended Sections one and two of R.A. No. 601 as amended
by R.A. Nos. 1175 and 1197.
As can be seen from the foregoing, in one fell swoop, Republic Act No. 1394
repealed and revoked six earlier statutes which had something to do with
the imposition of special levies and/or exemption of certain importations
from the burden of the special import taxes or levies. On the other hand, it
is apparent that R.A. No. 387, the Petroleum Act, had been spared from the
pruning knife of Congress, although this latter law had granted more
concessions and tax exemption privileges than any of the statutes that were
amended, repealed or revoked by R.A. No. 1394. The answer must be that
the Congress of the Philippine saw fit to preserve the privileges granted
under the Petroleum Law of 1949 in order to keep the door open to the
exploitation and development of the petroleum resources of the country with
such incentives as are given under that law.
Session 6 P a g e | 16
This ascertained will and intention of the legislature finds a parallelism in a
case brought earlier before this Court.
A fishpond owner was slapped with taxes as a "merchant" by the Collector of Internal
Revenue. He paid under protest and filed an action to recover the taxes paid,
claiming that he was an agriculturist and not a merchant. When this Court was called
upon to interpret the provisions of the Internal Revenue Law on whether fish is an
agricultural product which falls under the exemption provisions of said law, it inquired
into the purpose of the legislature in establishing the exemption for agricultural
products. We held:
The first inquiry, therefore, must relate to the purpose the legislature had in
mind in establishing the exemption contained in the clause now under
consideration. It seems reasonable to assume that it was due to the belief
on the part of the law-making body that by exempting agricultural products
from this tax the farming industry would be favored and the development of
the resources of the country encouraged. .... 13
Having this in mind, particularly the manner in which extrinsic aids the history of the
enactment of the statute and purpose of the legislature in employing a clause or
provision in the law had been applied in determining the true intent of the lawmaking
body, We are convinced that R.A. No. 387, The Petroleum Act of 1949, was intended
to encourage the exploitation, exploration and development of the petroleum
resources of the country by giving it the necessary incentive in the form of tax
exemptions. This is the raison d etre  for the generous grant of tax exemptions to
those who would invest their financial resources towards the achievement of this
national economic goal.
On the contention of herein petitioner that the exemptions enjoyed by respondent
ESSO under R.A. No. 387 have been abrogated by R.A. No. 1394, We hold that
repeal by implication is not favored unless it is manifest that the legislature so
intended. As laws are presumed to be passed with deliberation and with full
knowledge of all existing ones on the subject, it is logical to conclude that in passing
a statute it was not intended to interfere with or abrogate any former law relating to
the same matter, unless the repugnancy between the two is not only irreconcilable
but also clear and convincing as a result of the language used, or unless the latter act
fully embraces the subject matter of the earlier. 14
As observed earlier, Congress lined up for revocation by Republic Act No. 1394 six
statutes dealing with the imposition of special imposts or levies or the granting of
exemptions from special import taxes. Yet, considering the tremendous amount of
revenues it was losing under the Petroleum Law of 1949, it failed to include the latter
statute among those it chose to bury by the Special Import Taw Law. The reason for
this is very clear: The legislature wanted to continue the incentives for the continuing
development of the petroleum industry.
 ENVIRONMENTAL LAW & NATURAL RESOURCES
It is not amiss to mention herein passing that contrary to the theory of the herein
petitioner, R.A. No. 387 had not been repealed by R.A. No. 2352 which expressly
abrogated Section 6 of R.A. No. 1394 but did not repeal any part of R.A. No. 387.
Therefore, the exemption granted by Republic Act No. 387 still stands.
WHEREFORE, taking into consideration the weight given by this Court to the findings
and conclusions of the Court of Tax Appeals on a matter it is well-equipped to handle,
which findings and conclusions We find no reason to overturn, the petition of the
Commissioner of Customs to reverse the decision of the Court of Tax Appeals should
be, as it is hereby, denied.
No costs.
SO ORDERED.
Castro (Chairman), Makasiar, Muñoz Palma and Martin, JJ., concur.
[No. L-13067. December 29. 1959]
THE COMMISSIONER OF CUSTOMS, petitioner, vs. CALTEX (PHILIPPINES)
INC., ET AL., respondents.
1. TAXATION; CUSTOMS DUTIES UNDER THE PETROLEUM ACT; PETROLEUM
PRODUCTS USED DURING CONSTRUCTION OF REFINERY; SCOPE OF TERM
"SUPPLIES".—The petroleum products imported by a petroleum refinery company for
its use during the construction of its refinery, such as gasoline and oil furnished its
drivers during the construction job, come within the import of the words material or
supplies, and as such are exempt from customs duties under Article 103 of Republic
Act No. 387.
Session 6 P a g e | 17
2. ID.; ID.; PETROLEUM REFINERY NOT NEW INDUSTRY.—A petroleum refinery
cannot be considered a new industry under Republic Act No. 901 because section 1
of said law expressly provides that "the tax exemption provided for in this Act shall
not include any company or person engaged in the processing of oil, gasoline,
lubricants and other similar f uels and by-products." Hence, such refinery is exempt
from customs duties under the Petroleum Act.
3. ID.; ID.; STATUTORY CONSTRUCTION; LEGISLATIVE INTENT.—Since it was well
known, when the Petroleum Act was passed and the concession was granted to
respondent, that there was no Philippine crude petroleum available for the use of any
refinery in the Philippines, Congress could not have intended that before exemption
from customs duties may be extended to a concessionaire, the latter should only
refine crude petroleum produced in the Philippines, for that would defeat the very
objective of the Act.
PETITION for review by certiorari of a decision of the Court of Tax Appeals.
The facts are stated in the opinion of the Court.
Assistant Solicitor General José P. Alejandro and Solicitor Sumilang V. Bernardo
for petitioner.
Ross, Selph, Carrascoso & Janda, and Laurel Law Offices for respondents Caltex
(Philippines) Inc.
BAUTISTA ANGELO, J.:
On June 20, 1953, Caltex (Philippines) Inc. was granted by the Secretary of
Agriculture and Natural Resources a petroleum refining concession with the right to
establish and operate a petroleum refinery in the municipalities of Bauan and
Batangas, province of Batbgas. The concession contains the following proviso: "the
Government hereby also grants all the rights of a Petroleum Refining Concession and
the Concessionaire hereby accepts all the obligations and said Petroleum Refining
Concession in accordance with the provision of Republic Act No. 387 as approved 18
June 1949, the provisions of which are made a part of this deed of Concession." The
corporation constructed a petroleum refinery in the municipality of Bauan, Batbgas,
which was completed and commenced operation sometime in October, 1954, using
as basic material crude oil imported from abroad.
On May 11, July 28, and September 11, 1954, the corporation filed with the Collector
of Customs a claim for refund of the amounts of P9,924.31, P3,679.78 and
P1,300.24, representing customs duties paid on imported petroleum products
consumed in connection with its refined project at Bauan, Batangas, during the
period from June 20, 1953 to March 15, 1954; from April 1, 1954 to June 30, 1954,
and from March 1, 1954 to March 31, 1954, respectively, on the ground that the
same were exempt from customs duties under Article 103 of Republic Act No. 387.
On April 25, 1955, the Collector of Customs denied said claim for refund and, on
 ENVIRONMENTAL LAW & NATURAL RESOURCES
appeal, the Commissioner of Customs affirmed the ruling on August 21, 1955. On
September 30, 1955, the corporation filed a petition for review with the Court of tax
Appeals which, after hearing, rendered decision the dispositive part of which reads:
Wherefore, the decision of the respondent Commissioner of Customs of
August 21, 1955, appealed from, should be, as it is hereby modified.
Respondent is hereby ordered to refund to the petitioner, Caltex
(Philippines) Inc. the amount of P10,444.82, representing customs duty on
the petroleum products imported by it during the period from June 24, 1953
to May 29, 1954, for its own use in the construction of its Batangas refinery,
the collection and refusal to refund the same being in contravention of
Article 103 of Republic Act No. 387, without special pronouncement as to
costs.
The Commissioner of Customs interposed the present petition for review.
Respondent company claims exemption from payment of customs duties on its
importation of petroleum products consumed by it during the construction of its
refinery under Article 103 of Republic Act No. 387, which provides:
ART. 103. Customs duties. — During the first five years following the
granting of any concession, he concessionaire may import free of customs
duty, all equipment, machinery, material, instruments, supplies and
accessories.
No exemption shall be allowed on goods imported by the concessionaire for
his personal use or that of any other; nor for sale or for re-export and if any
goods on which exemption has been allowed be thus used or disposed of,
the concessionaire is obliged to make a report to the Secretary of Agriculture
and Natural Resources to that effect and to pay such import duty as is due.
It would appear that under the above provision any concessionaire may import free
of customs duty "all equipment, machinery, material, instruments, supplies and
accessories" during the first five years following the granting of the concession. Here
it cannot be disputed that the petroleum products imported by respondent for its use
during the construction of the refinery such as gasoline and oil furnished its drivers
during the construction job come within the import of the words material or supplies,
for it has been held that gasoline and oil used by drivers in a construction job fall
under the category of supplies (West vs. Detroit Fidelity and Surety Co., 225 N.W.
673, 678, 118 Neb. 544 cited on page 790 Vol. 40. Words and Phrases). To the same
effect is the opinion rendered by the Secretary of Justice on June 28, 1954 upon the
request of respondent who held that its importation of crude oil for the use of its
refinery can be considered as "materials" within the purview of the exemption
statute. It is, therefore, clear that by express provision of the law the petroleum
products imported by respondent for the use of its cars during the construction of its
refinery are exempt from the customs duties imposed by petitioner.
Session 6 P a g e | 18
It is, however, contended that, regardless of the above interpretation, the exemption
cause contained in the law cannot apply to the herein corporation for the reason that
the refinery of the letter is being operated on imported crude petroleum and not on
crude petroleum produced in the Philippines, contrary, it is claimed, to the very
objective of Republic Act No. 387 which is "to promote and encourage the
exploration, development, production and utilization of the petroleum resources of
the Philippines, as much as possible, by private enterprises looking toward the
establishment of a wholly intergrated domestic industry with an equitable division of
benefits between such private enterprise and the Government, giving likewise a share
of such benefits to the private land owners." And to strengthen his argument,
petitioner adds the following comment: "It cannot be denied that refining
concessionaires cannot help in the utilization of our petroleum resources unless they
refine locally produced crude petroleum products. To exempt respondent Caltex
(Philippines) Inc. from payment of Customs duties on its importation of equipment,
machinery, material, instruments, supplies, and accessories will not only result in the
loss of revenues to the government, nut will also defeat the purpose of the law to
develop, exploit and utilize the petroleum resources of the Philippines." In other
words, the claim of petitioner is that since respondent does not use in its refinery
locally produced crude petroleum but it operate on imported crude petroleum
products, it cannot claim the benefit of exemption granted by Republic Act 387.
Many reasons may be advanced to show that such is not the real intent of law in
granting exemption to petroleum concessionaires in the Philippines. To begin with,
we may cite the provision of Article 79 of said Act which requires any established
refinery "to refine crude petroleum produced in the Philippines in preference over any
imported crude petroleum", which means that importance crude petroleum may be
allowed as long as no crude petroleum is produced in the Philippines, and here it is
admitted that there is no commercial production of crude petroleum in the Philippines
such that respondent might be compelled for sometime to operate on imported
petroleum. In the second place, in the concession granted to respondent, there is a
proviso to the effect that the concessionaire shall not be required against its will to
refine crude petroleum from foreign sources, which can only mean that it may also
make use of petroleum from foreign sources if it so desires. In the third place, when
the Petroleum Act was passed and the concession granted to respondent under its
provision, it was well known that there was then no Philippine crude petroleum
available for the use of any refinery in the Philippines which makes it obvious that
Congress could not have intended that before the exemption may be extended to a
concessionaire the latter should only refine crude petroleum produced in the
Philippines, for that would defeat the very objective of the Act. From the practical and
legal point of view, therefore, the interpretation that petitioner desires to give now to
the law in an effort to justify its denial of the claim for exemption by respondent is
unfair and cannot be sustained.
But petitioner insists that allow the operation of oil refineries in the Philippines on
imported crude oil products would be contrary to the real objective of the Act which
is to promote and encourage the exploration, development, production and utilization
 ENVIRONMENTAL LAW & NATURAL RESOURCES
of the petroleum resources of the Philippines, and so that should not be
countenanced. Again, this contention is untenable, for it overlooks the fact that with
the establishment here of oil refineries those interested in oil exploration and venture
would receive greater impetus and encouragement because of the thought that if
they strike oil of commercial value they would have an already established refinery
that would be ready to absorb all the crude petroleum they may produce out of their
exploratory efforts. They would know then that in that eventuality they would not
need to establish their own refinery, which requires a huge capital, to process their
own produced raw material. In this respect, we cannot but take notice of the
following interesting observation of the Court of Tax Appeals, which we quote with
approval:
We could concede that as a petroleum refining concessionaire, the petitioner
herein is not contributing directly to the exploration and exploitation of our
petroleum resources. We cannot admit, however, that as such
concessionaire, the petitioner is undermining the development of our
petroleum resources. Indirectly, the petitioner is contributing immeasurably
to the exploration of our hidden and undeveloped oil resources. For one
thing, the establishment of a petroleum refinery in the Philippines, like the
one operated by petitioner, has given the necessary incentive to those
already engaged or who intend to engage in drilling oil wells in the
Philippines as the Philippines Oil Development Co. and many others. Filipino
capitalists who are by nature conservative and timid, would be encouraged
to invest and keep on investing their capital in the venture with the
assurance that should they finally strike oil of commercial value have ready
at their disposal a well established, local operated refinery costing over
P50,000,000.00 manned by experts. For their convenience, there will be
need for them to refine their crude oils abroad not provide for themselves a
refinery that would mean a drainage of capital and several years to
construct. By way of analogy, the Philippine Charity Sweepstakes Office is
definitely not engaged in breeding houses. However, it cannot be denied
that its creation has given much encouragement to local horse fanciers, race
horse owners and horse traders to breed good stock, what with the
tempting prizes that are being offered to winners in Sweepstakes races and
the exorbitant price that a potential Sweepstakes winner could command in
the horse market. Moreover it would be most unreasonable as respondent's
counsel seems to expect, for petitioner to refine locally produced crude oil
before granting it the benefit of exemption from customs duty when, as
everybody knows, we have not yet discovered crude oils of commercial
value in this country.
The Director of Mines who is authorized under Republic Act No. 387, to
administer and enforce and enforce said law, in his letter of May 9, 1953,
Exhibit B, to the Secretary of Agriculture and Natural Resources
recommending the approval of petitioner's application for a Petroleum
Refining Concession, made the following observations:
Session 6 P a g e | 19
The establishment of a petroleum refinery in the Philippines will undoubtedly
contribute much to the economic welfare of the nation as it will be an
additional source of Taxes for the Government, afford more opportunities for
employment of our people, and may reduce the cost of petroleum products
which are needs and therefore essential in the progressive industrialization
of our economy. The operation of such a refinery may also induce the
intensification of the search for oil in the Philippines, where oil is recognized
to exist, as then there will be a refinery available to turn into manufactured
products the crude petroleums that may be found and produced locally. It
may also be mentioned that the investment here of P60,000,000 for such a
refinery will constitute another evidence of the confidence of foreign
investors in the soundness of the Philippine peso and the existence of a
favorable climate for foreign investments.
Note this observation of the Director of Mines: "The operation of such a refinery may
also induce the intensification of the search for oil in the Philippines, where oil is
recognized to exist, as then there will be a refinery available to turn into
manufactured products the crude petroleums that may be found and produced
locally." No greater encouragement can be found to bolster up the exploration and
development of the petroleum resources of the Philippines than this comment of our
technical authority on the matter.
It is finally contended that Republic Act No. 901 which grants general tax exemption
to new and necessary industries has the effect of impliedly repealing Section 103 of
the Petroleum Act insofar as new industries are concerned and since the refinery
established by respondent may be considered a new industry, may not now claim the
exemption in question. To meet this point, suffice it to state that Section 1 of
Republic Act No. 901 expressly provides that "the tax exemption provided for in this
Act shall no include any company or person engaged in the processing of oil,
gasoline, lubricant and other similar fuels and by-products", which shows that
respondent's refinery cannot be considered a new industry under said Act. In fact,
respondent never requested any exemption from taxation under Republic Act No.
901, nor has it claimed to be new and necessary industry within its scope.
We find, therefore, untenable the errors attributed by petitioner to the Court of Tax
Appeals.
Wherefore, the decision appealed from is affirmed, without pronouncement as to
costs.
Paras, C.J., Padilla, Montemayor, Labrador, Conception, Endencia, Barrera and
Gutierrez David, JJ., concur.
 ENVIRONMENTAL LAW & NATURAL RESOURCES
G.R. No. 125948. December 29, 1998.*
FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF
APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and
ADORACION C. ARELLANO, in her official capacity as City Treasurer of
Batangas, respondents.
Session 6 P a g e | 20
Contracts; Common Carriers; A “common carrier” is one who holds himself out to the
public as engaged in the business of transporting persons or property from place to
place, for compensation, offering his services to the public generally.— There is merit
in the petition. A “common carrier” may be defined, broadly, as one who holds
himself out to the public as engaged in the business of transporting persons or
property from place to place, for compensation, offering his services to the public
generally. Article 1732 of the Civil Code defines a “common carrier” as “any person,
corporation, firm or association engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for compensation, offering their
services to the public.”
Same; Same; Test for determining whether a party is a common carrier of goods.—
The test for determining whether a party is a common carrier of goods is: 1. He must
be engaged in the business of carrying goods for others as a public employment, and
must hold himself out as ready to engage in the transportation of goods for person
generally as a business and not as a casual occupation; 2. He must undertake to
carry goods of the kind to which his business is confined; 3. He must undertake to
carry by the method by which his business is conducted and over his established
roads; and 4. The transportation must be for hire.
Same; Same; The fact that petitioner has a limited clientele does not exclude it from
the definition of a common carrier.— Based on the above definitions and
requirements, there is no doubt that petitioner is a common carrier. It is engaged in
the business of transporting or carrying goods, i.e. petroleum products, for hire as a
public employment. It undertakes to carry for all persons indifferently, that is, to all
persons who choose to employ its services, and transports the goods by land and for
compensation. The fact that petitioner has a limited clientele does not exclude it from
the definition of a common carrier.
Same; Same; Words and Phrases; The definition of “common carriers” in the Civil
Code makes no distinction as to the means of transporting, as long as it is by land,
water or air.—As correctly pointed out by petitioner, the definition of “common
carriers” in the Civil Code makes no distinction as to the means of transporting, as
long as it is by land, water or air. It does not provide that the transportation of the
passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe
line operators are considered common carriers.
Same; Same; Taxation; Legislative intent in excluding from the taxing power of the
local government unit the imposition of business tax against common carriers is to
prevent a duplication of the so-called “common carrier’s tax.”— It is clear that the
legislative intent in excluding from the taxing power of the local government unit the
imposition of business tax against common carriers is to prevent a duplication of the
so-called “common carrier’s tax.” Petitioner is already paying three (3%) percent
 ENVIRONMENTAL LAW & NATURAL RESOURCES
common carrier’s tax on its gross sales/earnings under the National Internal Revenue
Code. To tax petitioner again on its gross receipts in its transportation of petroleum
business would defeat the purpose of the Local Government Code.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
     Quiason, Makalintal, Barot, Torres & Ibarra for petitioner.
     Teodulfo A. Deguito for respondents.
MARTINEZ, J.:
This petition for review on  certiorari  assails the Decision of the Court of Appeals
dated November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the
Regional Trial Court of Batangas City, Branch 84, in Civil Case No. 4293, which
dismissed petitioners' complaint for a business tax refund imposed by the City of
Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as
amended, to contract, install and operate oil pipelines. The original pipeline
concession was granted in 19671 and renewed by the Energy Regulatory Board in
1992. 2
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of
the Mayor of Batangas City. However, before the mayor's permit could be issued, the
respondent City Treasurer required petitioner to pay a local tax based on its gross
receipts for the fiscal year 1993 pursuant to the Local Government Code 3. The
respondent City Treasurer assessed a business tax on the petitioner amounting to
P956,076.04 payable in four installments based on the gross receipts for products
pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In
order not to hamper its operations, petitioner paid the tax under protest in the
amount of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent
City Treasurer, the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator with a
government concession granted under the Petroleum Act. It is
engaged in the business of transporting petroleum products from
the Batangas refineries, via pipeline, to Sucat and JTF Pandacan
Terminals. As such, our Company is exempt from paying tax on
gross receipts under Section 133 of the Local Government Code of
1991 . . . .
Moreover, Transportation contractors are not included in the
enumeration of contractors under Section 131, Paragraph (h) of the
Session 6 P a g e | 21
Local Government Code. Therefore, the authority to impose tax "on
contractors and other independent contractors" under Section 143,
Paragraph (e) of the Local Government Code does not include the
power to levy on transportation contractors.
The imposition and assessment cannot be categorized as a mere
fee authorized under Section 147 of the Local Government Code.
The said section limits the imposition of fees and charges on
business to such amounts as may be commensurate to the cost of
regulation, inspection, and licensing. Hence, assuming arguendo
that FPIC is liable for the license fee, the imposition thereof based
on gross receipts is violative of the aforecited provision. The
amount of P956,076.04 (P239,019.01 per quarter) is not
commensurate to the cost of regulation, inspection and licensing.
The fee is already a revenue raising measure, and not a mere
regulatory imposition.4
On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot
claim exemption under Section 133 (j) of the Local Government Code. 5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint6 for tax refund with prayer for writ of preliminary injunction against
respondents City of Batangas and Adoracion Arellano in her capacity as City
Treasurer. In its complaint, petitioner alleged,  inter alia, that: (1) the imposition and
collection of the business tax on its gross receipts violates Section 133 of the Local
Government Code; (2) the authority of cities to impose and collect a tax on the gross
receipts of "contractors and independent contractors" under Sec. 141 (e) and 151
does not include the authority to collect such taxes on transportation contractors for,
as defined under Sec. 131 (h), the term "contractors" excludes transportation
contractors; and, (3) the City Treasurer illegally and erroneously imposed and
collected the said tax, thus meriting the immediate refund of the tax paid. 7
Traversing the complaint, the respondents argued that petitioner cannot be exempt
from taxes under Section 133 (j) of the Local Government Code as said exemption
applies only to "transportation contractors and persons engaged in the transportation
by hire and common carriers by air, land and water." Respondents assert that
pipelines are not included in the term "common carrier" which refers solely to
ordinary carriers such as trucks, trains, ships and the like. Respondents further posit
that the term "common carrier" under the said code pertains to the mode or manner
by which a product is delivered to its destination. 8
On October 3, 1994, the trial court rendered a decision dismissing the complaint,
ruling in this wise:
. . . Plaintiff is either a contractor or other independent contractor.
 ENVIRONMENTAL LAW & NATURAL RESOURCES
. . . the exemption to tax claimed by the plaintiff has become unclear. It
is a rule that tax exemptions are to be strictly construed against the
taxpayer, taxes being the lifeblood of the government. Exemption may
therefore be granted only by clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession under
Republic Act 387. (Exhibit A) whose concession was lately renewed by
the Energy Regulatory Board (Exhibit B). Yet neither said law nor the
deed of concession grant any tax exemption upon the plaintiff.
Even the Local Government Code imposes a tax on franchise holders
under Sec. 137 of the Local Tax Code. Such being the situation
obtained in this case (exemption being unclear and equivocal) resort to
distinctions or other considerations may be of help:
1. That the exemption granted under Sec. 133 (j) encompasses
only common carriers  so as not to overburden the riding public or
commuters with taxes. Plaintiff  is not a common carrier, but a
special carrier extending its services and facilities to a single
specific or "special customer" under a "special contract."
2. The Local Tax Code of 1992 was basically enacted to give more
and effective local autonomy to local governments than the
previous enactments, to make them economically and financially
viable to serve the people and discharge their functions with a
concomitant obligation to accept certain devolution of powers, . . .
So, consistent with this policy even franchise grantees are taxed
(Sec. 137) and contractors are also taxed under Sec. 143 (e) and
151 of the Code.9
Petitioner assailed the aforesaid decision before this Court  via  a petition for review.
On February 27, 1995, we referred the case to the respondent Court of Appeals for
consideration and adjudication. 10 On November 29, 1995, the respondent court
rendered a decision 11 affirming the trial court's dismissal of petitioner's complaint.
Petitioner's motion for reconsideration was denied on July 18, 1996. 12
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996. 13 Petitioner moved for a reconsideration which was granted by
this Court in a Resolution 14 of January 22, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the
petitioner is not a common carrier or a transportation contractor, and (2) the
exemption sought for by petitioner is not clear under the law.
There is merit in the petition.
Session 6 P a g e | 22
A "common carrier" may be defined, broadly, as one who holds himself out to the
public as engaged in the business of transporting persons or property from place to
place, for compensation, offering his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation,
firm or association engaged in the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation, offering their services to the
public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others
as a public employment, and must hold himself out as ready to
engage in the transportation of goods for person generally as a
business and not as a casual occupation;
2. He must undertake to carry goods of the kind to which his
business is confined;
3. He must undertake to carry by the method by which his business
is conducted and over his established roads; and
4. The transportation must be for hire. 15
Based on the above definitions and requirements, there is no doubt that petitioner is
a common carrier. It is engaged in the business of transporting or carrying
goods, i.e. petroleum products, for hire as a public employment. It undertakes to
carry for all persons indifferently, that is, to all persons who choose to employ its
services, and transports the goods by land and for compensation. The fact that
petitioner has a limited clientele does not exclude it from the definition of a common
carrier. In De Guzman vs. Court of Appeals  16 we ruled that:
The above article (Art. 1732, Civil Code) makes no distinction between
one whose principal business activity is the carrying of persons or goods
or both, and one who does such carrying only as an ancillary activity (in
local idiom, as a "sideline"). Article 1732 . . . avoids making any
distinction between a person or enterprise offering transportation
service on a regular  or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis . Neither does Article
1732 distinguish between a carrier offering its services to the " general
public," i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general
population. We think that Article 1877 deliberately refrained from
making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may
be seen to coincide neatly with the notion of "public service," under the
 ENVIRONMENTAL LAW & NATURAL RESOURCES
Public Service Act (Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers set forth in the
Civil Code. Under Section 13, paragraph (b) of the Public Service Act,
"public service" includes:
every person that now or hereafter may own, operate. manage, or
control in the Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional or accidental, and
done for general business purposes, any common carrier, railroad,
street railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any
class, express service, steamboat, or steamship line, pontines,
ferries and water craft, engaged in the transportation
of  passengers or freight or both, shipyard, marine repair shop,
wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation
system gas, electric light heat and power, water supply and  power
petroleum, sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other similar
public services. (Emphasis Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133
(j) of the Local Government Code refers only to common carriers transporting goods
and passengers through moving vehicles or vessels either by land, sea or water, is
erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil
Code makes no distinction as to the means of transporting, as long as it is by land,
water or air. It does not provide that the transportation of the passengers or goods
should be by motor vehicle. In fact, in the United States, oil pipe line operators are
considered common carriers. 17
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is
considered a "common carrier." Thus, Article 86 thereof provides that:
Art. 86. Pipe line concessionaire as common carrier. — A pipe line
shall have the preferential right to utilize installations for the
transportation of petroleum owned by him, but is obligated to
utilize the remaining transportation capacity pro rata for the
transportation of such other petroleum as may be offered by others
for transport, and to charge without discrimination such rates as
may have been approved by the Secretary of Agriculture and
Natural Resources.
Republic Act 387 also regards petroleum operation as a public utility. Pertinent
portion of Article 7 thereof provides:
Session 6 P a g e | 23
that everything relating to the exploration for and exploitation of
petroleum . . . and everything relating to the manufacture, refining,
storage, or transportation by special methods of petroleum , is
hereby declared to be a public utility. (Emphasis Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier."
In BIR Ruling No. 069-83, it declared:
. . . since [petitioner] is a pipeline concessionaire that is engaged only in
transporting petroleum products, it is considered a common carrier
under Republic Act No. 387 . . . . Such being the case, it is not subject
to withholding tax prescribed by Revenue Regulations No. 13-78, as
amended.
From the foregoing disquisition, there is no doubt that petitioner is a "common
carrier" and, therefore, exempt from the business tax as provided for in Section 133
(j), of the Local Government Code, to wit:
Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units. — Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:
x x x           x x x          x x x
(j) Taxes on the gross receipts of transportation contractors and
persons engaged in the transportation of passengers or freight by
hire and common carriers by air, land or water, except as provided
in this Code.
The deliberations conducted in the House of Representatives on the Local
Government Code of 1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line
1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on the
Taxing Powers of Local Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of
transportation. This appears to be one of those being deemed to be
exempted from the taxing powers of the local government units. May
we know the reason why the transportation business is being excluded
from the taxing powers of the local government units?
 ENVIRONMENTAL LAW & NATURAL RESOURCES Session 6 P a g e | 24

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in

Section 121 (now Sec. 131), line 16, paragraph 5. It states that local
government units may not impose taxes on the business of
transportation, except as otherwise provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to page 98 of

Book II, one can see there that provinces have the power to impose a
tax on business enjoying a franchise at the rate of not more than one-
half of 1 percent of the gross annual receipts. So, transportation
contractors who are enjoying a franchise would be subject to tax by the
province. That is the exception, Mr. Speaker.

What we want to guard against here, Mr. Speaker, is the imposition of

taxes by local government units on the carrier business. Local
government units may impose taxes on top of what is already being
imposed by the National Internal Revenue Code which is the so-called
"common carriers tax." We do not want a duplication of this tax, so we
just provided for an exception under Section 125 [now Sec. 137] that a
province may impose this tax at a specific rate.

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . . 18

It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent
a duplication of the so-called "common carrier's tax."

Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code. 19 To tax petitioner again
on its gross receipts in its transportation of petroleum business would defeat the
purpose of the Local Government Code.

WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court
of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET
ASIDE.

SO ORDERED.

Bellosillo, Puno and Mendoza, JJ., concur.