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Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-17725 February 28, 1962

REPUL!C OF T"E P"!L!PP!NES,plaintiff-appellee,

vs.

M#MUL#O LUMER COMP#N$, ET #L.,defendants-appellants.

Office of the Solicitor General for plaintiff-appellee.

Arthur Tordesillas for defendants-appellants.

#RRER#, J.:

From the decision of the Court of First nstance of Manila !in Civil Case No. "#$%%& orderin' it to pa( to plaintiff Republic of

the Philippines the sum of P#,)%*."+ ith interest thereon from the date of the filin' of the complaint until full( paid, plus

costs, defendant Mambulao /umber Compan( interposed the present appeal.1

0he facts of the case are briefl( stated in the decision of the trial court, to it1 .

0he facts of this case are not contested and ma( be briefl( summari2ed as follos1 !a& under the first cause of action, for

forest char'es coverin' the period from 3eptember $%, $45* to Ma( *#, $45", defendants admitted that the( have a liabilit(

of P5)+."+, hich liabilit( is covered b( a bond e6ecuted b( defendant 7eneral nsurance 8 3uret( Corporation forMambulao /umber Compan(, 9ointl( and severall( in character, on :ul( *4, $45", in favor of herein plaintiff; !b& under the

second cause of action, both defendants admitted a 9oint and several liabilit( in favor of plaintiff in the sum of P*4.+%, also

covered b( a bond dated November *+, $45"; and !c& under the third cause of action, both defendants admitted a 9oint and

several liabilit( in favor of plaintiff for P",4*)."%, also covered b( a bond dated :ul( *%, $45#. 0hese three liabilities

a''re'ate to P#,)%*."+. f the liabilit( of defendants in favor of plaintiff in the amount alread( mentioned is admitted, then

hat is the defense interposed b( the defendants< 0he defense presented b( the defendants is =uite unusual in more a(s

than one. t appears from E6h. " that from :ul( "$, $4#) to >ecember *4, $45, defendant Mambulao /umber Compan(

paid to the Republic of the Philippines P),*%%.5* for ?reforestation char'es? and for the period commencin' from April "%,

$4#+ to :une *#, $4#), said defendant paid P4*+.%) to the Republic of the Philippines for ?reforestation char'es?. 0hese

reforestation ere paid to the plaintiff in pursuance of 3ection $ of Republic Act $$5 hich provides that there shall be

collected, in addition to the re'ular forest char'es provided under 3ection *# of Commonealth Act # @non as the

National nternal Revenue Code, the amount of P%.5% on each cubic meter of timber... cut out and removed from an( public

forest for commercial purposes. 0he amount collected shall be e6pended b( the director of forestr(, ith the approval of thesecretar( of a'riculture and commerce, for reforestation and afforestation of atersheds, denuded areas ... and other public

forest lands, hich upon investi'ation, are found needin' reforestation or afforestation .... 0he total amount of the

reforestation char'es paid b( Mambulao /umber Compan( is P4,$*+.5%, and it is the contention of the defendant Mambulao

/umber Compan( that since the Republic of the Philippines has not made use of those reforestation char'es collected from

it for reforestin' the denuded area of the land covered b( its license, the Republic of the Philippines should refund said

amount, or, if it cannot be refunded, at least it should be compensated ith hat Mambulao /umber Compan( oed the

Republic of the Philippines for reforestation char'es. n line ith this thou'ht, defendant Mambulao /umber Compan( rote

the director of forestr(, on Februar( *$, $45+ letter E6h. $, in para'raph # of hich said defendant re=uested that our

account ith (our bureau be credited ith all the reforestation char'es that (ou have imposed on us from :ul( $, $4#+ to

:une $#, $45, amountin' to around P*,4)).* .... 0his letter of defendant Mambulao /umber Compan( as ansered b(

the director of forestr( on March $*, $45+, mar@ed E6h. *, in hich the director of forestr( =uoted an opinion of the secretar(

of 9ustice, to the effect that he has no discretion to e6tend the time for pa(in' the reforestation char'es and also e6plained

h( not all denuded areas are bein' reforested.

0he onl( issue to be resolved in this appeal is hether the sum of P4,$*+.5% paid b( defendant-appellant compan( to

plaintiff-appellee as reforestation char'es from $4#+ to $45 ma( be set off or applied to the pa(ment of the sum of

P#,)%*."+ as forest char'es due and oin' from appellant to appellee. t is appellant?s contention that said sum of

P4,$*+.5%, not havin' been used in the reforestation of the area covered b( its license, the same is refundable to it or ma(

be applied in compensation of said sum of P#,)%*."+ due from it as forest char'es. 1wph1.t

e find appellant?s claim devoid of an( merit. 3ection $ of Republic Act No. $$5, provides1

3EC0N $. 0here shall be collected, in addition to the re'ular forest char'es provided for under 3ection to hundred and

si6t(-four of Commonealth Act Numbered Four Dundred 3i6t(-si6, @non as the National nternal Revenue Code, the

amount of fift( centavos on each cubic meter of timber for the first and second 'roups and fort( centavos for the third and

fourth 'roups cut out and removed from an( public forest for commercial purposes. 0he amount collected shall be e6pended

b( the >irector of Forestr(, ith the approval of the 3ecretar( of A'riculture and Natural Resources !commerce&, forreforestation and afforestation of atersheds, denuded areas and co'on and open lands ithin forest reserves, communal

forest, national par@s, timber lands, sand dunes, and other public forest lands, hich upon investi'ation, are found needin'

reforestation or afforestation, or needin' to be under forest cover for the 'roin' of economic trees for timber, tannin', oils,

'ums, and other minor forest products or medicinal plants, or for atersheds protection, or for prevention of erosion and

floods and preparation of necessar( plans and estimate of costs and for reconnaisance surve( of public forest lands and for

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such other e6penses as ma( be deemed necessar( for the proper carr(in' out of the purposes of this Act.

All revenues collected b( virtue of, and pursuant to, the provisions of the precedin' para'raph and from the sale of bar@s,

medical plants and other products derived from plantations as herein provided shall constitute a fund to be @non as

Reforestation Fund, to be e6pended e6clusivel( in carr(in' out the purposes provided for under this Act. All provincial or cit(

treasurers and their deputies shall act as a'ents of the >irector of Forestr( for the collection of the revenues or incomes

derived from the provisions of this Act. !Emphasis supplied.&

nder this provision, it seems =uite clear that the amount collected as reforestation char'es from a timber licenses or

concessionaire shall constitute a fund to be @non as the Reforestation Fund, and that the same shall be e6pended b( the

>irector of Forestr(, ith the approval of the 3ecretar( of A'riculture and Natural Resources for the reforestation orafforestation, amon' others, of denuded areas hich, upon investi'ation, are found to be needin' reforestation or

afforestation. Note that there is nothin' in the la hich re=uires that the amount collected as reforestation char'es should

be used e6clusivel( for the reforestation of the area covered b( the license of a licensee or concessionaire, and that if not so

used, the same should be refunded to him. bserve too, that the licensee?s area ma( or ma( not be reforested at all,

dependin' on hether the investi'ation thereof b( the >irector of Forestr( shos that said area needs reforestation. 0he

conclusion seems to be that the amount paid b( a licensee as reforestation char'es is in the nature of a ta6 hich forms a

part of the Reforestation Fund, pa(able b( him irrespective of hether the area covered b( his license is reforested or not.

3aid fund, as the la e6pressl( provides, shall be e6pended in carr(in' out the purposes provided for thereunder, namel(,

the reforestation or afforestation, amon' others, of denuded areas needin' reforestation or afforestation.

Appellant maintains that the principle of a compensation in Article $*+) of the ne Civil Code2is applicable, such that the

sum of P4,$*+.5% paid b( it as reforestation char'es ma( compensate its indebtedness to appellee in the sum of P#,)%*."+

as forest char'es. But in the vie e ta@e of this case, appellant and appellee are not mutuall( creditors and debtors of each

other. Conse=uentl(, the la on compensation is inapplicable. n this point, the trial court correctl( observed1 .

nder Article $*+), NCC, compensation should ta@e place hen to persons in their on ri'ht are creditors and debtors of

each other. ith respect to the forest char'es hich the defendant Mambulao /umber Compan( has paid to the

'overnment, the( are in the coffers of the 'overnment as ta6es collected, and the 'overnment does not oe an(thin',

cr(stal clear that the Republic of the Philippines and the Mambulao /umber Compan( are not creditors and debtors of each

other, because compensation refers to mutual debts. ..

And the ei'ht of authorit( is to the effect that internal revenue ta6es, such as the forest char'es in =uestion, can be the

sub9ect of set-off or compensation.

A claim for ta6es is not such a debt, demand, contract or 9ud'ment as is alloed to be set-off under the statutes of set-off,

hich are construed uniforml(, in the li'ht of public polic(, to e6clude the remed( in an action or an( indebtedness of the

state or municipalit( to one ho is liable to the state or municipalit( for ta6es. Neither are the( a proper sub9ect of

recoupment since the( do not arise out of the contract or transaction sued on. ... !)% C.:.3. +"-+#. & .

0he 'eneral rule, based on 'rounds of public polic( is ell-settled that no set-off is admissible a'ainst demands for ta6es

levied for 'eneral or local 'overnmental purposes. 0he reason on hich the 'eneral rule is based, is that ta6es are not in the

nature of contracts beteen the part( and part( but 'ro out of a dut( to, and are the positive acts of the 'overnment, to the

ma@in' and enforcin' of hich, the personal consent of individual ta6pa(ers is not re=uired. ... f the ta6pa(er can properl(

refuse to pa( his ta6 hen called upon b( the Collector, because he has a claim a'ainst the 'overnmental bod( hich is not

included in the ta6 lev(, it is plain that some le'itimate and necessar( e6penditure must be curtailed. f the ta6pa(er?s claim

is disputed, the collection of the ta6 must aait and abide the result of a lasuit, and meanhile the financial affairs of the

'overnment ill be thron into 'reat confusion. !#+ Am. :ur. +-++.&

DEREFRE, the 9ud'ment of the trial court appealed from is hereb( affirmed in all respects, ith costs a'ainst the

defendant-appellant. 3o ordered.

Bengon! ".#.! $adilla! Bautista Angelo! %a&rador! "oncepcion! 'e(es! #.B.%.! $aredes! )ion and )e %eon! ##.! concur.

Foo%&o%e'

1ri'inall( appealed to the Court of Appeals, but later certified to us b( said court, on the 'round that it involves =uestions ofla onl(.

2AR0. $*+). Compensation shall ta@e place hen to persons, in their on ri'ht, are creditors and debtors of each other.