RepublicofthePhilippines

SUPREMECOURT
Manila

THIRDDIVISION

PHILIPPINEBRITISHG.R.No.185588
ASSURANCECOMPANY,INC.,
Petitioner,Present:

CORONA,J.,Chairperson,
versusCARPIO,*
VELASCO,JR.,
NACHURA,and
REPUBLICOFTHEPHILIPPINES,BRION,**JJ.
representedbytheBUREAU
OFCUSTOMS(BOC),Promulgated:
Respondent.
February2,2010
xx

DECISION

VELASCO,JR.,J.:

TheCase

ThisPetitionforReviewonCertiorariunderRule45seekstoreverseandsetasidethe
[1]
[2]
andNovember28,2008 ResolutionsoftheCourtofAppeals(CA)inCA

July23,2008

G.R. CV No. 88786, entitled Republic of the Philippines represented by the Bureau of
Customs(BOC)v.PhilippineBritishAssuranceCompany,Inc.

TheFacts

Petitioner Philippine British Assurance Company, Inc. is an insurance company duly

organizedandexistingunderandbyvirtueofthelawsoftheRepublicofthePhilippines.As
such,petitionerissuescustomsbondstoitsclientsinfavoroftheBOC.Thesebondssecure

thereleaseofimportedgoodsinorderthatthegoodsmaybereleasedfromtheBOCwithout
prior payment of the corresponding customs duties and taxes. Under these bonds, petitioner
and its clients jointly and severally bind themselves to pay the BOC the face value of the
bonds,intheeventthatthebondsexpirewithouteithertheimportedgoodsbeingreexported
ortheproperdutiesandtaxesbeingpaid.

OnDecember9,2003,theRepublic,representedbytheBOC,filedaComplaintdated
[3]
against petitioner for Collection of Money with Damages before the

December 3, 2003

Regional Trial Court, Branch 20 in Manila. The case was docketed as Civil Case No. 03
108583, entitled Republic of the Philippines represented by the Bureau of Customs v.
Philippine British Assurance Company, Inc. It was alleged in the Complaint that petitioner
hadoutstandingunliquidatedcustomsbondswiththeBOC.

After hearing, the trial court issued a Decision dated September 21, 2006,

[4]

the

dispositiveportionofwhichstates:

PREMISES CONSIDERED, the Court finds for the Plaintiff Republic of the
Philippines represented by the Bureau of Customs and the defendant British Assurance
Company, Inc., is hereby ordered to pay the plaintiff the amount of Php736,742.03
representing defendants unpaid/unliquidated customs bonds plus legal interest from the
finalityofthisDecision.DefendantscounterclaimsareherebyDISMISSED.

SOORDERED.

FromsuchDecision,petitionerfiledamotionforreconsiderationwhichthetrialcourt
deniedinanOrderdatedFebruary5,2007.

Thus,petitionerappealedtheDecisiontotheCA.
TheCAthereafterissuedthefirstassailedResolutiondatedJuly23,2008dismissingthe
caseforlackofjurisdiction.

Petitioner,thus,filedaMotionforReconsiderationdatedAugust11,2008.
however,deniedbytheCAinitssecondassailedResolution.

Hence,wehavethispetition.

[5]

Itwas,


TheIssues

A.
The [CA] committed serious error of law when it ruled that it has no jurisdiction over the
appeal and the same lies with the Court of Tax Appeals because the instant case is a tax
collectioncase.

B.
The[CA]committedseriouserroroflawwhenitfailedtorulethatcustomsbondsareinthe
[6]
natureofacontractbetweenthesuretyandtheBureauofCustoms.

TheCourtsRuling

Thispetitionmustbegranted.

TheCAHasJurisdictionovertheInstantCase

TheCAruledinthefirstassailedResolutionthatithadnojurisdictionoverthesubject
matteroftheappeal,thus:

With the foregoing in mind, it cannot be denied that the issuance of such bonds is
rootedon,basedupon,andinterrelatedwiththepaymentoftaxesandcustomsduties.Strictly
speaking,therefore,BOCssuitagainstBritishAssuranceisoneforcollectionoftaxes.Taking
inmindthatthisappeal,filedonMarch13,2007,involvesataxcasedecidedbytheRTCin
theexerciseofitsoriginaljurisdiction,itnecessarilyfollowsthatjurisdictionoverthesameis
[7]
withtheCourtofTaxAppealspursuanttoRepublicActNo.9282.

Ontheotherhand,petitionerarguesthatinasmuchasRespondentsrightwasinitially
basedonitsrighttocollectdutiesandtaxes,thesamewasconvertedtoarightarisingoutofa
contract,thebondbeingacontractbetweenRespondentandPetitionerxxx.

[8]

Insupportof

such contention, petitioner cites Republic of the Philippines v. Mambulao Lumber

[9]
whereinweruled:

(Mambulao),

Althoughtheoriginalobligationofthelumbercompanyarosefromnonpaymentoftaxes,the
complaintagainstsaidCompanyandtheSuretyispredicateduponthebondexecutedbythem.
In other words, plaintiffs right originally arising from law has become a right based upon a
writtencontract,enforceablewithinten(10)yearsxxx.

Weagreewithpetitionerscontention.

RepublicActNo.(RA)9282

[10]

amendedSection7ofRA1125toreadasfollows:

Section7.Section7ofthesameActisherebyamendedtoreadasfollows:

Sec.7.Jurisdiction.TheCTAshallexercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein

provided:

xxxx

3.Decisions,ordersorresolutionsoftheRegionalTrialCourtsinlocal
taxcasesoriginallydecidedorresolvedbythemintheexerciseoftheiroriginal
orappellatejurisdiction.(Emphasissupplied.)

Intheinstantcase,theoriginalcomplaintfiledwiththetrialcourtwasinthenatureofa
collection case, purportedly to collect on the obligation of petitioner by virtue of the bonds
executedbyitinfavorofrespondent,essentiallyacontractualobligation.

As petitioner correctly points out, an action to collect on a bond used to secure the
payment of taxes is not a tax collection case, but rather a simple case for enforcement of a
contractualliability.

InMambulao,MambulaoLumberCompany(MLC)wasliablefordeficiencysalestax
to the Republic. The parties agreed to an installment plan, whereby MLC obligated itself to
pay such obligation in 12 equal monthly installments. To secure the installment payments,
MLCandMambulaoInsuranceandSuretyCorporationexecutedasuretybondinfavorofthe
Republic. MLC defaulted in the payment of its obligation. Thus, the Republic proceeded
against the surety bond. MLC sought the dismissal of the case against it on the ground of
prescription,arguingthatunderSec.331,inrelationtoSec.183(A),oftheNationalInternal
RevenueCode(NIRC),internalrevenuetaxesmustbeassessedwithinfive(5)yearsfromthe
filingofthecorrespondingreturn.

Thus, we ruled in that case that the NIRC was inapplicable to the case and that the
Republichadten(10)yearsfromdefaultofpaymentwithinwhichtocollecttheindebtedness

of MLC. We explained that an action based upon a surety bond cannot be considered a tax
collectioncase.Rather,suchactionwouldproperlybeacasebasedonacontract.

InamoresuccinctrulinginRepublicofthePhilippinesv.XavierGunTrading,

[11]
we

decided:

The present actions by the government are for the forfeiture of the bonds in question.
Althoughthesubjectmatterofsaidbondsareinternalrevenuetaxes,itcannotbedenied
thatupontheexecutionofsaidbonds,thetaxpayer,asprincipalandthebondsman,as
surety,assumedanewandentirelydistinctobligationandbecamesubjecttoanentirely
differentkindofliability.Thus,ithasbeenheld:

However,assoonasthebondwasexecuted,thetaxpayerassumedasecondand
entirelydistinctobligation,andbecamesubjecttoanewandentirelydifferentkindof
liability...Thenewliabilitywasvoluntaryandcontractual.Itwasinformadirect
and primary obligation, not to pay a tax, but to pay the sum of $12,635.00,
defeasibleonlyuponpaymentbythetaxpayerofacertainamount,tobefixedby
subsequentactionoftheCommissioner.Nolimitationwasputuponthetimewithin
which the Commissioner was required to act in fixing such sum. Inasmuch as the
Collectorhadtherighttoproceedimmediatelyforthecollectionofthetax,itfollows
that he also had the right to require, as the price of forbearance from such action, a
generalpromisetopaysuchamountasmightbefounddueatanytime,eitherbeforeor
aftertheexpirationofthestatutoryperiod...(McCaughnv.PhiladelphiaBargeCo.,
27F[2d]628)

ThemakingofthebondgivestheUnitedStatesacauseofactionseparateand
distinctfromanactiontocollecttaxeswhichitalreadyhad.Thestatutesnowpleaded
to bar the suit can not be extended by implication to a suit upon a subsequent and
substitutedcontract.Thepostponementofthecollectionoftaxesreturnedwasawaiver
ofthestatutorylimitationoffiveyearsthatwouldhaveappliedhadthevoluntaryreturn
ofthetaxpayerstoodandnobondbeengiven.Ifthereisanylimitationapplicabletoa
suitonthebond,itisconcededthatithasnotyetbecomeeffective.(UnitedStates v.
BarthCo.,73L.Ed.746U.S.278279)(Emphasissupplied.)

Verily,theinstantcaseisnotataxcollectioncasehence,theCAhasjurisdictionover
thecase.

Inaddition,itmustbestressedthateventheBOCdidnotconsiderthecaseasonefor
taxcollection.InitsComplaintdatedDecember3,2003,theBOCstated:

10.PlaintiffthussentdefendantPHILIPPINEBRITISHaletterdatedOctober5,2001
informing said defendant that it had an outstanding unliquidated customs bonds with the
Bureau of Customs in the sum of PHP 4,457,290.00 and that if defendant failed to explain
within five days from receipt of such letter why these bonds have not been liquidated as set
forthinParagraph6hereof,thenplaintiffwillforfeitthesaidcustomsbondsandinstitute

collectionagainstthesaidbonds.xxx(Emphasissupplied.)

Pursuanttosuchletter,theBOCinstitutedacomplaintagainstpetitionerforcollection
of money, decidedly not a tax collection case, before the trial court. Moreover, as correctly
pointed out by petitioner, the BOC purposefully did not follow the procedure in the proper
prosecutionofataxcollectioncase.ThismayonlybeexplainedwiththefactthattheBOC
itselfdidnotconsidertheactionthatitinstitutedasataxcollectioncase.

Certainly,theadministrativeagenciestaskedwiththeprosecutionofcaseswithintheir
specific area of concern should know the nature of the action to be filed and the proper
procedure by which they can collect on liabilities to it. Here, the BOCs actions reveal its
positionthatindeedthecasewasnotataxcollectioncasebutanactionfortheenforcementof
acontractualobligation.Hence,appellatejurisdictionoverthepetitionproperlylieswiththe
CAandnottheCourtofTaxAppeals.

WHEREFORE,thispetitionisGRANTED.TheCAsJuly23,2008andNovember
28, 2008 Resolutions in CAG.R. CV No. 88786 are accordingly REVERSED and SET
ASIDE.ThiscaseisherebyREMANDEDtotheCAforhearingonthemerits.

Nocosts.

SOORDERED.

PRESBITEROJ.VELASCO,JR.
AssociateJustice

WECONCUR:

RENATOC.CORONA
AssociateJustice
Chairperson

ANTONIOT.CARPIOANTONIOEDUARDOB.NACHURA
AssociateJusticeAssociateJustice

ARTUROD.BRION
AssociateJustice

ATTESTATION

IattestthattheconclusionsintheaboveDecisionhadbeenreachedinconsultation
beforethecasewasassignedtothewriteroftheopinionoftheCourtsDivision.

RENATOC.CORONA
AssociateJustice
Chairperson

CERTIFICATION

PursuanttoSection13,ArticleVIIIoftheConstitution,andtheDivisionChairpersons

Attestation, I certify that the conclusions in the above Decision had been reached in
consultationbeforethecasewasassignedtothewriteroftheopinionoftheCourtsDivision.

REYNATOS.PUNO
ChiefJustice

*AdditionalmemberperSpecialOrderNo.818datedJanuary18,2010.
**AdditionalmemberperSeptember2,2009raffle.
[1]

Rollo,pp.3235.PennedbyAssociateJusticeNormandieB.PizarroandconcurredinbyAssociateJusticesEdgardoP.
CruzandFernandaLampasPeralta.
[2]
Id.at3738.
[3]
Id.at6379.
[4]
Id.at4050.
[5]
Id.at5161.
[6]
Id.at13.
[7]
Id.at3435.
[8]
Id.at18.
[9]
No.L18942,November30,1962,6SCRA858,861.
[10]
AnActExpandingtheJurisdictionoftheCourtofTaxAppeals(CTA),ElevatingItsRanktotheLevelofaCollegiate
Court with Special Jurisdiction and Enlarging Its Membership, Amending for the Purpose Certain Sections of Republic Act No.
1125,asAmended,OtherwiseKnownastheLawCreatingtheCourtofTaxAppeals,andforOtherPurposes.
[11]
No.L17325,April26,1962,4SCRA1133,1137.