G.R. No. L-21516 - Butuan Sawmill, Inc. vs. City of Butuan

The petitioner-appellee, Butuan Sawmill, Inc., was granted a legislative franchise under Republic Act No. 399 on June 18, 1949, authorizing the establishment and operation of an electric light, heat, and power system at Butuan and Cabadbaran, Agusan.
The franchise was further supported by the issuance of a certificate of public convenience and necessity by the Public Service Commission on March 18, 1954, and it was subject to the terms and conditions of Act 3636 (as amended by Commonwealth Act No. 132) and the Constitution.

Ordinance No. 7, effective October 1, 1950, mandated a tax of 2% on the gross sales or receipts of any business operating in the city, with a stipulated monthly payment schedule and penalties for non-compliance.
Amendments to the original taxing ordinance were introduced sequentially:

Ordinance No. 11 (December 14, 1950) expanded the enumeration of taxable business types.
Ordinance No. 131 (May 16, 1961) modified the penal provisions associated with the tax.
Ordinance No. 148 (June 11, 1962) specifically included within its coverage those engaged in the business of electric light, heat, and power.

Ordinance No. 104, enacted on April 13, 1960, made it unlawful to disconnect an electrical wire connecting the franchise holder's power plant to any consumer without the consumer’s consent, except in emergencies such as fire or when a clear and positive danger exists to lives and property, or upon an order by proper authorities.

The petitioner-appellee challenged the constitutionality of the taxing ordinances (Nos. 7, 11, 131, and 148), arguing that:

The ordinances imposed a 2% tax on its franchised business, thereby impairing the obligation of contract inherent in the franchise.
The imposition of the tax constituted an unauthorized alteration or amendment of the franchise, effectively depriving the company of its property without due process of law.

The challenge extended to Ordinance No. 104, maintained as being arbitrary, unreasonable, oppressive, and an unwarranted exercise of power that compelled the company to continue supplying electrical energy regardless of non-payment, thereby causing an accumulative financial detriment during protracted court proceedings.

The franchise granted by Republic Act No. 399 and its accompanying conditions through Act 3636 and Commonwealth Act No. 132.
The city’s charter under Republic Act 523, approved on June 15, 1950, which empowers the city “to provide for the levy and collection of taxes for general and special purposes.”
The Local Autonomy Law (Republic Act 2264), approved on June 19, 1959, was cited by the respondents-appellants to argue for an expanded taxing power.

The city contended that its broad taxing powers, further extended by the Local Autonomy Law, justified the inclusion of the petitioner’s business within the ambit of the local tax ordinances.

Notably, the franchise was granted prior to the city’s charter approval, creating a chronological hierarchy in which the special franchise was intended as an exception to subsequent general municipal laws.
The juxtaposition of special and general laws raised the constitutional question regarding the proper scope of the city’s authority vis-à-vis the sanctity and limitations of a legislative franchise.

Whether the imposition by the city of a 2% tax on the gross sales or receipts of the electric light, heat, and power business of Butuan Sawmill, Inc. was within the legal and constitutional power of the city.
Whether such imposition constituted an impermissible interference with the contractual obligations of the franchise granted to the petitioner-appellee.

Whether the city’s charter and the Local Autonomy Law, particularly Republic Act 2264, permit the levying of taxes on a franchised business that already is subject to a franchise tax imposed by the internal revenue code.
Whether the inclusion of the electric light, heat, and power business within the taxable categories was justified, or if it amounted to double taxation.

Whether the ordinance that prohibits the disconnection of electrical service without consumer consent (except under emergency conditions) oversteps the bounds of local authority.
Whether such an ordinance, by compelling continued service irrespective of non-payment, deprives the franchise holder of its property rights without due process of law.

How the special statute granting the franchise interacts with subsequent general laws (city charter and Local Autonomy Act) and whether the special law is to be treated as an exception to the general laws.