REPUBLIC OF THE PHILIPPINES, PETITIONER, VS. HON. JUDGE VICENTE G. ERICTA AND SAMPAGUITA PICTURES, INC., RESPONDENTS.

This case has to do with the so-called “back pay certificates”
issued by the Philippine Government in the aftermath of the Pacific War,
pursuant to Republic Act No. 304, as amended by Republic Act No. 800.  These enactments generally recognized the
right of persons who at the outbreak of the war were employed in the classified
and unclassified civil service as well as in government-owned or controlled
corporations, and those who had served in the free local civil governments
organized for purposes of resistance against the invaders, to salaries, wages, emoluments,
per diems, not received by them by reason of the war.  The Treasurer of the Philippines
was empowered to receive applications for back pay and to issue in favor of the
applicants certificates of indebtedness redeemable by the Government within ten
years for the amounts determined to be justly due them.

It appears that in relation to its business of producing motion
pictures, Sampaguita Pictures, Inc., hereafter simply
Sampaguita, came to incur an obligation for
percentage, withholding and amusement taxes in the amount of P10,268.41 in
favor of the Republic of the Philippines.1 In
satisfaction thereof, and of another obligation of the same nature due from
Vera-Perez Corporation, Sampaguita Pictures, Inc.
tendered and delivered to the Office of the Municipal Treasurer of Bocaue, Bulacan, on June 9, 1961,
sixteen (16) back pay negotiable certificates of indebtedness in the aggregate
sum of P16,763.50, which had earlier been negotiated to them by the original
holders thereof; and official receipts therefor were
duly issued.1

Thirteen (13) days later, however, the Assistant Regional
Director of the BIR wrote to Vera-Perez Corporation (his letter is dated June
22, 1961) advising that the acceptance of the Negotiable Certificates of
Indebtedness in payment of amusement, percentage and withholding taxes (in the
total sum of P16,753.50) was erroneous and the payment was invalid, because
actually said certificates were “not acceptable as payments of internal
revenue taxes in accordance with the provisions of ** General Circular No.
V-289 dated May 8, 1959.”
Request was thus made for the payment of the tax liabilities in cash.2
Evidently neither corporation responded one way or the other to this
letter.  Anyway, the next letter adverted
to by the Government is that dated August 18, 1967, written by the Acting
Deputy Commissioner of Internal Revenue to both Sampaguita
and Vera-Perez Corporation.3 That letter gave the corporations
“a last 15-day period within which to pay the said amount of P16,763.50 in
cash or certified check.” Again, no acceptable response seems to have been
made by the corporations.  So on June 9, 1969, eight (8) years to the
day when the negotiable certificates of indebtedness were accepted in payment
of taxes by the Municipal Treasurer at Bocaue, Bulacan, the Solicitor General brought suit in behalf of
the Republic of the Philippines
in relation thereto.4 The case was docketed as Civil Case
No. Q-13270 of the Court of First Instance at Quezon City, and assigned to
Branch XVIII thereof, then presided over by herein respondent, Hon. Vicente G.
Ericta.5

The Solicitor General’s complaint6 impleaded
only Sampaguita as defendant.  Why he excluded the other corporation is not
disclosed by the record.  In his
complaint he alleged that Sampaguita’s essayed
payment was void since it was “not the original holder of the **
certificates ** but ** only a mere assignee thereof,” and under the law,
“only original holders of back pay certificates ** are allowed to use the
same in payment of their own taxes,” invoking this Court’s decision to
that effect in de Borja v. Gella,7
promulgated on July 31, 1963.

Sampaguita’s answer admitted the basic
facts, but asserted that the plaintiff’s cause of action had already
prescribed; that the tender of the certificates in 1961 had been “made in
absolute good faith,” “prior to the promulgation of the decision **
(in) de Borja vs. Vicente Gella
et al. on July 31, 1963;” that the certificates “having duly
matured ** in the year 1958, (and) plaintiff ** (being then) already duty bound
to redeem them and pay for their value,” Sampaguita
and the Republic became “mutual creditors and debtors of each other for
the amount of P10,268.41″ with the result that their obligations were
extinguished by legal compensation.” These averments were inter alia reproduced and set up also as a counterclaim, with
the additional plea that “in the remote possibility that ** (it [Sampaguita]) be still required ** to pay plaintiff the
amount of P10,268.41 for alleged unpaid taxes, the plaintiff be ordered to pay
the defendant the same amount of P10,268.41 representing the face value of the
negotiable certificates of indebtedness.”

On December 29, 1971,
judgment was rendered by the Trial Judge “dismissing both the complaint
and the counterclaim without pronouncement as to costs.”1 His Honor held that delivery of the
back pay certificates by Sampaguita had not produced
the effect of payment in view of the doctrine in Borja
v. Gella2
that “the right to use backpay certificates of
indebtedness in the settlement of taxes is given only to original holders and
not to mere assignees thereof;” this notwithstanding, Sampaguita,
as assignee of the certificates or indebtedness, had “succeeded to the
original rights of the holders thereof,” and was therefore authorized to
demand payment by the Republic of the indebtedness thereby represented; and
while there was “opinion that (legal) compensation cannot take place
against the Republic with respect to taxes, fees, duties and similar forced
contributions due to it (Civil Code, Volume IV, p. 349, Tolentino;
Gasperi 204; 2 Von Tuhr, Obligaciones, p. 165), there could be no gainsaying
the proposition that, under the facts, Sampaguita
was entitled to judgment upon its counterclaim for the payment by the
Republic of its indebtedness in virtue of the back pay certificates in
question, with the “ultimate result ** that the claim and counter-claim of
the plaintiff and the defendant, respectively, will offset each other.”

The Solicitor General presented a motion for reconsideration.  When this was denied, he appealed to this
Court by certiorari positing reversible legal error on the part of
respondent Judge in holding that (1) the Republic’s claim is off­set by Sampaguita’s counterclaim, and (2) the negotiable
certificates of indebtedness in question were “long overdue and
redeemable.” The petitioner’s postulations are untenable.

1. The Trial Court ruled that the taxes sought to be collected by
the Republic from Sampaguita were still unpaid, its
tender of the certificates of indebtedness in question not constituting
payment; hence, it ought properly to be sentenced to pay the taxes.  It also ruled that even assuming the
contrary, legal compensation as a mode of extinguishing an obligation to pay
taxes was nonetheless unavailing against the government, conformably with de
Borja v. Gella.

On the other hand, according to the
Trial Court, at least as of date of judgment, more than 10 years from June 18,
1958, the date when, as expressly stated in the certificates of indebtedness,
the same were redeemable, the obligation thereby evidenced was unquestionably
already due and payable; hence, Sampaguita was
entitled to a judgment against the Republic for the payment of the face value
of the certificates, the same having already been presented and surrendered
within the said period of ten years (on June 9, 1961) to the Treasurer of the Philippines
(thru the Municipal Treasurer of Bocaue, Bulacan).1 This is correct.  In other words, even if as the Solicitor
General points out, “there is no certainty when the certificates are
actually redeemable” because the law says “that they are
redeemable ** ‘within ten years from the date of issuance,'”2
there can be no question that after the lapse of ten (10) years from the
declared date of redeemability, payment of the
indebtedness was already exigible.  The Trial Court was saying in effect that
while judgment should be rendered in favor of the Republic against Sampaguita for unpaid taxes in the amount of P10,268.41,
judgment ought at the same time to issue for Sampaguita
commanding payment to it by the Republic of the same sum, representing the face
value of the certificates of indebtedness assigned to it and for recovery of
which it had specifically prayed in its counterclaim.

2. What has just been said confutes the petitioner’s second
argument that redemption of the certificates of indebtedness was not yet
demandable of it because “there is no certainty when the certificates are
actually redeemable, within the meaning of the law.” It is true that, as
the Solicitor General contends, “the law does not say that they are
redeemable from its approval on June 18, 1958 but ‘within ten years from the
date of issuance’ of the certificates,”3 the ineludible, ineluctable fact is
that more than ten (10) years have already elapsed since their issuance and
demand for payment had been made within said 10-year period.  It is useless to quibble about the precise
time “within ten years” when an obligation becomes demandable, when that
period of ten years has already expired. 
Whatever inexactitude might inhere in the phrase, “within ten
years,” as fixing the time of exibility of the
obligation in question, there can be no debate about the proposition that the
obligation became due and demandable after ten years.  It would be absurd and unfair to sanction the
theory subsumed in the Republic’s petition that its obligation was not
demandable within ten years because of inexactitude, yet became time-barred
upon the lapse of that selfsame period.

WHEREFORE, the petition is DENIED, and the judgment
subject thereof, being in accord with the facts and the law, is AFFIRMED in toto.  No costs.

SO ORDERED.

Cruz, Gancayco, Griño-Aquino,
and Medialdea,
JJ., concur.

1
Rollo, pp. 25, 34

1
Id., pp. 25, 28, 29, 34,
107 (Sampaguita’s Brief, p. 13)

2
Id., pp. 28 (copy attached
as annex to the Republic’s complaint dated June 9, 1969, infra), 107 (Sampaguita’s
Brief, p. 13)

3
Id., p. 29

4
Id., pp. 25-29.

5
Later, Associate Justice of the Supreme Court

6
The complaint was signed by then Solicitor General Felix V. Makasiar
and three (3) others, and was verified by Commissioner of Internal Revenue Misael P. Vera.

7
G.R. No. L-18330, 62 O.G. (37) p. 6645

1
Rollo, pp. 34-38

2 Supra, footnote 8, p. 1

1 The certificate recites that it “is redeemable on
June 18, 1958, without
interest, upon its presentation and surrender to the Treasurer of the Philippines”
(Rollo, p. 107; Brief for Sampaguita,
p. 7).

2 Rollo, p. 86;
Petitioner’s Brief, p. 8

3 Again citing de Borja
v. Gella, supra