Republic v. Manjares
REITERATIONFacts
The Antecedents: Defendant Demetrio Manjares failed to pay internal revenue taxes for the years 1946 to 1949, amounting to P1,920.73. Despite demand letters and a Warrant of Distraint and Levy, Manjares offered to execute a bond to prevent the seizure and sale of his properties. On November 15, 1950, Manjares, as principal, and Manila Surety & Fidelity Co., Inc., as surety, executed a bond for P1,920.73, payable in installments. The bond stipulated that failure to pay any installment would render the entire amount due and demandable. The bond was approved, and Manjares' properties were returned. However, no payments were made by the defendants from the bond's approval until May 9, 1955. Procedural History: On May 9, 1955, the Assistant Provincial Fiscal of Ilocos Norte filed a complaint with the Justice of the Peace Court (JP Court) of Laoag for the recovery of the bond amount. Manjares raised special defenses, including questioning the tax assessment and claiming prescription. The JP Court rendered judgment sentencing the defendants jointly and severally to pay P1,920.73 plus legal interest. Both defendants appealed to the Court of First Instance (CFI). In the CFI, Manila Surety was declared in default. A motion to set aside the order of default was denied. Subsequently, the CFI, citing Republic Act 1125, ordered the case to be certified and remanded to the Court of Tax Appeals (CTA) due to the nature of the case involving disputed assessments. The plaintiff moved for reconsideration, which was granted, and the case was set for hearing on the merits. However, Manjares again moved to elevate the case to the CTA. The CFI, on September 5, 1958, ordered the case to be certified and forwarded to the CTA. The State moved for reconsideration, arguing the CFI had jurisdiction. This motion was denied, leading to the State's appeal to the Supreme Court. The Petition: The State appealed the CFI's order remanding the case to the CTA, contending that the CFI erred in holding it had no jurisdiction and in remanding the case.
Issue(s)
Whether the Court of First Instance erred in holding that it had no jurisdiction over the case and in remanding it to the Court of Tax Appeals. Whether the defense of prescription is tenable.
Ruling
The Supreme Court set aside the order remanding the case to the Court of Tax Appeals and ordered the return of the case to the court of origin for appropriate proceedings. The Court ruled that the CFI has jurisdiction over the case.
Ratio Decidendi
On the jurisdiction of the Court of First Instance: The Supreme Court held that the Court of Tax Appeals (CTA) does not have jurisdiction over the case at bar. Firstly, no case involving disputed assessments was pending before the CFI when Republic Act No. 1125 took effect on June 16, 1954. Secondly, the case no longer concerned a disputed assessment but rather the fulfillment of the terms of a bond. The execution of the bond by Demetrio Manjares and Manila Surety & Fidelity Co., Inc. created an entirely new and distinct obligation, contractual in nature, separate from the original tax liability. This new liability was a direct and primary obligation to pay a sum of money, defeasible only upon payment as stipulated in the bond. Therefore, actions for the enforcement of obligations created by such bonds should be filed in the regular courts, not the CTA, which has exclusive appellate jurisdiction over disputed assessments under Republic Act No. 1125. On the defense of prescription: The Supreme Court ruled that the defense of prescription has no merit. The statute of limitations applicable to the case is not that provided under the Tax Code, but rather the Civil Code, because the action is based on a written contract – the bond executed by the principal and surety. Under Article 1144 of the Civil Code, actions based upon a written contract prescribe in ten (10) years. The bond in question was executed on November 15, 1950, and the complaint was filed in the JP Court in May 1955. This period is well within the ten-year prescriptive period. Furthermore, upholding the defense of prescription would nullify the distinct and separate undertaking of the principal and surety in the bond, which was executed to secure the payment of the tax obligation.
Main Doctrine
An action for the enforcement of obligations arising from a bond executed to guarantee the payment of internal revenue taxes falls under the jurisdiction of the regular courts, not the Court of Tax Appeals, as it involves a contractual liability distinct from the original tax assessment. The statute of limitations applicable is that for written contracts under the Civil Code, not the Tax Code.