Republic v. Mambulao Lumber Company
REITERATIONFacts
The Antecedents: Defendant Mambulao Lumber Co. was indebted to the Republic of the Philippines for deficiency sales taxes for 1948 amounting to P2,972.71. On July 20, 1954, Mambulao Lumber Co., as principal, and Mambulao Insurance & Surety Corporation, as surety, executed a bond guaranteeing payment in twelve equal monthly installments starting August 1954, with a stipulation that default in any installment would make the entire balance due. Procedural History: On June 14, 1957, the Republic filed an action to recover the sum, alleging non-payment of installments. The defendants admitted the allegations but denied liability, claiming they had paid P9,127.52 as reforestation charges under Republic Act No. 115, which the plaintiff allegedly failed to use for reforestation. The lower court set the hearing for October 15, 1957. Defendants' motion for postponement filed on October 12, 1957, was not granted. On the hearing date, neither the defendants nor their counsel appeared. The court proceeded to receive plaintiff's evidence and rendered judgment for the plaintiff on August 25, 1958. Defendants' motion for new trial was denied. The Petition: Defendants appealed, alleging errors in the denial of their motion for continuance and new trial, in not finding the action barred by the statute of limitations, and in not finding that the plaintiff had no cause of action due to its alleged failure to spend reforestation charges.
Issue(s)
Whether the lower court erred in denying the motion for continuance and the motion for new trial. Whether the plaintiff's action is barred by the statute of limitations. Whether the plaintiff has a cause of action, considering its alleged failure to spend reforestation charges.
Ruling
The Supreme Court affirmed the decision of the lower court, ordering the defendants to pay the plaintiff, with costs against the defendants.
Ratio Decidendi
On the denial of the motion for continuance and new trial: The Court held that motions for continuance are addressed to the sound discretion of the court, and its action will not be disturbed absent a patent and manifest abuse of discretion. The defendants' motion for postponement was not even sworn to, providing no reason for the judge to rely on its allegations. Furthermore, the defendants offered no plausible excuse for their non-appearance on the hearing date, especially since no order granting their motion had been issued. The denial of the motion for new trial was also proper, as it was not alleged therein that the defense set up in the answer could be established by the defendants, and it contradicted their admission in the answer regarding the truth of the complaint's allegations. On the plea of prescription: The Court ruled that the plea of prescription, based on Section 331 in relation to Section 183(A) of the National Internal Revenue Code, was inapplicable. Although the original obligation arose from non-payment of taxes, the action against the defendants was predicated upon the surety bond they executed. This transformed the plaintiff's right, originally arising from law, into a right based upon a written contract, which is enforceable within ten (10) years from September 1954, upon defendants' default in the payment of the first installment. The action was commenced on June 14, 1957, well within this period. Moreover, the plea of prescription was deemed waived by the defendants for failure to allege it in their answer. On the alleged failure to spend reforestation charges: The Court found that the defendants' claim regarding the plaintiff's obligation to apply reforestation charges to the rehabilitation of denuded lands was predicated on an allegation of fact in their answer that the lands were denuded. However, there was no proof presented in support of this obligation. Therefore, this defense could not be sustained.
Main Doctrine
A surety bond guaranteeing payment of a tax liability transforms the original obligation arising from law into a contractual obligation, subject to the ten-year prescriptive period for actions based on written contracts, and not the five-year period for assessment of internal revenue taxes.