Republic v. Ericta
REITERATIONFacts
The Antecedents: Sampaguita Pictures, Inc. (Sampaguita) owed the Republic P10,268.41 for percentage, withholding, and amusement taxes. In satisfaction of this and another obligation, Sampaguita used sixteen (16) back pay negotiable certificates of indebtedness, totaling P16,763.60, which it had acquired from original holders, to pay the taxes, and official receipts were issued by the Municipal Treasurer of Bocaue, Bulacan. Procedural History: Thirteen days later, the BIR informed Sampaguita that the acceptance of the certificates was erroneous and invalid, citing General Circular No. V-289, which stated that only original holders could use them for tax payments, and requested cash payment. Years later, in 1967, the BIR issued a final demand for cash payment. On June 9, 1969, the Solicitor General filed suit against Sampaguita, alleging the payment was void because Sampaguita was only an assignee, not the original holder, invoking the ruling in de Borja v. Gella. Sampaguita admitted the facts but argued prescription, good faith, and legal compensation, asserting that since the certificates had matured and were redeemable, their obligation to pay taxes and the Republic's obligation to redeem the certificates offset each other. The trial court dismissed both the complaint and counterclaim, ruling that while the payment was invalid per de Borja v. Gella, Sampaguita was entitled to payment on its counterclaim for the value of the certificates, which would offset the tax liability. The Solicitor General moved for reconsideration and, upon denial, appealed to the Supreme Court. The Petition: The Solicitor General presented a motion of reconsideration, and when this was denied, he appealed to this Court by certiorari positing reversible legal error on the part of respondent Judge in holding that the Republic's claim is offset by Sampaguita's counterclaim and that the negotiable certificates of indebtedness in question were "long overdue and redeemable."
Issue(s)
Whether the Republic's claim for unpaid taxes is offset by Sampaguita's counterclaim for the value of the back pay certificates; specifically, whether Sampaguita, as assignee, had the right to demand payment and whether the obligation evidenced by the certificates was due and payable. Whether the back pay certificates were already due and demandable for redemption by Sampaguita, considering the ten-year redemption period stipulated in Republic Act No. 304, as amended by Republic Act No. 800.
Ruling
The petition is denied, and the judgment of the trial court is affirmed in toto. The Republic's claim for unpaid taxes is offset by Sampaguita's counterclaim for the value of the back pay certificates, as both obligations became due and demandable.
Ratio Decidendi
On Issue 1: The trial court correctly ruled that while the initial tender of back pay certificates by Sampaguita did not constitute valid payment of taxes due to Sampaguita being an assignee and not the original holder, as per the doctrine in de Borja v. Gella, Sampaguita, as assignee, succeeded to the rights of the original holders. Consequently, Sampaguita was entitled to demand payment from the Republic for the value of the certificates. The Court found that the obligation evidenced by the back pay certificates had become due and payable. Therefore, the Republic's claim for taxes and Sampaguita's claim for the redemption value of the certificates offset each other through legal compensation, extinguishing both obligations. The trial court's dismissal of both the complaint and counterclaim, with the ultimate effect of offsetting the claims, was deemed correct. On Issue 2: The Supreme Court affirmed the trial court's finding that the back pay certificates were long overdue and redeemable. The certificates were issued pursuant to Republic Act No. 304, as amended by Republic Act No. 800, and were redeemable within ten years from their issuance. The certificates explicitly stated their redeemability date. Even if there was some inexactitude in the phrase "within ten years" regarding the precise time of exibility, the Court emphasized that more than ten years had elapsed since their issuance and the demand for payment was made within that period. Therefore, the obligation to redeem the certificates was undeniably due and payable, making Sampaguita's claim for their value valid and demandable.
Main Doctrine
Back pay certificates, even if assigned, can be used to offset tax liabilities if the Republic's obligation to redeem the certificates has already become due and demandable, effectively extinguishing both obligations through legal compensation.