Borja v Gella

GR No L-18330, July 31, 1963

FACTS:
Jose de Borja has been delinquent in the payment of his real estate taxes since 1958 and has offered to pay
them with two negotiable certificates of indebtedness to which he is only an assignee. These were rejected by
the City treasurers of both Manila and Pasay cities on the ground of their limited negotiability. Borja brought the
question to the Treasurer of the Philippines who opined that the negotiable certificates cannot be accepted as
payment of real estate taxes inasmuch as the law provides for their acceptance from their backpay holder only
or the original applicant himself, but not his assignee. Lower court ruled in favor of Borja.

ISSUES:
1. Whether Borja may apply to the payment of his real estate taxes the certificates of indebtedness he holds;
while, respondents have the correlative legal duty to accept the certificates in payment of the taxes
2. Whether compensation can take place between Borja’s real estate tax liability and the credit represented by
the certificate of indebtedness

RULING:
1. No, the respondents are not duty bound to accept the negotiable certificates of indebtedness for the simple
reason that they were not obligations subsisting at the approval of RA 304 which took effect on June 18, 1948.
Under RA 304, payment through a certificate of indebtedness may be allowed if the tax is owed by the
applicant himself. Furthermore, the right to use the backpay certificate in settlement of taxes is given only to
the applicant himself. Futhermore, the right to use the backpay certificate in settlement of taxes is given only to
the applicant and not to any holder of any negotiable certificate to whom the law only gives the right to have it
discounted by a Filipino citizen or corporation under certain limitations. Borja is not himself the applicant of the
certificate in question, he is merely as assignee thereof.

2. No, the debtor insofar as the certificates of indebtedness are concerned is the Republic of the Philippines,
whereas the real estate taxes owed by Borja are due to the City of Manila and Pasay City, each one of which
having a distinct and separate personality from our Republic. This is contrary to Article 1279 (1) of the Civil
Code which states that “each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other” 
 No. L-18330. July 31, 1963.
JOSE DE BORJA, petitioner-appellee, vs. VlCENTE G. GELLA, ET AL., respondents-appellants.
Obligations and contracts; Backpay certificates; Rights of assignee; Cannot be used to pay real estate taxes.—
The assignee of backpay certificates cannot compel the government to accept said certificates in payment of
his real estate taxes for the reason that in order that such payment may be allowed the tax must be owed by
the applicant himself. This is the correct implication that may be drawn from the use of the words "his taxes" in
Section 2 of Republic Act No. 304, as amended.

Same; Same; Same; Discounting at maturity or negotiation.—The right of an assignee or subsequent holder of
a backpay certificate is at most to have it discounted upon maturity or to negotiate it in the meantime.

Same; Same; Same; Compensation cannot be effected with regard to assignee's real estate taxes.—
Compensation cannot take place between the obligation of the appellee, an assignee of a backpay certificate,
for real estate taxes, and the obligation of the government based on said certificates. In the first place, the
debtor in the certificate of indebtedness is the Republic of the Philippines, whereas the real estate taxes owed
by appellee are due to the City of Manila and Pasay City, each one of which having a distinct and separate
personality from our Republic. With regard to the certificates, the creditor is the appellee while the debtor is the
Republic of the Philippines. And with regard to the taxes, the creditors are the cities of Manila and Pasay while
the debtor is the appellee. Therefore, each one of the obligors concerning the two obligations is not at the
same time the principal creditor of the other. Secondly, it cannot be said that the certificates are already due.
Although on their faces the certificates issued to appellee state that they are redeemable from its approval on
June 18, 1948, yet the law provides that they are redeemable within ten years from the date of issuance of the
certificates. Therefore, there is no certainty when the certificates are really redeemable within the meaning of
the law.

APPEAL from from a decision of the Court of First Instance of Manila. Tan, J.

The facts are stated in the opinion of the Court.

     David Guevara for petitioner-appe|lee.

VOL. 8, JULY 31, 1963

De Borja vs. Gella

     Solicitor General for respondent-appellant Treasurer of the Philippines.

     Assistant City Fiscal H. A. Avendaño for respondentappellant Treasurer of Pasay City.

BAUTISTA ANGELO, J;:

(Jose de Borja has been delinquent in the payment of his real estate taxes since 1958 for properties located in
the City of Manila and Pasay City and has offered to pay them with two negotiable certificates of indebtedness
Nos. 3064 and 3065 in the amounts of P793.40 and P717.69, respectively. Borja ,was, however, a mere
assignee of the aforesaid negotiable certificates, the applicants for backpay rights covered by them being
respectively Rafael Vizcaya and Pablo Batario Luna.

The offers to pay the real estate taxes in question were rejected by the city treasurers of both Manila and
Pasay cities on the ground of their limited negotiability under Section 2, Republic Act No. 304, as amended by
Republic Act 800, and in the case of the city treasurer of Manila on the further ground that he was ordered not
to accept them by the city mayor, for which reason Borja was prompted to bring the question to the Treasurer
of the Philippines who opined, among others, that the negotiable certificates cannot be accepted as payment of
real estate taxes inasmuch as the law provides for their acceptance from their backpay holder only or the
original applicant himself, but not his assignee. In his letter of April 29, 1960 to the Treasurer of the Philippines,
however, Borja entertained hope that the certificates would be accepted for payment in view of the fact that
they were already long past due and redeemable, but his hope was frustrated. So 011 June 30, 1960, Borja
filed an action., against the treasurers of both the City of Manila and Pasay City, as well as the Treasurer of the
Philippines, to impel them to execute an act which the law allegedly requires them to perform, to wit: to accept
the above-mentioned certificates of indebtedness considering that they were already due and redeemable so
as not to

SUPREME COURT REPORTS ANNOTATED

De Borja vs. Gella

deprive him illegally of his privilege to pay his obligation to the government thru such means.

Respondents in due time filed their answer setting up the reasons for their refusal to accept the certificates,
and after the requisite trial was held, the court a quo rendered judgment the dispositive part of which reads:

"WHEREFORE, the treasurers of the City of Manila and Pasay City, their agents and other persons acting in
their behalf are hereby enjoined from including petitioner's properties in the payment of real estate taxes, and
to sell them at public auction, and respondent Treasurer of the Philippines, and the treasurers of the City of
Manila and Pasay City are hereby ordered to accept petitioner's Negotiable Certificates of Indebtedness Nos.
3064 and 3065 in the sums of P793.40 and P717.39 in payment of real estate taxes of his properties in the
City of Manila and Pasay City, respectively, without costs."

Respondents took this appeal on purely questions of law.

Reduced to bare essentials, the 12 errors assigned by appellants may be boiled down to the following: (a) has
appellee the right to apply to the payment of his real estate taxes to the government of Manila and Pasay cities
the certificates of indebtedness he holds while appellants have the correlative legal duty to accept the
certificates in payment of said taxes?; (b) can compensation be invoked to extinguish appellee's real estate tax
liability between the latter's obligation and the credit represented by said certificates of indebtedness?

Anent the first issue, the pertinent legal provision to be reckoned with is Section 2 of Republic Act No. 304, as
amended by Republic Act No. 800, which in part reads:

"SEC. 2, The Treasurer of the Philippines shall, upon application, and within one year from the approval of this
Act, and under such rules and regulations as may be promulgated by the Secretary; of Finance, acknowledge
and file requests for the recognition of the right to the salaries and wages as provided in section one hereof,
and notice of such acknowledgment shall be issued to the applicant which shall state the total amount of such
salaries or wages due to the applicant, and certify that it shall be redeemed by the Government of the
Philippines within ten years from the date of their issuance without interest: Pro'vided, that upon application x x
x a certificate of indebtedness may be issued by the Treasurer of the Philippines covering the

VOL. 8, JULY 31, 1963

De Borja vs. Gella

whole or part of the total salaries or wages the right to which has been duly acknowledged and recognized,
provided that the face value of such certificate of indebtedness shall not exceed the amount that the applicant
may need for the payment of (1) obligations subsisting at the time of the approval of this Act for which the
applicant may directly be liable to the Government or to any of its branches or instrumentalities, or the
corporations owned or controlled by the Government, or to any citizen of the Philippines, who may be willing to
accept the same for such settlement; (2) his taxes; x x x and Provided, also, That any person who is not an
alien, bank or other financial institution at least sixty per centum of whose capital is owned by Filipinos may,
notwithstanding any provision of its charter, articles of incorporation, by-laws. or rules and regulations to the
contrary, accept or discount at not more than three and one-half per centum per annum for ten years a
negotiable certificate of indebtedness which shall be issued by the Treasurer of the Philippines upon
application by a holder of a back pay acknowledgment x x x."

To begin with, it cannot be contended that appellants are in duty bound to accept the negotiable certificates of
indebtedness held by appellee in payment of his real estate taxes for the simple reason that they were not
obligations subsisting at the time of the approval of Republic Act No. 304 which took effect on June 18, 1948. It
should be noted that the real estate taxes in question have reference to those due in 1958 and subsequent
years. The law is explicit that in order that a certificate may be used in payment of an obligation the same must
be subsisting at the time of its approval even if we hold that a tax partakes of this character, neither can it be
contended that appellee can compel the government to accept the alleged certificates of indebtedness in
payment of his real estate taxes under proviso No. 2 abovequoted also for the reason that in order that such
payment may be allowed the tax must be owed by the applicant himself. This is the correct implication that
may be drawn from the use by the law of the words "his taxes". Verily, the right to use the backpay certificate in
settlement of taxes is given only to the applicant and not to any holder of any negotiable certificate to whom the
law only gives the right to have it discounted by a Filipino citizen or corporation under certain limitations. Here
appellee is not himself the applicant of the certifi-

SUPREME COURT REPORTS ANNOTATED

De Borja vs. Gella

cate. in question. He is merely an assignee thereof, Or a subsequent holder whose right is at most to have it
discounted upon maturity—or to negotiate it in the meantime. A fortiori, it may be included that, not having the
right to use said certificates to pay his taxes, appellee cannot compel appellants to accept them as he requests
in the present petition for mandamus. As a consequence, we cannot but hold that mandamus does not lie
against appellants because they have in no way neglected to perform an act enjoined upon them by law as a
duty, nor have they unlawfully excluded appellee from the use or enjoyment of a right to which he is entitled.1

We are aware of the cases2 cited by the court a quo wherein the government banking institutions were ordered
to accept the backpay certificates of petitioners in payment of their indebtedness to them, but they are not here
in point because in the cases mentioned the petitioners were applicants and original holders of the
corresponding backpay certificates. Here appellee is not.

With regard to the second issue, i.e., whether compensation can be invoked insofar as the two obligations are
concerned, Articles 1278 and 1279 of the new Civil Code provide:

"ART. 1278. Compensation shall take place when ,two persons, in their own right, are creditors and debtors of
each other.

"ART. 1279. In order that compensation may be proper, it is necessary:

(1)That each one of the obligors be bound principally, and that he be at the same time a principal creditor of
the other:
(2)That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated;
(3)That the two debts be due;
(4)That they be liquidated and demandable;
_________________

1 Section 3, Rule 67, Rules of Court; Mendoza v. E. C. McCullough & Co., 29 Phil. 465; Olsen & Co. v.
Herstein, et al., 32 Phil. 520.

2 Florentino v. PNB, 42 O.G., 2522; Sabalino v. RFC, L11790, September 30, 1958.
VOL. 8, JULY 81, 1963

De Borja vs. Gella

(5)That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor."
It is clear from the above legal provisions that compensation cannot be effected with regard to the two
obligations in question. In the first place, the debtor insofar as the certificates of indebtedness are concerned is
the Republic of the Philippines, whereas the real estate taxes owed by appellee are due to the City of Manila
and Pasay City, each one of which having a distinct and separate personality from our Republic. With regard to
the certificates, the creditor is the appellee while the debtor is the Republic of the Philippines. And with regard
to the taxes, the creditors are the City of Manila and Pasay City while the debtor is the appellee. It appears,
therefore, that each one of the obligors concerning the two obligations is not at the same time the principal
creditor of the other. It cannot also be said for certain that the certificates are already due. Although on their
faces the certificates issued to appellee state that they are redeemable on June 18, 1958, yet the law does not
say that they are redeemable from its approval on June 18, 1948 but "within ten years from the date of
issuance" of the certificates. There is no certainty, therefore, when the certificates are really redeemable within
the meaning of the law. Since the requisites for the accomplishment of legal compensation cannot be fulfilled,
the latter cannot take place with regard to the two obligations as found by the court a quo.

WHEREFORE, the decision appealed from is reversed. The petition for mandamus is dismissed. The
injunction issued against respondents-appellants is hereby lifted. No costs.

     Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.

     Bengzon, C.J., took no part.

Decision reversed; petition for mandamus dismissed and injunction lifted.

Notes.—This case was reversed in Tirona vs. Cudiamat, L-21235, May 81, 1965, where backpay certificates in
pay-

SUPREME COURT REPORTS ANNOTATED

Ledesma, vs. Realubin

ment of real estate taxes is held valid and its acceptance mandatory which is also reiterated in Tirona vs. City
Treasurer of Manila, L-24607, Jan. 29, 1968, 22 SCRA 219.

However, the rule that the right to use backpay certificates in settlement of taxes is given only to "applicants
and original holders of such certificates and not to a mere assignee thereof", still stands. (Florentino vs.
Philippine National Bank, 98 Phil. 959; Sabalino vs. Rehabilitation Finance Corporation, L-11790, Sept. 30,
1958.)

_____________ De Borja vs. Gella, 8 SCRA 602, No. L-18330 July 31, 1963