Case Digest (G.R. No. L-14142)
Facts:
Republic of the Philippines v. J. Amado Araneta, et al., G.R. No. L-14142, May 30, 1961, Supreme Court En Banc, Padilla, J., writing for the Court.The Republic of the Philippines (plaintiff) through the Solicitor General sued J. Amado Araneta and J. Amado Araneta & Co., Inc. (the appellants-taxpayers, principals) and Manila Surety & Fidelity Co., Inc. (the appellant-surety/cross-plaintiff) in the Court of First Instance of Manila on February 22, 1957 to collect taxes assessed against the principals and guaranteed by a bond. The complaint sought P6,364.28 as fixed and percentage common-carrier tax and surcharge (the compensating-tax portion having been effectively abandoned after legislative exemption), plus interest from December 6, 1951, and called for execution on the bond (Annex B) in the event of nonpayment.
The Bureau of Internal Revenue had earlier assessed the taxpayers (as evidenced by the assessment letter, Annex A) for taxes allegedly due for 1946–1948 and the taxpayers sought to pay in six monthly installments beginning 15 April 1949 conditioned upon filing a bond. On March 18, 1949 the taxpayers and the surety executed the "Bond to Guarantee Payment of Common Carriers Tax and Compensating Tax" (Annex B) and the principals executed a separate indemnity undertaking in favor of the surety (Annex 2‑MSFCI). The Collector of Internal Revenue did not sign the printed "Approved: Bibiano L. Meer, Collector of Internal Revenue" line on the bond, but the bond was received and kept by the Collector.
After the passage of Republic Act No. 361 (June 9, 1949) exempting certain compensating taxes, the compensating-tax component was reduced; demands for payment were issued to the taxpayers and the surety in 1951–1955 (Annexes E, F, G, H, I). The taxpayers failed to pay the installment obligations and the Government sued on the bond on February 22, 1957.
At the trial court the defendants filed motions to dismiss and pleaded, among other defenses, prescription (invoking the five-year limitation provisions of the National Internal Revenue Code), lack of liability as common carriers, and invalidity of the bond due to the Collector’s unsigned approval. The surety pleaded additionally novation, that the bond was ancillary and thus barred by prescription, and sought cross‑relief against the principals under the indemnity agreement (including premiums, attorney’s fees and reimbursement). The parties submitted stipulations of facts (filed February 25, 1957) admitting the execution and terms of the bond and indemnity and the collection history, and withdrawing several claims and counterclaims.
On May 31, 1958 the Court of First Instance rendered judgment for the plaintiff, holding that the action was one to enforce the obligation in the bond (a separate obligation executed March 18, 1949), that the suit filed February 22, 1957 was within ten years of the bond’s execution, that the surety’s obligation became principal upon the principals’ default, and that the Collector’s acceptance of the bond am...(Pro-only)
Issues:
- Is the Republic’s action on the bond barred by prescription under the National Internal Revenue Code?
- Does the bond (Annex B) remain valid and enforceable despite the Collector of Internal Revenue’s printed approval line being unsigned?
- Should the surety (Manila Surety & Fidelity Co., Inc.) have been entitled to recover from the principals under its indemnity undertaking for whatever amounts it may...(Pro-only)
Ruling:
- (Pro-only)
Ratio:
- (Pro-only)
Doctrine:
- (Pro-only)