JOSE DE BORJA, petitioner-appellee, vs. VICENTE G. GELLA, ET AL., respondents-appellants.

BAUTISTA
ANGELO, J.:

Facts:

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 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 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 are already long past due and redeemable. So on 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 deprive him illegally of his privilege to
pay his obligation to the government thru such means.

RTC: 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 in payment of real estate taxes of his properties in the City of
Manila and Pasay City, respectively.

Issues:

(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? No

(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? No

Held:

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: Provided, that upon application . . . a certificate of indebtedness may be issued by the
Treasurer of the Philippines covering the 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; . . . 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. . . . .

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 above-quoted 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 certificate, 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.

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 two liquidated and demandable;

(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. 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.