G.R. No. L-14789 November 30, 1962
Republic of the Philippines and the Collector of Internal Revenue, plaintiffs-appellants, vs. Demetrio Manjares and Manila Surety & Fidelity Co., Inc., defendants-appellees.

FACTS

Demetrio Manjares failed to pay internal revenue taxes for 1946-1949, totaling P1,920.73. After demand letters and a warrant of distraint and levy were issued, his properties were seized for public auction. To prevent the sale, Manjares, with Manila Surety as surety, executed a bond on November 15, 1950, promising to pay the tax in installments. The bond stipulated that failure to pay any installment would make the entire sum immediately due. The Collector approved the bond and released the seized properties. However, neither Manjares nor the surety paid any installment despite demands.
The Republic filed a collection suit in the Justice of the Peace Court in 1955, which ruled in favor of the government. On appeal to the Court of First Instance (CFI) of Ilocos Norte, the surety was declared in default. Subsequently, the CFI, acting on a motion by Manjares, ordered the case remanded to the Court of Tax Appeals (CTA), citing Republic Act No. 1125 , which grants the CTA jurisdiction over cases involving disputed tax assessments. The Republic appealed, arguing the CFI retained jurisdiction.

ISSUE

Whether the Court of First Instance or the Court of Tax Appeals has jurisdiction over an action to enforce a bond executed to guarantee payment of delinquent taxes.

RULING

The Supreme Court ruled that the Court of First Instance has jurisdiction. The execution of the bond created a new, distinct, and contractual obligation separate from the original tax liability. The action was no longer for the collection of a disputed tax assessment but for the enforcement of a written contract of suretyship. Jurisdiction over such contractual actions lies with the regular courts, not the specialized Court of Tax Appeals.
The Court emphasized that by posting the bond, the taxpayer and surety voluntarily assumed a direct and primary obligation to pay a specific sum. This transformed the government’s cause of action from one arising under tax laws to one based on contract. Consequently, the prescriptive period governing the action is the ten-year period for written contracts under the Civil Code, not the shorter periods under the Tax Code. Since the complaint was filed in 1955, within ten years of the bond’s execution in 1950, the action was not prescribed. The order remanding the case to the CTA was set aside, and the case was ordered returned to the CFI for further proceedings.