G.R. No. L-18330; July 31, 1963
JOSE DE BORJA, petitioner-appellee, vs. VICENTE G. GELLA, ET AL., respondents-appellants.

FACTS

Jose de Borja, delinquent in paying real estate taxes since 1958 for properties in Manila and Pasay City, offered to settle his liabilities using two negotiable certificates of indebtedness (Nos. 3064 and 3065). These certificates, originally issued to Rafael Vizcaya and Pablo Batario Luna under the Back Pay Law ( Republic Act No. 304 , as amended), were assigned to Borja. The city treasurers of Manila and Pasay rejected his offer, citing the limited negotiability of such certificates under the law. The Treasurer of the Philippines affirmed this rejection, opining that the law permitted only the original backpay applicant—not an assignee—to use the certificates for tax payment.
Borja, arguing the certificates were past due and redeemable, filed an action for mandamus to compel the treasurers to accept them as payment. The trial court ruled in his favor, ordering the acceptance of the certificates and enjoining tax collection actions against his properties. The respondents appealed, raising pure questions of law.

ISSUE

The core issues are: (1) Whether an assignee of a negotiable certificate of indebtedness issued under the Back Pay Law can compel its acceptance for payment of his personal real estate taxes; and (2) Whether legal compensation can extinguish such tax obligations using these certificates.

RULING

The Supreme Court reversed the trial court’s decision, ruling against the petitioner. On the first issue, the Court held that the right to use a backpay certificate for tax payment is personal to the original applicant. Section 2 of Republic Act No. 304 , as amended, explicitly allows the certificate to be used for payment of “his taxes,” referring solely to the taxes of the original applicant-holder. Since Borja was a mere assignee and not the original backpay claimant, he could not invoke this statutory privilege. Furthermore, the law permitted use of certificates only for obligations subsisting at the time of the Act’s approval in 1948, not for taxes accruing later, such as those from 1958.
On the second issue, the Court ruled that legal compensation under Articles 1278 and 1279 of the Civil Code was inapplicable. For compensation to operate, the parties must be mutually principal creditors and debtors of each other. Here, the debtor on the certificates was the Republic of the Philippines, while the creditors for the taxes were the distinct corporate entities of Manila and Pasay City. There was no identity of parties between the obligations. Additionally, the certificates were not certainly due, as the law provided for redemption “within ten years from the date of issuance,” not automatically on a specific date. Since the requisites for compensation were absent, it could not extinguish the tax liabilities. The petition for mandamus was dismissed, and the injunction lifted.