G.R. No. L-21224 September 27, 1966
Republic of the Philippines, plaintiff-appellant, vs. Carmen Planas, ET AL., defendants-appellees.

FACTS

On February 2, 1950, appellee Carmen Planas was assessed war profit tax, including surcharges, in the amount of P81,722.00 by the Collector of Internal Revenue. After reinvestigations, the assessment was reduced to P47,847.15 on May 16, 1951. The taxpayer appealed to the Board of Tax Appeals (BTA Case No. 13), which rendered a judgment on May 29, 1952, modifying the Collector’s decision. The taxpayer appealed to the Supreme Court (G.R. No. L-5866), which dismissed the appeal “without prejudice” on March 30, 1954, following a ruling that the Board of Tax Appeals lacked judicial authority. Subsequently, the Republic filed a motion for execution of the BTA decision in the Court of Tax Appeals. This was granted, but upon certiorari by Planas (G.R. No. L-15984), the Supreme Court annulled the order on October 31, 1961, holding the BTA decision was null and void and could not be executed. On January 6, 1962, the Republic filed a collection suit (Civil Case No. 49206) in the Court of First Instance of Manila to collect P83,179.43 in war profits tax. The court dismissed the case on April 13, 1962, on the ground of prescription, and the Republic did not appeal, making the dismissal final. On July 28, 1962, the Republic instituted the present action (Civil Case No. 51090) against Carmen Planas and Alto Surety & Insurance Co., Inc., based on a surety bond (Alto Bond No. IR-7093) executed on March 15, 1954. The bond condition obligated payment of the tax amount “if and when the decision of the Supreme Court (in G.R. No. L-5866) will be adverse to the principal.” The Supreme Court’s dismissal in G.R. No. L-5866 was “without prejudice” and made no finding on Planas’s liability. The trial court dismissed the complaint, sustaining the defendants’ contentions that the action was barred by a prior judgment and that the plaintiff had no cause of action.

ISSUE

Whether the present action for collection based on the surety bond is barred by the prior final judgment of dismissal in Civil Case No. 49206 on the ground of prescription.

RULING

Yes, the present action is barred by res judicata (bar by prior judgment). The Supreme Court affirmed the trial court’s dismissal. The Court held that the obligation under the surety bond was conditional upon an adverse Supreme Court decision against Planas in G.R. No. L-5866. That condition was never fulfilled, as the Supreme Court dismissed the appeal “without prejudice” and made no finding of liability, and later in G.R. No. L-15984 declared the BTA decision null and void. Consequently, the obligation under the bond did not attach. The cause of action in both Civil Case No. 49206 and the present case is essentially the same: the collection of the same war profits tax from Carmen Planas. The prior final dismissal of the collection suit on the ground of prescription bars the re-litigation of the government’s right to collect the same tax, even if the form of the action is changed to one against the bond and a surety is added as a party. The inclusion of the surety does not alter the operation of the final judgment, as the litigants (the Republic and Planas) were parties to the first action, and allowing a new suit by adding a party would circumvent the rule against splitting a cause of action.