G.R. No.

L-27745 October 18, 1977

MISAEL P. VERA, as Commissioner of Internal Revenue, petitioner,

vs.
Hon. Judge PEDRO C. NAVARRO, in his capacity as Judge of the Court of First Instance
of Pasig, Rizal
Facts:

It appears that Elsie Gaches died without a child. The deceased left a last will and testament in
which she made relevant disposition of her estate. To pay the taxes in question, Atty. Medina
prayed in her offer of that she be authorized to make use of the funds of the estate on deposit.
Atty. Medina filed with this Court manifestation stating that she received a demand letter from
the Commissioner for the payment of the estate tax. Atty. Medina claimed the said demands to be
erroneous for the following reasons: 1) as to the estate tax, the time deposit in the Overseas Bank
of Manila of P700,000.00 plus interest earned of P60,000.00 as of March 9, 1968 would more
than cover the said tax and the certificates of time deposits were already endorsed to the
Commissioner.

Issue:

Does the assignment of a certificate of time deposit to the Commissioner of Internal Revenue for
the purpose of paying the estate tax constitute payment of such tax?

Ruling:

The effect of the indorsement of the time deposit certificates to the Commissioner, the same
cannot be held to have extinguished the estate's liability for the estate tax. In the first place, in
accepting the indorsement and delivery of the said certificates, the Commissioner expressly gave
notice that his Office regrets that the same cannot be accepted as payment of the deficiency
estate tax in this case may not or cannot, at present or on or therefore December 9, 1967, be
converted into cash. In the second place, a time deposit certificate is a mercantile document and
is essentially a promissory note. 5 By the express terms of Article 1249 of the Civil Code of the
Philippines, the use of this medium to clear an obligation will "produce the effect of payment
only when they have been cashed, or when through the fault of the creditor they have been
impaired." From the records of the case at bar, the Commissioner as well as the herein
respondents Atty. Medina, Eribal and Abanto spared no time trying to collect the value of said
certificates from the Overseas Bank of Manila but all to no avail.