G.R. No. 13307 – 39 Phil. 567 – Taxation – Principle of Non-Interference; Tax Laws Do Not Impair ContractsÂ
In 1913, La Insular and Manuel Nubla had a contract whereby Insular will deliver 2 to 5 boxes of cigarettes to Machuca at P172.00 per box. Each box contains 2000 pieces of cigarettes. Rafael Machuca agreed to be the guarantor of Nubla.
In 1914, Act No. 2432 was passed which increased the tax imposed on every 1000 cigarettes purchased from P1.00 to P1.20. In 1915, Act No. 2445 was passed which further clarified that the tax imposed by Act 2432 should be burdened on the purchaser (retailers like Nubla).
Insular was however unaware of Act 2445 so he continued paying the taxes for boxes he delivered to Machuca. Eventually he found out he’s not supposed to be the one paying for said tax and so in order to get back what he paid for taxes he increased the price for subsequent deliveries to P182.00 per box.
In September 1916, Nubla defaulted from paying. He was sued by Insular and Machuca was impleaded. The trial court ruled that Nubla and his guarantor are jointly and severally liable BUT Machuca shall be liable only to the extent of the original rate of P172.00 per box – this is because as a guarantor, his liability is limited to only what he agreed to guarantee.
Machuca now contests his liability as he argues that supposing Act No. 2445 to be valid, it increases from P172 to P182 per box the price which Manuel Nubla was obligated to pay for the cigarettes, which alteration in the contract has the effect of releasing the surety.
ISSUE: Whether or not the said tax laws impaired the contract of guaranty between Insular and Machuca.
HELD: No. Nearly all changes in taxation affect existing contracts in some way or another, but this does not necessarily change such contracts in a legal sense. The tax increase was provided by the Philippine Legislature which is not privy to the contract of guaranty between Insular and Machuca. The government is a stranger to the contract of guaranty. The consequence is that, properly speaking, the legislative fiat, placing the burden of the tax on the purchaser, did not in any wise affect the obligation of the contract as between the parties. It was merely an external factor which, supervening upon the situation created by the contract, made it impossible for the purchaser to realize the benefit which would have accrued to him if the seller had been required to pay the tax. Hence, Machuca is still liable but only at the original rate of P172.00 per box.
