G.R. No. L-45706; April 8, 1941
EL GOBIERNO DE LAS ISLAS FILIPINAS, plaintiff-appellee, vs. FLORENCIO GONZALEZ DIEZ, defendant-appellant.

FACTS

Fortunato Capistrano failed to pay his income tax for the year 1925. The Government of the Philippine Islands sued him in the Court of First Instance of Manila (Civil Case No. 40361). On November 21, 1932, the court rendered a judgment against Capistrano, ordering him to pay the government P939.26 as additional and normal tax, plus a 50% surcharge, a P20 penalty, and a 5% surcharge on the P939.26 and the penalty, with interest at 1% per month from October 28, 1929, until fully paid. Capistrano’s appeal (R.G. No. 39279) was dismissed by the Supreme Court on February 28, 1934, which affirmed the lower court’s decision in all respects.
Prior to the initiation of that lawsuit, on January 15, 1930, the Bureau of Internal Revenue, pursuant to Article 1588 of the Revised Administrative Code as amended by Article 29 of Act No. 2833, sent a notice (Exhibit C) to the Clerk of the Court of First Instance of Manila. This notice formally stated that Fortunato Capistrano owed the government P2,251.43 for his 1925 income tax, plus surcharges and interest from October 28, 1929. The notice was sent for the purpose of establishing a lien for said tax upon all of Capistrano’s properties and property rights within the City of Manila.
Ignoring his tax obligation, Fortunato Capistrano sold his only two known properties in Manila (urban estates covered by Transfer Certificates of Title Nos. 14860 and 24317) to Florencio Gonzalez Diez (the appellant) on June 12, 1930, less than five months after the notice of lien (Exhibit C) was sent to the Clerk of Court. This transfer prevented the execution of the judgment against Capistrano, as Gonzalez Diez, claiming ownership of the properties by virtue of the purchase, opposed any attempt to levy upon them for a judgment rendered against another person (Capistrano) in a case where he (Gonzalez Diez) was not a party. Consequently, the present action was filed by the government in the Court of First Instance of Manila to collect Capistrano’s unpaid tax by having the two properties sold at public auction. The lower court ruled in favor of the government and ordered the sale of the properties to pay Capistrano’s tax debt, plus interest and costs. The defendant appealed.

ISSUE

Whether the failure to pay a tax due to the government constitutes a lien on the taxpayer’s properties registered under the Torrens system (Act No. 496), even if the lien is not annotated on the certificates of title and the properties have already been transferred to a third party.

RULING

The Supreme Court affirmed the lower court’s decision. The appellant’s proposition is untenable. The law (Article 29 of Act No. 2833) unequivocally declares that an unpaid income tax constitutes a lien in favor of the Government of the Philippine Islands from the date the tax is assessed by the Collector of Internal Revenue until paid, with interest, penalties, and costs, upon all properties and rights to property belonging to the taxpayer. The proviso states that this lien shall not be valid against any mortgagee, purchaser, or judgment creditor until a corresponding notice is sent by the Collector of Internal Revenue to the Clerk of the Court of First Instance having jurisdiction over the property subject to the tax.
The Bureau of Internal Revenue complied with the law by sending the notice (Exhibit C) to the Clerk of the Court of First Instance of Manila. No further step was required by law at that time. If the legislature intended that such notice of lien should also be registered in the Office of the Register of Deeds for lands registered under Act No. 496, it would have expressly so provided. Its failure to do so necessarily implies that, for all cases, notice to the Clerk of Court was sufficient. The amendment introduced by Commonwealth Act No. 466 is not applicable as it took effect only on July 1, 1938, and is not retroactive.
Furthermore, Act No. 496 (the Land Registration Act) itself establishes a lien in favor of the government upon all registered lands for taxes owed by their owners, as clearly provided in its Section 39.
When the appellant purchased the properties in question, they were already virtually subject to the government’s lien; only the exact amount of the unpaid tax remained to be determined. This amount was definitively determined by the final judgment rendered on November 21, 1932, and affirmed on February 28, 1934. Therefore, the appealed judgment is affirmed, with costs against the appellant.