Myline Cordial

Engracio Francia vs. Intermediate Appellate Court
G.R. No. L-67649, June 28, 1988

FACTS:
Petitioner Engracio Francia owned a lot which was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion. The expropriation payment was deposited with the Philippine National Bank but Francia did not withdraw the proceeds.

Francia failed to pay his real estate taxes for 14 years from 1963 to 1977. To satisfy the tax delinqunecy of P2,400.00, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code. However, he was not present during the auction sale wherein Ho Fernandez was the highest bidder for the property.
ISSUES:
1. Whether or not his tax delinquency of P2,400.00 has been extinguished by legal compensation as the government owed him P4,116.00 when a portion of his land was expropriated.
2. Whether or not the public auction was irregular due to lack of notification.
3. Whether or not the price of P2400 paid by the highest bidder was grossly inadequate as to shock’s one’s conscience amounting to fraud and deprivation of property without due process of law.
RULING:
1. No. Internal Revenue Taxes can not be the subject of set-off or compensation. The reason for this rule is that government and taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. Legal compensation requires that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other and that the two debts be due. Taxes are not in the nature of contracts. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.

2. No. The records show that he was notified about the auction sale and he admitted to have pocketed the notice of sale without reading it which, is an act of inexplicable negligence.

3. No. As a general rule, gross inadequacy of price is not material because the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption.

NOTES:

• A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. … (80 C.J.S., 7374). “The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required. …” – Republic v. Mambulao Lumber Co. (4 SCRA 622)
• If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner would be greatly embarrassed, if not rendered altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is stated as follows: “where land is sold for taxes, the inadequacy of the price given is not a valid objection to the sale.” This rule arises from necessity, for, if a fair price for the land were essential to the sale, it would be useless to offer the property. Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are grossly out of proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P. 367, 369).- Hilton et. ux. v. De Long, et al.

Case: Engracio Francia vs. Intermediate Appellate Court G.R. No. L-67649, June 28, 1988