FRANCISCO COLLEGE, INC., PETITIONER AND APPELLEE, VS. TOMAS P. PANGANIBAN, ET AL., OPPOSITORS AND APPELLANTS.

Francisco College versus Panganiban

The Case

This is a petition filed by Francisco College, Incorporated, asking a land registration court to cancel the annotation of a deed of tax sale inscribed on the back of its Torrens certificate of title. The persons who bought the property at the tax auction, Luciano Tapia and Tomas Panganiban, opposed the petition and now appeal the cancellation. The case matters because it draws a sharp line every reviewee must know: a statutory tax lien binds automatically, but the tax sale that forecloses that lien must itself be registered before it can prevail over a later purchaser of registered land.

Procedural History

Francisco College filed its petition before the Court of First Instance of Manila, sitting as a land registration court. Tapia and Panganiban filed a written opposition, contending that the property had been sold to them at a public auction for delinquent taxes and that the sale had become final and irrevocable. The trial court overruled the opposition and ordered the cancellation of the annotation on the back of the certificate of title. The oppositors moved for reconsideration, and when that was denied, they interposed the present appeal. The case reached the Supreme Court by ordinary appeal from the order of the Court of First Instance.

Facts

Jose Francisco owned a parcel of land in the City of Manila, covered by a Torrens certificate of title. He mortgaged the property to the Rehabilitation Finance Corporation. When he failed to comply with the conditions of the mortgage, the property was foreclosed and sold at public auction in April 1950 to the Rehabilitation Finance Corporation as the highest bidder. A new certificate of title was issued to that corporation, free from any lien or encumbrance.

In February 1955, Francisco College bought the property from the Rehabilitation Finance Corporation for 62,000 pesos, and the Register of Deeds issued in its favor a transfer certificate of title, again free from any lien or encumbrance.

Meanwhile, the property had been sold at a public auction by the City Treasurer of Manila for failure to pay taxes for the years 1945, 1946 and 1947. The auction was held in February 1948, and the property was adjudicated to Tapia and Panganiban for 276 pesos. When the owner failed to redeem within one year, the city treasurer executed a final deed of sale in their favor in August 1949. The oppositors, however, did not register that deed of sale until June 1955, months after the certificate of title had been issued to Francisco College. Upon the demand of the Register of Deeds, the tax sale was annotated on the college's title, and the college filed this petition to cancel the annotation.

Issues

• Whether or not the land registration court had jurisdiction to act on the petition, the oppositors claiming that the opposition raised a controversial question of ownership beyond its special and limited jurisdiction.
• Whether or not the unregistered final deed of tax sale in favor of the oppositors may be preferred over the transfer certificate of title issued earlier to Francisco College.

Applicable Provisions

Section 39 of the Land Registration Act provides:

Every person receiving a certificate of title in pursuance of a decree of registration and every subsequent purchaser of registered land who takes a certificate of title for value in good faith shall hold the same free of all encumbrances except those noted on said certificate and any of the following incumbrances which may be subsisting: taxes within two years after the same became due and payable.

This is the provision on which the Court rests the protection of the later purchaser, subject only to the encumbrances noted on the title and to taxes within two years.

Section 77 of the Land Registration Act provides:

Whenever registered land is sold for taxes or for any assessment, any officer's return, or any other instrument made in the course of proceedings to enforce such liens shall be filed and registered in the registration book, and a memorandum made upon the proper certificate, in each case, as an adverse claim or incumbrance.

This is the provision that requires the tax sale itself to be registered, and it is the provision the Court uses to distinguish the lien from its foreclosure.

Section 50 of the Land Registration Act provides:

The act of registration shall be the operative act to convey and affect the land.

This is the provision that fixes the moment the tax sale takes effect against third persons, namely upon registration.

Ruling

On the first issue, the Court held that the land registration court acted within its jurisdiction. The question was not one of ownership but merely of priority between the sales covering the same registered property. The purpose of the petition was only to cancel the annotation, and that could be determined by a cursory examination of the pleadings in relation to the law and jurisprudence.

On the second issue, the Court held that the tax sale did not prevail over the earlier title of Francisco College. The Court conceded that the taxes were of a nature that created a statutory lien which need not be registered to bind third persons. But it stressed the difference between the lien and the sale that forecloses it. While a statutory lien need not be registered, the sale of registered land to foreclose a tax lien must be registered to be considered preferred. The Court quoted its earlier ruling in the Metropolitan Water District case:

It is not necessary to register a tax lien because it is automatically registered, once, the tax accrues, by virtue of section 39, which expressly provides that every person receiving a certificate of title in pursuance of a decree of registration and every subsequent purchaser of registered land who takes a certificate of title for value in good faith shall hold the same free of all incumbrance except those noted on said certificate and any of the following incumbrances which may be subsisting: taxes within two years after the same became due and payable. But there is no provision of law to the effect that the sale of registered land to foreclose a tax lien need not be registered.

Because the oppositors registered their deed of sale only in June 1955, months after the certificate of title had been issued to Francisco College, the college took the property free of the annotation. The Court applied the principle that he who is first in time is preferred in right, and affirmed the order of the trial court.

Doctrine

First, a statutory lien for taxes need not be registered to bind third persons, because it arises automatically by operation of law once the tax accrues. Second, the sale of registered land to foreclose a tax lien must be registered to be preferred over a subsequent purchaser, for registration is the operative act that conveys and affects the land. Third, a subsequent purchaser of registered land who takes a certificate of title for value and in good faith holds the same free of all encumbrances except those noted on the title and taxes within two years after they became due and payable. The rule is captured in the maxim that he who is first in time is preferred in right.

Disposition

The Supreme Court affirmed the order of the trial court cancelling the annotation of the tax sale on the back of the certificate of title, without pronouncement as to costs. Francisco College won.

Remember This

Memorize the distinction: the tax lien registers itself, but the tax sale must be registered. Examiners use this case to test priority between an unregistered tax sale and a Torrens title issued earlier to a purchaser in good faith and for value.