BANK OF THE PHILIPPINE ISLANDS, PLAINTIFF AND APPELLANT, VS. WENCESLAO TRINIDAD, COLLECTOR OF INTERNAL REVENUE, DEFENDANT AND APPELLEE.

On the 13th day of July, 1916, the defendant
Collector of Internal Revenue, through his duly authorized agent at
Zamboanga, seized and distrained certain personal property, consisting
of machinery for sawing lumber which is particularly enumerated and
described in paragraph 3 of the complaint, and advertised the same for
sale, to realize the sum of P2,159.79, alleged to be due to the
Government of the Philippine Islands from Pujalte & Co., as
forestry charges. The defendant claimed that said personality belonged
to the said company, was used in the business on which the taxes were
due, and was liable to seizure to cover said taxes. On the other hand,
the plaintiff claimed to be the owner of said property, and demanded
its release. The demand being denied, the plaintiff paid to the
defendant the said sum of P2,159.79 under protest to prevent the sale
of said property, and immediately brought the present action in the
Court of First Instance of Zamboanga to recover the said sum of
P2,159.79 together with interest and costs. The lower court, after due
trial, dismissed the plaintiff’s complaint and absolved the defendant
from all liability thereunder. From that judgment the plaintiff
appealed to this court.

The property in question formerly belonged to the Taba Saw Mill
Co., a copartnership formed by Pujalte & Co. and one Ramon Murga.
In April, 1914, Ramon Murga sold all his rights, title, and interest in
and to the said copartnership to Pujalte & Co., which thereby
became the sole owner of the concern.

It appears from plaintiff’s Exhibit AA, which was admitted in
evidence without objection on the part of the defendant, that on the
26th day of September, 1912, the said Taba Saw Mill Co. conveyed to the
plaintiff bank, by way of chattel mortgage, the property here in
question together with other personalitites, as security for the
payment to said bank of two certain promissory notes for the sum of
P180,000. Said chattel mortgage was duly registered in the office of
the register of deeds of Zamboanga on the 26th day of December, 1912.
On that date the property in question was free from all tax liens; at
least, the plaintiff mortgagee had no notice thereof. On the 13th day
of July, 1916, when the amount here in question was found to be due to
the Government from Pujalte & Co. as forestry charges, and when the
property in question was seized by the defendant, the said chattel
mortgage was still subsisting. It is admitted that at the time of its
seizure the said property was being used in the sawmill of Pujalte
& Co.

Upon the foregoing facts the lower court absolved the defendant
from all liability under the plaintiff’s complaint, for the following
reasons:

1. That the party who was liable to pay the taxes for which
   the property in question was distrained was not the plaintiff but
   Pujalte & Co.; and that the plaintiff, having “voluntarily and
   spontaneously” paid the debt of the latter, had no cause of action
   against the defendant collector, and could only recover the sum so paid
   by it from Pujalte & Co., under article 1158 of the Civil Code (p.
   15, B. of E.); that the plaintiff should have proceeded under section
   141 of Act No. 2339 (now sec. 1580 of Act No. 2711), and not under
   section 140 of the said Act (sec. 1579 of Act No. 2711).

2. That “even supposing for a moment” that the plaintiff had a right of
   action against the defendant to recover the sum paid by it to the
   latter, yet this action must fail because the property in question, having been used by
   Pujalte & Co. in its business of cutting and sawing lumber, was
   liable to seizure and distraint under section 149 of Act No. 2339.

We are of the opinion that neither of the foregoing reasons is
sound, and that the judgment of the lower court should be revoked.

First. There is absolutely no basis for the finding of the trial
court that “the plaintiff bank had voluntarily and spontaneously paid
the debt of a third party, that is, that of the firm of Pujalte &
Co.” (p. 15, B. of E.). Paragraph 7 of the plaintiff’s complaint
alleges: “That thereupon, involuntarily and under due protest in
writing, the plaintiff bank made payment of the required sum of
P2,159.79 in order to secure the release of its seized property.” These
allegations were specifically admitted by the defendant (par. 5,
stipulation, Plaintiff’s Exhibit G).

Section 140 of the Internal Revenue Law (Act No. 2339) provides as follows:

“SEC. 140. Recovery of tax paid under protest.—When the validity of any tax is questioned, or amount disputed, or other
question raised as to liability therefor, the person against whom or
against whose property the same is sought to be enforced shall pay the
tax under instant protest, or upon protest within ten days, and
shall thereupon request the decision of the Collector of Internal
Revenue. If the decision of the Collector of Internal Revenue is
adverse, or if no decision is made by him within six months from the
date when his decision was requested, the taxpayer may proceed, at any
time within two years after the payment of the tax, to bring an action
against the Collector of Internal Revenue for the recovery of the sum
alleged to have been illegally collected, the process to be served upon
him, upon the provincial treasurer, or upon the officer collecting the
tax.”

Section 141 of the same Act provides:

“SEC. 141. Action to contest forfeiture of chattel.—In case of the seizure of personal property under claim of forfeiture the
owner, desiring to contest the validity of the forfeiture, may at any
time before sale or destruction of the property bring an action against
the person seizing the property or having possession thereof to recover
the same, and upon giving proper bond may enjoin the sale; or after the
sale and within six months he may bring an action to recover the net
proceeds realized at the sale.”

The lower court was of the opinion that the plaintiff should have
proceeded under the latter section above quoted and not under the
former. It cannot be maintained that the personal property here in
question was seized by the defendant “under claim of forfeiture;” nor
could it have been legally seized under claim of forfeiture. It was
seized to enforce an alleged tax lien, under section 149 of Act No.
2339 (sec. 1588, Act No. 2711), which was quoted by the lower court in
its decision (p. 19, B. of E.) and which in no way provides for the forfeiture of
the property on which such a lien attaches. Forfeiture is “the
divestiture of property without compensation, in consequence of an
offense. The effect of such forfeiture is to transfer the title to the
specific thing from the owner to the sovereign power.” (12 R. C. L.,
124.) There is a great difference between a seizure under forfeiture
and a seizure to enforce a tax lien. In the former all the
proceeds derived from the sale of the thing forfeited are turned over
to the Collector of Internal Revenue (sec. 148, Act No. 2339); in the
latter, the residue of such proceeds over and above what is required to
pay the tax sought to be realized, including expenses, is returned to
the owner of the property (second paragraph, sec. 152, Act No. 2339).
Clearly, the remedy applicable to the present case is that provided for
in section 140, above quoted, and which the plaintiff invoked. (See
Hongkong & Shanghai Banking Corporation vs. Rafferty, 39 Phil., 145, 147.)

Second. At the time of the seizure of the property here in question,
the plaintiff held a valid and subsisting chattel mortgage on the same,
duly registered in the registry of deeds. “A chattel mortgage is a
conditional sale of personal property as security for the
payment of a debt, or the performance of some other obligation
specified therein, the condition being that the sale shall be void upon
the seller paying the purchaser a sum of money or doing some other act named.” (Sec. 3, Act No. 1508.) “Therefore, so long as the mortgage exists, the dominion with respect to the mortgaged personal property rests with the creditor-pledgee from the time of the inscription of the mortgage in the registry, and the furniture ceases to be the property of the debtor for the reason that it has become the property of the creditor,
in like manner as the dominion of a thing sold is transferred to the
purchaser and ceases to belong to the vendor from the moment of the
delivery thereof, as a result of the sale.” (Meyers vs. Thein, 15 Phil., 303, 308-309; see also Bachrach vs. Mantel, 25 Phil., 410; In re Du Tec Chuan, 34 Phil., 488, 490.)

The chattel mortgage in question was registered in the registry of deeds on the 26th day of December, 1912. The forest
charges sought to be collected by the defendant were found to be due
from Pujalte & Co. on the 13th day of July, 1916, and on that date
the property covered by said chattel mortgage was seized by the
defendant to enforce the payment of said forest charges. It is clear
from these facts and from the legal provisions and jurisprudence above
quoted that the plaintiff-mortgagee, and not Pujalte & Co., the
mortgagor, was, and had been for more than three years, the legal owner
of the property in question at the time the same was seized by the
defendant. And even granting, without deciding, that the forest charger are a tax on business or occupation within
the meaning of section 149 of Act No. 2339 (sec. 1588, Act No. 2711),
yet we are of the opinion and so decide that the mere fact that said
property was used in the business of Pujalte & Co. could not and
did not make such property liable for the payment of taxes due from
said company, said property belonging as it did to an innocent third
party. “The property used in the business or occupation,” referred to
in said section 149, can only mean property belonging to the owner of
the business or occupation. Any other construction would be unwarranted
and unjust.

For the foregoing reasons the judgment appealed from is hereby
revoked, and it is hereby ordered and decreed that a judgment be
entered in favor of the plaintiff and against the defendant, ordering
the latter to refund to the former the sum of P2,159.79, with interest
thereon at the legal rate from the 13th day of July, 1916, until paid,
and without any finding as to costs. So ordered.

Araullo, Avancena, and Villamor, JJ., concur.

 

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CONCURRING

STREET, J.,

I concur on the ground that the language used in section 1588 of
the Administrative Code (1917), creating a lien upon property used in
any business or occupation subject to an internal revenue tax, cannot
be interpreted as fixing a lien upon a sawmill used in sawing timber on
which the forest charges have not been paid. The lien created by that
section was evidently intended to apply to property used in relation
with a business or occupation subject to some form or other of the
privilege taxes recognized in the Internal Revenue Law; and the
language used is clearly expressed to this effect. The forest charges
for timber taken from the public forests do not constitute a privilege
tax on a business or occupation in any sense, and hence the lien does
not attach to a sawmill in which the timber is cut into lumber.

In this view of the case it is a matter of indifference whether the
sawmill in question was owned by Pujalte & Company or by the bank.