JEROME K. SOLCO, PETITIONER, VS. MEGAWORLD CORPORATION, RESPONDENT.

Solco versus Megaworld Corporation

The Case

This is a petition for review on certiorari brought by Jerome Solco against Megaworld Corporation, arising from a land registration case in Makati City. Solco bought two parking slots at a public auction held to satisfy unpaid real property taxes, and when Megaworld refused to surrender the owner's duplicate certificates of title, Solco asked the trial court to cancel the titles and issue new ones in his name. Megaworld resisted, insisting that the auction sale was void because the tax delinquency proceedings were riddled with irregularities. The case matters because it settles two things every reviewee must know: that a land registration court may rule on the validity of a tax sale when that question is necessary to resolve ownership, and that the burden of proving regularity in a tax sale rests on the winning bidder, not on the delinquent owner.

Procedural History

Solco filed a petition for the issuance of new condominium certificates of title and for the declaration of nullity of the existing titles before the Regional Trial Court of Makati City, Branch 133. Megaworld opposed the petition and set up the irregularities in the tax sale as its defense. After the trial court denied Megaworld's demurrer to evidence, it rendered judgment in favor of Solco, ordering Megaworld to surrender the owner's duplicate certificate of title and directing the Register of Deeds to issue a new title in Solco's name, or to annul the existing title if it was not surrendered. Megaworld's motion for reconsideration was denied.

Megaworld appealed to the Court of Appeals. The appellate court reversed and set aside the trial court's orders, finding that Solco failed to prove compliance with the notice, levy, and sale requirements of the Local Government Code. It nullified the entire auction proceedings, including the levy, the certificate of sale, and the final deed of conveyance, and dismissed the petition. Solco's motion for reconsideration was denied, so he elevated the matter to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

Megaworld was the registered owner of two parking slots in Makati City, one in Two Lafayette Square Condominium and one in Manhattan Square Condominium. It had earlier sold the condominium units to which these slots pertained to two buyers, Abdullah Dimaporo and Jose Delos Santos, under separate contracts to buy and sell, and the buyers assumed the obligations and taxes on the properties from the time of delivery. Beginning in the year 2000, the real property taxes on the slots went unpaid.

For delinquency from the year 2000 to 2008, the City Government of Makati issued a warrant of levy. On December 20, 2005, the properties were sold at public auction, and Solco emerged as the highest bidder, paying 33,080 pesos and 3 centavos for the Two Lafayette property and 32,356 pesos and 83 centavos for the Manhattan property. Certificates of sale were issued to him the same day. No redemption was made, and a Final Deed of Conveyance was executed by the local treasurer on February 22, 2007.

Because the certificates of title remained in Megaworld's name and the owner's duplicates were still in its possession, Solco filed the petition for cancellation and issuance of new titles. Megaworld learned of the auction only in the third quarter of 2006, when it began transferring the titles to its buyers, and it then discovered that the levy and the certificate of sale had been annotated on the titles only on January 5, 2006, after the auction had already taken place. The separate action filed by Delos Santos over the Manhattan property was settled by compromise, so the case proceeded only as to the Two Lafayette property.

Issues

• Whether or not the validity of a tax sale may be the subject of a land registration case.
• Whether or not the tax sale of the subject property was valid.
• Whether or not Solco may be considered a purchaser in good faith so as to uphold the sale in his favor.

Applicable Provisions

Section 267 of Republic Act Number 7160, the Local Government Code, provides:

Section 267. Action Assailing Validity of Tax Sale. No court shall entertain any action assailing the validity of any sale at public auction of real property or rights therein under this Title until the taxpayer shall have deposited with the court the amount for which the real property was sold, together with interest of two percent per month from the date of sale to the time of the institution of the action. The amount so deposited shall be paid to the purchaser at the auction sale if the deed is declared invalid but it shall be returned to the depositor if the action fails. Neither shall any court declare a sale at public auction invalid by reason of irregularities or informalities in the proceedings unless the substantive rights of the delinquent owner of the real property or the person having legal interest therein have been impaired.

This provision supplies the jurisdictional deposit that Solco invoked against Megaworld, and the Court construes it to apply only to initiatory actions assailing a tax sale, not to a defense raised in a land registration case.

Section 254 of Republic Act Number 7160 provides:

Section 254. Notice of Delinquency in the Payment of the Real Property Tax. (a) When the real property tax or any other tax imposed under this Title becomes delinquent, the provincial, city or municipal treasurer shall immediately cause a notice of the delinquency to be posted at the main entrance of the provincial capitol, or city or municipal hall and in a publicly accessible and conspicuous place in each barangay of the local government unit concerned. The notice of delinquency shall also be published once a week for two (2) consecutive weeks, in a newspaper of general circulation in the province, city, or municipality.

This provision fixes the posting and publication requirements for the notice of delinquency, which Solco failed to prove he had complied with.

Section 258 of Republic Act Number 7160 provides:

Section 258. Levy on Real Property. After the expiration of the time required to pay the basic real property tax or any other tax levied under this Title, real property subject to such tax may be levied upon through the issuance of a warrant on or before, or simultaneously with, the institution of the civil action for the collection of the delinquent tax. The provincial or city treasurer, or a treasurer of a municipality within the Metropolitan Manila Area, as the case may be, when issuing a warrant of levy shall prepare a duly authenticated certificate showing the name of the delinquent owner of the property or person having legal interest therein, the description of the property, the amount of the tax due and the interest thereon. The warrant shall operate with the force of a legal execution throughout the province, city or a municipality within the Metropolitan Manila Area. The warrant shall be mailed to or served upon the delinquent owner of the real property or person having legal interest therein, or in case he is out of the country or cannot be located, the administrator or occupant of the property. At the same time, written notice of the levy with the attached warrant shall be mailed to or served upon the assessor and the Registrar of Deeds of the province, city or municipality within the Metropolitan Manila Area where the property is located, who shall annotate the levy on the tax declaration and certificate of title of the property, respectively.

This provision requires service of the warrant of levy on the delinquent owner and on the assessor and the Register of Deeds, and the records showed no proof of such service.

Section 260 of Republic Act Number 7160 provides:

Section 260. Advertisement and Sale. Within thirty (30) days after service of the warrant of levy, the local treasurer shall proceed to publicly advertise for sale or auction the property or a usable portion thereof as may be necessary to satisfy the tax delinquency and expenses of sale. The advertisement shall be effected by posting a notice at the main entrance of the provincial, city or municipal building, and in a publicly accessible and conspicuous place in the barangay where the real property is located, and by publication once a week for two (2) weeks in a newspaper of general circulation in the province, city or municipality where the property is located. The advertisement shall specify the amount of the delinquent tax, the interest due thereon and expenses of sale, the date and place of sale, the name of the owner of the real property or person having legal interest therein, and a description of the property to be sold. At any time before the date fixed for the sale, the owner of the real property or person having legal interest therein may stay the proceedings by paying the delinquent tax, the interest due thereon and the expenses of sale. The sale shall be held either at the main entrance of the provincial, city or municipal building, or on the property to be sold, or at any other place as specified in the notice of the sale. Within thirty (30) days after the sale, the local treasurer or his deputy shall make a report of the sale to the sanggunian concerned, and which shall form part of his records. The local treasurer shall likewise prepare and deliver to the purchaser a certificate of sale which shall contain the name of the purchaser, a description of the property sold, the amount of the delinquent tax, the interest due thereon, the expenses of sale and a brief description of the proceedings: Provided, however, That proceeds of the sale in excess of the delinquent tax, the interest due thereon, and the expenses of sale shall be remitted to the owner of the real property or person having legal interest therein. The local treasurer may, by ordinance duly approved, advance an amount sufficient to defray the costs of collection through the remedies provided for in this Title, including the expenses of advertisement and sale.

This provision governs the advertisement, the sale, and the report of the sale to the sanggunian, and the Court found no proof that these steps were observed.

Ruling

On the first issue, the Court held that the land registration court had jurisdiction to rule on the validity of the tax sale. Since Solco sought to consolidate ownership and secure a new title in his name, the court could not cancel Megaworld's title without first ascertaining who was the true and rightful owner. The Court noted that Presidential Decree Number 1529 eliminated the distinction between the general jurisdiction of the regional trial court and its limited jurisdiction as a land registration court, so that land registration courts may now hear and decide controversial and contentious cases involving substantial issues.

On the jurisdictional deposit, the Court held that Section 267 applies only to initiatory actions assailing a tax sale, as its use of the terms entertain and institution shows. Here, the nullity of the tax sale was raised by Megaworld merely as a defense, and that did not convert Solco's petition into an action for annulment of a tax sale. The Court nevertheless stressed the purpose of the deposit, which is to reimburse the purchaser should the sale be declared invalid, and since Megaworld had manifested its willingness to comply, the Court directed it to post the required deposit before the trial court. With that assurance, the City Government of Makati was not an indispensable party, and no question of immunity from suit arose.

On the second issue, the Court affirmed the Court of Appeals. It reiterated that the auction sale of land to satisfy delinquent real property taxes impinges on property rights and due process, so the steps prescribed by law, particularly the notices of delinquency and of sale, must be followed strictly, and failure to observe them invalidates the sale. The Court held that the burden of proving compliance with the proceedings leading up to the tax sale lies on the buyer or winning bidder, and Solco presented no proof of posting or publication of the notice of delinquency, no proof of service of the warrant of levy on Megaworld or on the assessor and the Register of Deeds, and no proof of the report of the sale to the sanggunian. The levy and the certificate of sale were annotated only on January 5, 2006, after the auction of December 20, 2005. The sale was therefore void.

On the third issue, the claim of good faith cannot prevail, because a purchaser at a tax sale takes the title subject to the burden of showing the regularity of all proceedings leading up to the sale, and Solco failed to discharge that burden.

Doctrine

A land registration court may determine the validity of a tax sale when that question is necessary to resolve ownership in a petition for cancellation of title and issuance of a new one, since Presidential Decree Number 1529 removed the distinction between its general and limited jurisdiction.

The deposit required by Section 267 of Republic Act Number 7160 applies only to initiatory actions assailing the validity of a tax sale, not to a defense raised in a land registration case, but the deposit remains indispensable to shield public funds, and the court may direct the registered owner to post it.

Strict compliance with Sections 254, 258, and 260 of Republic Act Number 7160 is required, because a tax sale derogates property rights and due process, and failure to observe the prescribed notices and steps invalidates the sale.

The burden of proving the regularity of all proceedings leading up to a tax sale rests on the purchaser or winning bidder, who is bound to show that the steps required by law were taken.

Disposition

The Supreme Court denied Solco's petition and affirmed the Court of Appeals, upholding the nullity of the auction sale, the levy, the certificate of sale, and the final deed of conveyance, while directing Megaworld to post the deposit required by Section 267 before the trial court.

Remember This

Memorize this line: the burden of proving the regularity of a tax sale lies on the winning bidder, and strict compliance with the notices of delinquency and of sale is indispensable. Examiners use this case to test the jurisdiction of land registration courts over tax sale validity, the scope of the Section 267 deposit, and the burden of proof in tax delinquency sales.