Engracio Francia vs. Iac

ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO
FERNANDEZ, respondents.
Final Bill of Sale had been issued in favor of Ho Fernandez by the

City Treasurer on December 11, 1978. The auction sale and the final
bill of sale were both annotated at the back of TCT No. 4739 (37795)
by the Register of Deeds.
The petitioner invokes legal and equitable grounds to

reverse the questioned decision of the Intermediate Appellate Court,
to set aside the auction sale of his property which took place on
December 5, 1977, and to allow him to recover a 203 square meter
lot which was, sold at public auction to Ho Fernandez and ordered
titled in the latter's name.
On March 20, 1979, Francia filed a complaint to annul the

auction sale. He later amended his complaint on January 24, 1980.
FACTS:
Engracio Francia is the registered owner of a 328 square
meters residential lot described and covered by Transfer Certificate
of Title No. 4739 (37795) of the Registry of Deeds of Pasay City and
a two-story house built upon it situated at Barrio San Isidro (now
District of Sta. Clara, Pasay City, Metro Manila).
On October 15, 1977, a 125 square meter portion of
Francia's property was expropriated by the RP for the sum of
P4,116.00 representing the estimated amount equivalent to the
assessed value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his
real estate taxes. Thus, on December 5, 1977, 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 in order to satisfy a tax delinquency of P2,400.00.
Ho Fernandez was the highest bidder for the property (Francia was
not present during the auction sale since he was in Iligan City at that
time helping his uncle ship bananas).
On March 3, 1979, Francia received a notice of hearing of
LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of
Title" filed by Ho Fernandez, seeking the cancellation of TCT No.
4739 (37795) and the issuance in his name of a new certificate of
title. Upon verification through his lawyer, Francia discovered that a
On April 23, 1981, the lower court dismissed the amended

complaint and ordered The Register of Deeds of Pasay City to issue
a new TCT in favor of the defendant Ho Fernandez over the parcel of
land including the improvements thereon, subject to whatever
encumbrances appearing at the back of TCT No. 4739 (37795) and
ordering the same TCT
The Intermediate Appellate Court affirmed the decision of the
lower court in toto. Hence, this petition for review.
ISSUE: WHETHER OR NOT THE EXPROPRIATION
COMPENSATE FOR THE REAL ESTATE TAXES DUE.
MAY
HELD: NO. There can be no off-setting of taxes against the claims

that the taxpayer may have against the government.
Francias argument is that the government owed him P4,
116.00 when a portion of his land was expropriated on October 15,
1977. Hence, his tax obligation had been set-off by operation of law
as of October 15, 1977.
Following Article 1278 of the Civil Code, there is legal
compensation when obligations of persons, who in their own right
are reciprocally debtors and creditors of each other, are
extinguished. The circumstances in the instant case do not satisfy
the requirements provided by Article 1279, to wit:
(1)
that each one of the obligors be bound principally and that
he be at the same time a principal creditor of the other;
(3)
that the two debts be due.
A taxpayer cannot refuse to pay his tax when called

upon by the collector because he has a claim against the
governmental body not included in the tax levy.
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.
As stated in the case of Republic v. Mambulao Lumber
Co. (4 SCRA 622), internal revenue taxes cannot be the subject of
set-off or compensation, thus: "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., 73-74). "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. ..."
As reiterated in the case of Corders v. Gonda internal
revenue taxes cannot be the subject of compensation: Reason:
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."
The Supreme Court emphasized: 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.
On the issue that the selling price of P2, 400.00 was grossly
inadequate, the same is not tenable. The Supreme Court said:
alleged gross inadequacy of price is not material when 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. 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. 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.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition
for review is DISMISSED. The decision of the respondent court is
affirmed.

Engracio Francia vs. Iac

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Engracio Francia vs. Iac

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ENGRACIO FRANCIA, petitioner,

Final Bill of Sale had been issued in favor of Ho Fernandez by the

The petitioner invokes legal and equitable grounds to

On March 20, 1979, Francia filed a complaint to annul the

On April 23, 1981, the lower court dismissed the amended

HELD: NO. There can be no off-setting of taxes against the claims

that the two debts be due.

A taxpayer cannot refuse to pay his tax when called

The Supreme Court emphasized: A claim for taxes is not

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