City Government of Tagaytay vs. Melencio-Herrera

A tax sale conducted by a local government unit over properties situated outside its territorial jurisdiction is void ab initio, not merely voidable, and thus the procedural requirement of deposit under Section 83 of P.D. No. 464 does not apply to assail its validity; furthermore, extrinsic fraud warranting annulment of judgment must be committed by the prevailing party and must operate to prevent the unsuccessful party from having a fair submission of the controversy.

The dispute arose from the City of Tagaytay's auction of two parcels of land owned by Tagaytay-Taal Tourist Development Corporation (TTTDC) for delinquent real estate taxes covering 1976 to 1983. The properties were physically located in Barrio Birinayan, which had been transferred from Tagaytay City to the Province of Batangas by R.A. No. 1418 in 1956. The Melencios purchased the properties during the redemption period under P.D. No. 464, but a subsequent suit by TTTDC successfully nullified the tax sale on the ground that the City lacked territorial and taxing jurisdiction over the properties.

• Tagaytay-Taal Tourist Development Corporation (TTTDC) was the registered owner of two parcels of land covered by Transfer Certificate of Title (TCT) Nos. T-9816 and T-9817, situated in Barrio Birinayan, Municipality of Talisay (later Laurel), Province of Batangas.
• TTTDC incurred real estate tax liabilities for the tax years 1976 to 1983, which the City Government of Tagaytay sought to collect.
• On November 28, 1983, the City auctioned the properties for delinquent taxes, with the City as the sole bidder; a certificate of sale was executed in its favor and inscribed on the titles on November 20, 1984.
• On July 14, 1989, the City filed an unnumbered petition for entry of new certificates of title before the RTC of Cavite, Branch XVIII, which granted the petition on December 5, 1989, ordering the cancellation of TTTDC's titles and the issuance of new ones in the City's name.
• On June 29, 1990, Atty. Donato T. Faylona, acting as agent for the Melencios, purchased the properties for P3,550,000.00 representing the total amount of taxes and penalties due, pursuant to Section 81 in relation to Section 78 of P.D. No. 464.
• On July 21, 1991, TTTDC filed a petition for nullification of the public auction (Civil Case No. TG-1196) before the same RTC, claiming the properties were not within Tagaytay's jurisdiction but in Batangas.
• On June 23, 1994, the Melencios filed a Motion to Intervene in Civil Case No. TG-1196, which was denied on October 5, 1994 because the trial had already concluded, falling outside the period for intervention under Section 2, Rule 12 of the Rules of Court.
• On October 21, 1994, the RTC rendered a Decision in Civil Case No. TG-1196 annulling the public auction sale, certificate of sale, and final bill of sale, and directing the cancellation of annotations on the titles; this decision became final and executory on November 9, 1994, and was entered in the Book of Entries of Judgments on March 24, 1995.
• On June 10, 1997, the Supreme Court rendered a Decision in G.R. No. 106812 (Tagaytay-Taal Tourist Development Corporation v. Court of Appeals) reversing the CA and RTC decisions in the petition for entry of new certificates of title, holding that the properties were outside Tagaytay's territorial jurisdiction and the tax sale was void; this decision became final and executory.
• On August 31, 1995 and November 15, 1995, respectively, the Melencios and the City of Tagaytay filed separate petitions for annulment of judgment before the Court of Appeals, which were consolidated and dismissed on June 19, 1998; the CA denied the motions for reconsideration on November 11, 1999.

• City Government of Tagaytay: The RTC had no jurisdiction because the case involved a boundary dispute between provinces (Cavite and Batangas) which, under Sections 118-119 of the Local Government Code, falls under the primary jurisdiction of the sanggunian concerned; the RTC could not repeal or amend the territorial limits of political subdivisions under Commonwealth Act No. 338; the RTC failed to acquire jurisdiction because TTTDC did not comply with Section 83 of P.D. No. 464 requiring deposit of the tax sale amount; and the RTC violated the doctrine of exhaustion of administrative remedies.
• Melencios: The Court of Appeals erred in ruling that extrinsic fraud must be committed by the prevailing party to warrant annulment; they had vested rights as purchasers of the properties; they were indispensable parties who were not impleaded, depriving them of due process; the RTC violated jurisdictional requirements including Section 83 of P.D. No. 464, the doctrine of exhaustion of administrative remedies, non-forum shopping, litis pendentia, and non-interference with co-equal bodies; and the RTC had no jurisdiction to repeal by implication Commonwealth Act No. 338.

• Respondents (TTTDC, Province of Batangas, Municipalities of Laurel and Talisay): The properties were located in Barrio Birinayan, Province of Batangas, outside the territorial jurisdiction of Tagaytay City under R.A. No. 1418; therefore, the tax sale was void and the RTC had jurisdiction to nullify it; the Melencios were not prevented from protecting their interests as they had notice of the case but failed to pursue their motion to intervene; and the City acted in bad faith in levying taxes on properties outside its jurisdiction.

• Procedural Issues:
  • Whether the Regional Trial Court had jurisdiction to entertain the petition for nullification of the tax sale where the issue involved the territorial jurisdiction of the City of Tagaytay over the subject properties.
  • Whether the Melencios were deprived of property without due process through extrinsic fraud allegedly committed by the City of Tagaytay.
  • Whether the Melencios were indispensable parties whose exclusion warranted annulment of the judgment.
• Substantive Issues:
  • Whether the tax sale was void or merely voidable, affecting the applicability of Section 83 of P.D. No. 464 requiring deposit before suit.
  • Whether the City of Tagaytay was liable to the Melencios for actual, moral, and exemplary damages for erroneously levying taxes and auctioning properties outside its territorial jurisdiction.

• Procedural:
  • The Court held that the RTC had jurisdiction to nullify the tax sale because the case did not involve a boundary dispute requiring administrative recourse under the Local Government Code, but rather a determination of whether the City had authority to levy taxes on specific properties, which is a judicial question.
  • The Court ruled that there was no extrinsic fraud committed by the City of Tagaytay because extrinsic fraud must be committed by the prevailing party (here, TTTDC was the prevailing party in the nullification case), and the Melencios were not prevented from having their day in court—they filed a motion to intervene which was denied due to their own delay, and they chose not to pursue further action despite having independent notice of the case.
  • The exclusion of the Melencios did not amount to a deprivation of due process warranting annulment, as they had actual knowledge of the proceedings and the opportunity to be heard.
• Substantive:
  • The Court affirmed that the tax sale was void ab initio because the properties were situated in Barrio Birinayan, which was transferred to the Province of Batangas by R.A. No. 1418 in 1956, and thus outside the territorial and taxing jurisdiction of Tagaytay City; a void act produces no effect and can be assailed at any time.
  • The Court held that Section 83 of P.D. No. 464, requiring deposit of the tax sale amount before suit, applies only to voidable tax sales, not to void sales where the taxing authority had no jurisdiction over the property.
  • The Court found the City of Tagaytay liable under the doctrine of respondeat superior for the gross negligence and bad faith of its officials in levying taxes and auctioning properties outside the city's jurisdiction despite the clear mandate of R.A. No. 1418.
  • The City was ordered to return the full amount paid by the Melencios (P3,550,000.00) with interest at 6% per annum from the finality of the RTC decision in Civil Case No. TG-1196, and 12% per annum from the finality of this decision until full payment.
  • The City was ordered to pay P500,000.00 in moral damages and P200,000.00 in exemplary damages for the injury caused by its bad faith and gross negligence.

• Statutory Construction (Plain Meaning Rule) — When the language of a statute is clear and categorical, leaving no room for doubt or interpretation, it must be applied as written without judicial construction; R.A. No. 1418 clearly transferred the entire Barrio Birinayan to Batangas, not merely portions thereof.
• Extrinsic Fraud — Extrinsic fraud refers to fraudulent acts committed outside the trial of the case that prevent a party from having a fair submission of the controversy, such as keeping the party away from court or giving false promises of compromise; it must be committed by the prevailing party, not the losing party, and does not include the failure to implead a party who had actual notice and opportunity to intervene.
• Respondeat Superior — The principal (here, the City of Tagaytay) is liable for the tortious acts and negligence of its agents committed within the scope of their assigned tasks; gross negligence in erroneously assessing taxes on properties outside territorial jurisdiction gives rise to liability ex contractu and quasi ex-delictu.
• Void vs. Voidable Tax Sales — Section 83 of P.D. No. 464, which requires deposit of the tax sale amount before a court may entertain a suit assailing the validity of a tax sale, applies only to voidable sales, not to void sales where the taxing authority had absolutely no jurisdiction over the property.
• Finality of Judgments — Final and executory judgments of the Supreme Court, such as in G.R. No. 106812, are immutable and unalterable and may not be reopened or relitigated in subsequent proceedings between the same parties.

• "A statute is not subject to interpretation or construction as a matter of course. It is only when the language of the statute is ambiguous when taken in relation to a set of facts, or reasonable minds disagree as to its meaning, that interpretation or construction becomes necessary. Where the terms of the statute are clear and unambiguous, no interpretation is called for, and the law is applied as written, for application is the first duty of the court, and interpretation is needed only where literal application is impossible or inadequate."
• "Extrinsic fraud refers to any fraudulent act of the prevailing party in the litigation which is committed outside of the trial of the case, whereby the unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception practiced on him by his opponent."
• "The overriding consideration is that the fraudulent scheme of the prevailing litigant prevented a party from having his day in court."
• "However, this provision [Section 83 of P.D. No. 464] may only be used in a voidable tax sale. When the sale is void because the property subjected to real estate tax is not situated within the jurisdiction of the taxing authority, the provision cannot be invoked."
• "Negligence is the failure to observe protection of the interests of another person, that degree of care, precaution, and vigilance which the circumstances justly demand, whereby such other person suffers injury."

• Tagaytay-Taal Tourist Development Corporation v. Court of Appeals (G.R. No. 106812, June 10, 1997) — Controlling precedent establishing that the subject properties were outside the territorial jurisdiction of Tagaytay City and that the tax sale was void; its finality precludes relitigation of the same issues.
• Biaco v. Philippine Countryside Rural Bank (G.R. No. 161417, February 8, 2007) — Cited for the rule that annulment of judgment under Rule 47 is allowed only in exceptional cases where ordinary remedies are no longer available.
• Cal, Jr. v. Zosa (G.R. No. 152518, July 31, 2006) — Cited for the definition of actual/constructive fraud and extrinsic/intrinsic fraud.
• Tan v. Court of Appeals (G.R. No. 157194, June 20, 2006) — Cited for the definition of extrinsic fraud as acts preventing a party from having a fair submission of the controversy.
• City of Manila v. Intermediate Appellate Court (G.R. No. 71159, November 15, 1989) — Cited for the doctrine of respondeat superior holding a city liable for the negligence of its agents.
• Eastern Shipping Lines v. Court of Appeals (234 SCRA 78) — Cited for the guidelines on the computation of legal interest on awards of damages.

• R.A. No. 1418 — Transferred the former barrios of Caloocan and Birinayan from Tagaytay City to the Municipality of Talisay, Province of Batangas; central to the determination of territorial jurisdiction.
• R.A. No. 5689 — Created the Municipality of Laurel in Batangas, incorporating Barrio Birinayan.
• Commonwealth Act No. 338 — The Charter of the City of Tagaytay, originally annexing Barrio Birinayan to the city.
• P.D. No. 464 (Real Property Tax Code), Sections 75, 78, 81, and 83 — Governing tax sales, redemption, and suits assailing validity; Section 83 held inapplicable to void sales.
• P.D. No. 1529 (Property Registration Decree), Section 75 — Regarding petitions for entry of new certificates of title after tax sales.
• R.A. No. 7160 (Local Government Code), Sections 118-119 — Provisions on settlement of boundary disputes; held inapplicable as the case did not involve a boundary dispute but a nullification of a void tax sale.
• Rule 47, Rules of Court — Governing annulment of judgments based on extrinsic fraud and lack of jurisdiction.
• Rule 12, Section 2, Rules of Court — Governing intervention, cited in the denial of the Melencios' motion to intervene.
• Civil Code, Articles 2202, 2229 — Provisions on moral and exemplary damages.