Province of Bataan vs. Escalada

The jurisdictional deposit mandated by Section 267 of the Local Government Code applies solely to the initiatory suit of a taxpayer who does not dispute the delinquency; the failure of the original plaintiff to post the deposit does not deprive the trial court of jurisdiction over the complaints-in-intervention of persons with a legal interest in the property, which survive the dismissal of the main action and must be independently adjudicated.

Sunrise Paper Products, Inc. operated a paper mill on two parcels of land in Orani, Bataan, covered by TCT Nos. T-210559 and T-210560. It secured loans from Metrobank, mortgaging the lots but excluding machinery and equipment. Separately, it obtained credit from PhilEXIM secured by a chattel mortgage over the machinery. Due to unpaid real property taxes exceeding P1.7 million, the Province of Bataan levied on the real properties, buildings, and machinery. The Province bought all the properties at the public auction for P2.29 million and later consolidated title. Meanwhile, respondent Gawtee — who had acquired PhilEXIM’s mortgage rights and had successfully levied on the machinery in execution of a separate money judgment — became the owner of the machinery and equipment. Metrobank’s mortgage interest was likewise outstanding. Sunrise filed an injunction suit to nullify the tax sale for lack of notice but failed to post the deposit required by Section 267 of the Local Government Code. Gawtee and Metrobank (later substituted by Cameron) intervened to protect their interests. During the pendency of the case, the Province entered into a compromise agreement with Sunrise and proceeded to dismantle and dispose of the machinery despite the RTC’s status quo order, causing total loss of the paper mill.

• Tax Delinquency and Levy: Sunrise Paper Products, Inc. operated a paper mill on two lots (TCT Nos. T-210559 and T-210560) in Barangay Doña, Orani, Bataan, with assessed values of P24,607,950 and P233,850 respectively. As of December 2002 its real property tax delinquency stood at P1,715,398.55. On 3 January 2003, the Provincial Treasurer’s Office issued a warrant of levy over the real properties, buildings, machinery, and equipment; the levy was registered with the Register of Deeds on 9 January 2003.
• Auction Sale and Consolidation: The Province published a notice of sale and held a public auction on 17 February 2004. Being the sole bidder, the Province purchased all levied properties for P2,291,134.94 (taxes, penalties, and costs). Notices of sale were allegedly sent to Sunrise’s Quezon City address and to Metrobank’s Balanga branch. A certificate of final sale was issued on 17 February 2005, and on 7 March 2005 new titles (TCT Nos. T-246955 and T-246956) were issued in the Province’s name, omitting Metrobank’s mortgage annotations.
• Gawtee’s Ownership of Machinery: Sunrise had previously executed a chattel mortgage over its machinery and equipment in favor of PhilEXIM. In Civil Case No. 7973, Gawtee obtained a favorable money judgment against Sunrise and the Spouses Miranda. PhilEXIM later assigned its mortgagee rights to Gawtee. After levy on execution, a public auction was held; Gawtee was the highest bidder. A Certificate of Sheriff’s Sale and a Certificate of Ownership were issued on 10 August 2004, and physical possession of the machinery was turned over to Gawtee. The levy on execution was annotated on Sunrise’s titles on 3 August 2004.
• Metrobank’s Mortgage and Cameron’s Substitution: Metrobank held a mortgage on the two lots to secure Sunrise’s loans exceeding P61 million. It filed a complaint-in-intervention on 24 June 2005, asserting that the tax sale and the cancellation of its mortgage lien were invalid because it never received proper notice. Metrobank later assigned its credit to Cameron Granville 2 Asset Management, Inc., which was substituted as intervenor by order of 25 July 2006.
• Petition for Injunction and Interventions: Sunrise filed Civil Case No. 8164 on 21 April 2005 seeking to annul the auction sale for lack of notice, but it did not make the deposit required by Section 267 of R.A. No. 7160. Gawtee intervened on 28 April 2005, asserting ownership of the machinery and equipment. The RTC issued a status quo ante order on 5 May 2005 directing all parties to maintain the status quo pending final determination.
• Compromise Agreement and Disposal of Machinery: Despite the status quo order and the RTC’s prior declaration that Gawtee owned the machinery, the Province and Sunrise entered into a Compromise Agreement on 14 June 2005. Under its terms, Sunrise was to pay P50 million to remove and dispose of the machinery. The Sangguniang Panlalawigan ratified the agreement, but Sunrise failed to satisfy the payment condition. Nevertheless, the Province, through its officials, proceeded to dismantle, remove, and sell the machinery and equipment to Bei Hai Petroleum Corporation for P11,967,600.40. At an ocular inspection on 27 June 2005, the RTC found the paper mill totally destroyed and non-operational.
• The RTC’s Findings and Award: Petitioners were declared in default for failing to file responsive pleadings to the petitions-in-intervention and for not attending pre-trial. The RTC declared the warrant of levy, notice of sale, and the tax auction sale void for non-compliance with the mandatory notice and posting requirements; ordered cancellation of the Province’s new titles and revival of Sunrise’s original titles with the mortgage lien restored; voided the Compromise Agreement; and held the Province, Governor Garcia, Treasurer Talento, and Register of Deeds Abad jointly and severally liable with Sunrise for P120,000,000 actual damages plus interest, as well as reimbursement of the Bei Hai proceeds.

• Jurisdiction—Non-compliance with Section 267: Petitioners contended that the RTC never acquired jurisdiction because Sunrise failed to deposit the amount for which the property was sold at auction, a jurisdictional prerequisite under Section 267 of R.A. No. 7160. Sunrise’s own Notice of Dismissal acknowledged this defect, and the suit should have been dismissed.
• Wrong Remedy—Motion for Reconsideration Improperly Denied: Petitioners argued that the RTC erred in denying their motion for reconsideration as a “wrong remedy.” Section 1, Rule 37 of the Rules of Court allows a motion for reconsideration of a judgment, and nothing in the Rules excludes judgments by default. Treating the motion as pro forma and holding that it did not toll the period to appeal was a grave abuse of discretion.
• Premature Execution Despite Pending Appeal: The RTC’s issuance of a writ of execution was improper because an appeal filed by Sunrise was still pending before the Court of Appeals. Petitioners share a communality of interest with Sunrise, as they were held solidarity liable.
• Improper Intervention: Gawtee and Metrobank should not have been allowed to intervene because their intervention unduly delayed the adjudication of the original parties’ rights and their interests could have been fully protected in a separate proceeding. Gawtee’s inclusion of new parties and his claim for damages were beyond the scope of an injunction suit contesting a tax sale.
• Damages—No Docket Fees and No Basis: The award of P120,000,000 in actual damages was void because Gawtee neither prayed for that amount nor paid the corresponding docket fees. His petition-in-intervention sought only P50,000 in actual damages, and the non-payment of the higher amount deprived the court of jurisdiction over the award. The lien mechanism under Rule 141, Section 2 cannot substitute for prior payment of filing fees.

• Finality of RTC Decision: Respondent Gawtee countered that petitioners’ motion for reconsideration was filed beyond the 15-day reglementary period. The motion for reconsideration, being an improper remedy after a declaration of default, did not toll the period for appeal; as a result, the RTC Decision became final and executory. Respondent Cameron likewise maintained that petitioners lost their right to appeal and could not substitute the lost remedy by certiorari.
• Default Not Lifted: Gawtee argued that before moving for reconsideration, petitioners should have first moved to set aside the default order. Their failure to do so rendered their motion for reconsideration procedurally infirm.
• Certiorari Not a Substitute for Lost Appeal: Both Gawtee and Cameron emphasized that the proper remedy from the RTC Decision was an appeal, not a petition for certiorari. Petitioners’ failure to perfect an appeal barred them from invoking Rule 65.
• Proper Intervention and Jurisdiction: Gawtee asserted that he had a direct legal interest as the judicially declared owner of the machinery, and his rights could not be relegated to a separate suit. The case was no longer a pure local tax case but involved violations of property rights and due process. The RTC therefore correctly took cognizance of the action.
• Estoppel and Forum Shopping by Petitioners: Cameron argued that petitioners actively participated in the proceedings and were estopped from questioning jurisdiction. Both respondents pointed out that petitioners engaged in forum shopping by filing multiple petitions before the Court of Appeals (CA-G.R. SP No. 91543 and CA-G.R. SP No. 95947) and the Supreme Court, raising the same jurisdictional issue while failing to disclose the pendency of related actions.
• Section 267 Inapplicable: Cameron maintained that Section 267 of R.A. No. 7160 does not apply where, as here, substantial issues beyond the validity of the tax sale — namely, the rights of mortgagees and the owner of the machinery — are involved. R.A. No. 1125’s provision on CTA jurisdiction was also inapplicable because the validity of the tax assessment was not questioned.

• Direct Resort to the Supreme Court: Whether the petition should be dismissed for non-compliance with the doctrine of hierarchy of courts.
• Jurisdiction: Whether the RTC had jurisdiction over the petition for injunction despite Sunrise’s non-payment of the deposit required by Section 267 of R.A. No. 7160.
• Finality of RTC Decision: Whether the Decision of the RTC dated 15 June 2007 had attained finality.
• Intervention: Whether the RTC properly allowed the interventions of Victor G. Gawtee and Metrobank/Cameron.
• Validity of Tax Sale: Whether the tax delinquency sale was valid.
• Liability for Damages: Whether petitioners are liable for actual damages to Gawtee, and whether the award of P120,000,000 and the imposition of interest were proper.

• Direct Resort to the Supreme Court: The petition could have been dismissed outright for violating the doctrine of hierarchy of courts, because the Court of Appeals has original jurisdiction to issue writs of certiorari and the case did not fall within the exclusive appellate jurisdiction of the Court of Tax Appeals. Nonetheless, the exigency of the case — involving ownership and possession of valuable property, the validity of a tax sale, and the rights of intervenors — justified a liberal application of the doctrine under the recognized exception of exigency.
• Jurisdiction: The RTC had jurisdiction. The deposit requirement under Section 267 of R.A. No. 7160 is a jurisdictional condition only for initiatory actions filed by a taxpayer who does not question the fact of delinquency. Here, Sunrise acknowledged its tax liability and did not dispute the assessment; its failure to post the deposit was therefore a jurisdictional defect only as to its own petition. The complaints-in-intervention of Gawtee and Cameron, however, are independent of the main action. Under the rulings in Metropolitan Bank and Trust Co. v. Presiding Judge, RTC Manila, Br. 39 and Eagle Realty Corp. v. Republic, the dismissal of the original plaintiff’s action does not automatically result in the dismissal of a proper complaint-in-intervention; the intervenor is entitled to have the issues between him and the original parties tried and determined. Because the validity of the tax assessment was not challenged, the case was not a pure local tax case within the exclusive appellate jurisdiction of the CTA, as held in Salva v. Magpile.
• Finality of RTC Decision: The Decision had not attained finality as to petitioner Abad, who received a copy on 18 June 2007 and filed her motion for reconsideration on 3 July 2007 — within the 15-day period under Rule 37. The Province and Talento, having received the Decision on 19 June 2007, filed their motion for reconsideration only on 19 July 2007, beyond the 15-day period; thus, as to them, the Decision became final. A motion for reconsideration from a default judgment is a permissible remedy. Since the interests of all petitioners were intertwined, the Court resolved the merits to fully settle the controversy.
• Intervention: The interventions were proper. Gawtee, as the purchaser and owner of the machinery and equipment at the execution sale, and Cameron, as the successor-mortgagee of the real properties, both possessed a legal interest in the matter in litigation and stood to be adversely affected by the distribution or disposition of the properties. Allowing intervention avoided a multiplicity of suits and did not unduly delay the resolution of the case, contrary to petitioners’ claim.
• Validity of Tax Sale: The tax sale was null and void for the Province’s failure to comply with the mandatory requirements of Sections 258 and 260 of R.A. No. 7160. Petitioners, having been declared in default, were unable to formally offer evidence of compliance with the posting and publication requirements; even if documentary evidence was attached to pleadings, it could not be considered. Moreover, the Province sold far more property than necessary: the assessed value of the two lots alone (P24,841,800) far exceeded the total delinquency of P2,291,134.94, making the inclusion of the machinery and the sale of all properties an excessive levy. The issuance of new titles without the mortgage annotation in favor of Metrobank/Cameron was also invalid; while a mortgagee is not entitled to notice of the tax sale, its lien must be carried over to the new title under the principle in Lukban v. Optimum Development Bank.
• Liability for Damages: The Province of Bataan and Sunrise Paper Products are solidarily liable to Gawtee for P120,000,000 in actual damages, representing the value of the lost machinery. The Province acted in bad faith: it acquired more property than necessary at the auction; entered into a compromise with Sunrise despite knowing Gawtee already owned the machinery; and dismantled and disposed of the machinery in defiance of the RTC’s status quo order. The individual petitioners (Garcia, Talento, and Abad) are not personally liable, as the specific acts causing the damage were not individually attributed to them. The amount of P120,000,000 was based on the valuation in the Province’s own Compromise Agreement and was consistent with the technical report submitted to the RTC. The award of P9,676,465.46 as reimbursement of the Bei Hai sale proceeds was subsumed into the P120,000,000 award, and no deduction for Sunrise’s tax delinquency applies against Gawtee, who is not the taxpayer. Interest at 6% per annum runs from the date of the RTC Decision (15 June 2007) until the finality of this judgment, and thereafter at 6% per annum until full satisfaction. The non-payment of docket fees for the increased award does not invalidate the judgment; under Section 2, Rule 141, any deficiency constitutes a lien on the judgment award, and the clerk of court is directed to assess and collect the additional fees.

• Hierarchy of Courts — Exigency Exception — Direct resort to the Supreme Court is generally disallowed when the Court of Appeals has concurrent jurisdiction to issue extraordinary writs, but the Court may take cognizance of a petition when the exigency of the case demands a definitive resolution of the parties’ rights. Applied here to avoid further delay and to settle intertwined questions of property, tax sale validity, and damages.
• Section 267 Deposit — Applicability to Intervenors — The jurisdictional deposit required by Section 267 of the Local Government Code applies only to the initiatory action of a taxpayer who does not contest the fact of delinquency. The failure of the original plaintiff to make the deposit does not divest the court of jurisdiction over a valid complaint-in-intervention filed by a person with a legal interest in the property. The intervenor is entitled to claim the benefit of the original suit and to prosecute it to judgment, and his intervention may proceed independently of the main action.
• Preservation of Intervention after Dismissal of Main Action — Under the doctrines in Metropolitan Bank and Trust Co. v. Presiding Judge, RTC Manila, Br. 39 and Eagle Realty Corp. v. Republic, the dismissal of the plaintiff’s complaint does not automatically carry with it the dismissal of a complaint-in-intervention. An intervenor with a legal interest has the right to have the issues raised between him and the original parties tried and determined.
• Strict Compliance with Tax Sale Notice Requirements — The posting and publication requirements of Section 260 of the Local Government Code must be strictly observed. Non-compliance renders the tax sale null and void. Proof of compliance must be formally offered in evidence; a party declared in default cannot rely on documents merely attached to pleadings.
• Proportionality in Tax Levy — Under Section 260, only a usable portion of the property as may be necessary to satisfy the tax delinquency and expenses of sale may be auctioned. A sale that includes substantially more property than is required to pay the delinquency is invalid.
• Preservation of Mortgage Lien After Tax Sale — Although a mortgagee is not entitled to notice of the tax delinquency sale, its lien on the property must be annotated on any new title issued pursuant to the sale, as the mortgagee’s right is protected under Section 180 of R.A. No. 7160.
• Default Judgment and Motion for Reconsideration — A party declared in default may file a motion for reconsideration of the judgment by default; the remedy is not foreclosed by the 1997 Rules of Court. The period to file the motion is 15 days from notice of the decision under Rule 37.
• Docket Fees as a Lien — Under Section 2, Rule 141 of the Rules of Court, where the court awards a claim not alleged or a relief greater than that pleaded, the additional filing fees constitute a lien on the judgment. Non-payment does not oust the court of jurisdiction to render the award.

• “The requirement for a deposit is jurisdictional and is an ‘ingenious legal device to guarantee the satisfaction of the tax delinquency, with the local government unit keeping the payment on the bid price no matter the final outcome of the suit to nullify the tax sale.’ But the requirement only applies to initiatory actions and does not apply to the government or any of its agencies.”
• “An intervenor has the right to claim the benefit of the original suit and to prosecute it to judgment. Having been permitted to become a party in order to better protect his interest, an intervenor is entitled to have the issues raised between him and the original parties tried and determined.”
• “Strict adherence to the statutes governing tax sales is imperative not only for the protection of the taxpayers, but also to allay any possible suspicion of collusion between the buyer and the public officials called upon to enforce the laws.”
• “The real properties, machineries, and heavy equipment levied upon by the Province were well above and beyond what it was entitled to. The Province’s act of taking more than what is due to it has undoubtedly prejudiced Gawtee.”

• Salva v. Magpile, 820 Phil. 803 (2017) — Followed; distinguished a local tax case from one merely questioning non-compliance with tax sale notice requirements; held that appellate jurisdiction lies with the Court of Appeals, not the Court of Tax Appeals.
• National Housing Authority v. Iloilo City, 584 Phil. 604 (2008) — Followed; affirmed the jurisdictional nature of the Section 267 deposit but clarified its inapplicability to non-taxpayer intervenors.
• Beaumont Holdings Corp. v. Reyes, 815 Phil. 584 (2017) — Followed; underscored that the deposit is jurisdictional only if the tax delinquency is not disputed.
• Eagle Realty Corp. v. Republic, 579 Phil. 355 (2008) — Applied; established that the dismissal of the original complaint does not necessarily result in dismissal of the complaint-in-intervention.
• Metropolitan Bank and Trust Co. v. Presiding Judge, RTC Manila, Br. 39, 267 Phil. 875 (1990) — Applied; same principle on the survivability of a complaint-in-intervention.
• Lukban v. Optimum Development Bank, 778 Phil. 824 (2016) — Applied; held that a mortgagee’s lien must be carried over to a new title issued after a tax sale.
• Nacar v. Gallery Frames, 716 Phil. 267 (2013) — Applied for the computation of legal interest on the damages award.
• Martinez v. Republic, 536 Phil. 868 (2006) & Crisologo v. Globe Telecom, Inc., 514 Phil. 618 (2005) — Cited for the rule that a party declared in default may appeal the judgment without first seeking to set aside the order of default.
• Gomez v. Montalban, 572 Phil. 460 (2008) — Cited to support the propriety of filing a motion for reconsideration of a default judgment.

• Section 267, R.A. No. 7160 (Local Government Code) — Deposit requirement for actions assailing validity of tax sale; interpreted as jurisdictional only for the taxpayer’s initiatory action and did not bar intervention.
• Sections 258, 260, R.A. No. 7160 — Levy and advertisement/sale procedures; strict compliance with posting and publication is mandatory; only a usable portion of property sufficient to satisfy the delinquency may be sold.
• Section 264, R.A. No. 7160 — Notice of sale period; cited by the RTC as part of the non-compliance.
• Section 180, R.A. No. 7160 — Final deed to purchaser; used to support the requirement that a mortgage lien must be carried forward on a new title.
• Section 24, R.A. No. 7160 — Liability of local government units and their officials for damage to property; applied to hold the Province liable but required specific attribution of wrongful acts for personal liability.
• Section 268, R.A. No. 7160 — Payment of delinquent taxes on property subject of controversy; invoked by the RTC as the applicable provision in lieu of Section 267.
• Section 7(a)(3), R.A. No. 1125 as amended by R.A. No. 9282 — CTA exclusive appellate jurisdiction over RTC decisions in local tax cases; distinguished under Salva.
• Section 9, Batas Pambansa Blg. 129 as amended by R.A. No. 7902 — Original jurisdiction of the Court of Appeals to issue writs of certiorari; basis for hierarchy of courts.
• Rule 19, Section 1, 1997 Rules of Civil Procedure — Requirements for intervention; satisfied by Gawtee and Cameron’s legal interest.
• Rule 37, Section 1 in relation to Rule 41, Section 3, Rules of Court — 15-day period to file motion for reconsideration of a judgment.
• Rule 141, Section 2, Rules of Court — Additional docket fees constitute a lien on the judgment award.
• Articles 2199, 2200, 2211, Civil Code — Actual/compensatory damages and interest in quasi-delicts; applied as basis for award and interest.

Leonen (Chairperson), Zalameda, Rosario, Dimaampao, JJ.

N/A (The decision was unanimous.)