G.R. No. 112519 - Catholic Bishop of Balanga vs. Court of Appeals

On July 13, 1916, the Collector of Internal Revenue, through his authorized agent at Zamboanga, seized and distrained personal property consisting of machinery for sawing lumber, as described in the complaint.
The seizure was executed to satisfy a sum of P2,159.79 alleged to be due from Pujalte & Co. for forestry charges owed to the Government.
The plaintiff, Bank of the Philippine Islands, claimed ownership of the seized property and demanded its release.
Upon denial of its demand, the plaintiff paid P2,159.79 under protest to avert the forced sale of the property and subsequently initiated an action in the Court of First Instance of Zamboanga to recover the amount, together with interest and costs.

The property originally belonged to the Taba Saw Mill Co., a copartnership formed by Pujalte & Co. and Ramon Murga.
In April 1914, Ramon Murga sold all his rights in the copartnership to Pujalte & Co., making the latter its sole proprietor.
On September 26, 1912, the Taba Saw Mill Co. had conveyed the property, by way of chattel mortgage, to the plaintiff bank as security for promissory notes amounting to P180,000.
The chattel mortgage was duly registered in the office of the register of deeds of Zamboanga on December 26, 1912, and was still subsisting at the time of the seizure.
Notably, at the time the property was registered, it was free from tax liens and the plaintiff had no notice of any such encumbrance.

The property, though used in the business operations of Pujalte & Co., was seized under the claim of an alleged tax lien for unpaid forestry charges.
The defendant Collector of Internal Revenue contended that the machinery, owing to its use in the sawmill business, was liable to seizure for the delinquent forestry charges of Pujalte & Co.
The lower court held that since the plaintiff bank voluntarily and spontaneously paid a tax liability that belonged to Pujalte & Co., it could not recover from the Collector.
The lower court also opined that the action for recovery should have been instituted under the provisions governing forfeiture of chattel (Section 141 of Act No. 2339) instead of the recovery of tax paid under protest (Section 140 of the Internal Revenue Law).

Whether the plaintiff bank’s payment of P2,159.79 under protest qualified as payment of its own liability or, as alleged, the debt of Pujalte & Co.

The issue revolves around whether the payment was made voluntarily or involuntarily and under protest.
Whether the plaintiff had any remedial right against the defendant Collector of Internal Revenue for the allegedly illegal seizure and sale of the property.

The proper remedy available to the plaintiff bank under the Internal Revenue Law

Whether the correct course of action was to be brought under Section 140 (recovery of tax paid under protest) or under Section 141 (action to contest forfeiture of chattel).

Whether the plaintiff bank, as mortgagee by virtue of a duly registered chattel mortgage, held legal dominion over the property, thus making it an innocent third party with respect to the delinquent forestry charges.

Interpretation of the lien imposed by Section 149 of Act No. 2339 versus the protective remedy provided under Section 140

Whether the property used in a business (in this instance, a sawmill) becomes automatically liable for tax liens of the mortgagor, or if such liability attaches solely to the owner of the business.