Title
Provincial Government of Cavite vs. CQM Management, Inc.
Case
G.R. No. 248033
Decision Date
Jul 15, 2020
CQM Management seeks injunction against Cavite tax delinquency sale; properties exempt under RA 7916, tax collection prescribed, laches bars enforcement.
injunction
auction
properties

Case Summary (G.R. No. 248033)

Factual Background

On November 25, 2014, CQM Management, Inc. filed a petition for injunction with prayer for a temporary restraining order and preliminary injunction against the petitioners, and against private entities Maxon Systems Philippines, Inc. (Maxon) and Ultimate Electronic Components, Inc. (Ultimate), in connection with unpaid real property taxes and an impending tax delinquency sale of their properties.

The factual origin of the properties’ present ownership lay in the acquisition by PI One of non-performing loans. On December 1, 2004, PI One, organized as a Special Purpose Vehicle under the Special Purpose Vehicle (SPY) Act of 2002 or Republic Act No. 9182, acquired from Rizal Commercial Banking Corporation (RCBC) two non-performing loans through a Deed of Assignment dated the same day. One loan was secured by a real estate mortgage over the Maxon property, a building located at the PEZA, Rosario, Cavite, with an area of 17,466 sq.m., and covered for tax purposes by Tax Declaration No. (TD) 17-009-01506. As of October 25, 2013, Maxon’s outstanding obligation to PI One stood at P30,000,000.00.

The second loan was secured by a mortgage over the Ultimate property, a factory building at the same PEZA location, with an area of 3,000 sq.m., and covered by TD 17-0009-03191. As of February 7, 2014, Ultimate’s outstanding obligation to PI One stood at P10,500,000.00.

PI One attempted to collect, but Maxon and Ultimate failed to pay. PI One then filed petitions to foreclose the real estate mortgages. Auction sales followed. The Maxon property was sold to PI One as the highest bidder, while the Ultimate property was sold to respondent. Subsequently, PI One sold all of its rights over the Maxon property to respondent through a Deed of Assignment dated March 31, 2011. Thereafter, respondent claimed ownership of both properties.

The Tax Delinquency Threat and Accrued Tax Claims

The dispute emerged when respondent sought to consolidate its tax declarations over the properties after the lapse of the redemption periods. Based on the records of the Provincial Treasurer of Cavite, Maxon and Ultimate had unpaid real property taxes in the following amounts: Maxon—P15,888,089.09 for the years 2000–2013; and Ultimate—P6,238,407.76 for the years 1997–2013. Because of the unpaid taxes, respondent could not obtain tax clearance needed to transfer the tax declarations in its name.

The Provincial Treasurer issued a tax assessment and a warrant of levy after declaring the properties delinquent, and set the properties for public auction on December 10, 2014 to satisfy the assessed unpaid real property taxes. The scheduled auction did not proceed because the RTC issued a timely preliminary writ of injunction.

Proceedings in the RTC

On February 19, 2016, the RTC ruled in favor of respondent. It held that respondent was not liable for the real property taxes over the properties because it was exempt under Section 24 of RA 7916, as amended by RA 8748, and because of equitable considerations grounded on laches and estoppel. The RTC reasoned that the properties were located within a PEZA special economic zone and thus were exempt from local or national taxes, except for a 5% tax on gross income.

The RTC therefore made permanent the writ of injunction it had issued earlier. Petitioners’ motion for reconsideration was denied in the RTC’s Resolution dated July 7, 2016.

The Court of Appeals’ Review and Rulings

In its Decision dated May 23, 2018, the Court of Appeals denied petitioners’ appeal. The CA first addressed ownership and beneficial use for purposes of tax liability. It held that respondent was neither the owner nor an entity with actual or beneficial use or possession of the properties during the taxable years for which petitioners sought to collect real property taxes. The CA observed that respondent acquired ownership of the Ultimate property only upon the expiration of the three-month redemption period, which occurred in August 2014. It also stated that respondent became the absolute owner of the Maxon property only when PI One assigned its rights over the realty after the expiration of the three-month redemption period, which was in March 2014. For the CA, it would be incongruous to impose legal obligation on respondent to pay accrued realty taxes for periods when respondent was not in possession.

The CA further ruled that because respondent was not the owner nor did it have actual or beneficial use or possession at the time the taxes accrued, respondent’s right to file a protest under the Local Government Code did not arise in the manner petitioners suggested.

Second, the CA held that the properties were exempt from real estate taxation under Section 24 of RA 7916, as amended. It ruled that the provisions of RA 7916 did not require prior concurrence from the local government unit before a taxpayer could avail itself of the exemption. It pointed instead to Section 35 of RA 7916, which requires business enterprises within a designated ecozone to register with PEZA to avail of incentives and benefits. The CA found that respondent satisfied this requirement through its Registration and Lease Agreements with PEZA.

Third, the CA ruled that some of petitioners’ tax claims had already prescribed. It cited Section 270 of RA 7160, which provides that basic real property tax must be collected within five years from when it becomes due, and that no action for collection, whether administrative or judicial, may be instituted after that period. It noted that Maxon had been delinquent since 2000, and Ultimate since 1997, while petitioners failed to offer a plausible reason for not collecting earlier.

The CA additionally held that petitioners were barred by laches and estoppel, and that principles of substantial justice and fair play precluded collection of the real property taxes due on properties previously owned by Maxon and Ultimate.

Finally, the CA sustained the injunction. It ruled that respondent had a clear right as owner and that petitioners’ threatened auction sale would violate that right, and that irreparable damage would result if the auction proceeded.

Issues Presented

The petitioners’ contentions required resolution of whether (a) respondent could be held liable for real property taxes accruing during periods when it was not yet the owner and had no actual or beneficial use or possession, (b) whether the properties were exempt from real property taxation under RA 7916 (as amended), and (c) whether collection of the delinquent taxes was barred by prescription and by equitable defenses such as laches and estoppel, such that the injunction was proper.

The Court’s Ruling

The Court denied the petition for failure to show that the CA committed any reversible error in affirming the RTC’s permanent injunction.

The Court began with the general rule on tax liability. It held, consistent with National Power Corp. v. Province of Quezon, that liability for taxes generally rests on the owner of real property at the time the tax accrues as a necessary repercussion of exclusive dominion. It also recognized, however, that personal liability for real property taxes may expressly rest on the entity with the beneficial use of the real property. Under either scenario, the unpaid tax attaches to the property and is chargeable against the taxable person who had actual or beneficial use and possession, regardless of ownership.

Applying those principles, the Court agreed with the CA that respondent was not yet the owner nor the entity with actual or beneficial use of the buildings during the taxable years for which petitioners sought collection—specifically 2000–2013 for the Maxon property and 1997–2013 for the Ultimate property. It emphasized that respondent became owner only in March 2014 for the Maxon property and in August 2014 for the Ultimate property. The Court reasoned that imposing taxes on respondent for periods in which it had neither ownership nor beneficial use would be contrary to law and unjust.

The Court then rejected an argument grounded on the Deed of Assignment by which PI One purportedly sold, assigned, and conveyed to respondent all rights, titles, obligations, benefits, and interests in the Maxon property. It held that a contractual assumption of real property tax obligations, by itself, did not suffice to make the assignee liable. The Court relied on its ruling in National Power Corp. v. Province of Quezon, invoking Testate Estate of Concordia T. Lim v. City of Manila, and reiterated that contractual assumption must be supplemented by an interest in the property—meaning the party from whom payment is sought must also have acquired the beneficial use and possession.

Because respondent did not yet have ownership or beneficial use during the relevant periods, petitioners could not conduct a tax delinquency sale that would effectively shift to respondent the burden of paying real property taxes that had accrued earlier. The Court stressed that this was not only contrary to law, but also unjust.

Legal Basis and Reasoning on Tax Exemption

The Court further held that respondent was exempt from paying real property taxes on the Maxon and Ultimate properties from the time it acquired ownership and/or actual or beneficial use under Section 24 of RA 7916, as amended by RA 8748. The Court quoted Section 24, stating that, except for real property taxes on land owned by developers, no taxes—local or national—shall be imposed on business establishments operating within an ecozone, in lieu of which five percent (5%) of gross income is remitted.

The Court agreed with the CA that nothing in Section 24 required prior concurrence by the local government unit before a registered ecozone enterprise could avail itself of the exemption. It also held that Section 35 of RA 7916 required only PEZA registration to obtain incentives and benefits under the law. It found that respondent’s registration as an ecozone facilities enterprise was supported by t

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