DOJ Opinion No. 026, s. 1980

DOJ OPINION NO. 026 , s. 1980 February 8, 1980 The Acting Commissioner Bureau of Internal Revenue Quezon City Sir : This is in reference to your letter seeking the opinion of this Office on "whether the request of the heirs of the estate of the late Laureano Sia of Masbate, Masbate, contained in the . . . letters dated July 13, 1978 and August 10, 1979 of Messrs. Diego Panergo and Manuel Guatlo, [respectively], their representatives, is legally feasible." LLphil Specifically, you request opinion on the following questions: "(a) Whether the Government may return to the estate of the deceased Laureano Sia the excess properties taken in satisfaction of unpaid taxes inspite of the consolidation of the title thereof in favor of the Government. "(b) In the affirmative, what law authorizes such return? Will a return of the excess properties be effected in accordance with the procedure set forth under Sections 79(f) and 567 of the Revised Administrative Code? "(c) Regardless of whether or not the heirs are entitled to a return of the properties forfeited in excess of the tax liability of the estate, do the said heirs still have the primary option at this time to repurchase the forfeited properties?" We answer the first question in the affirmative. The object of a tax sale of the subject property is to enable the state to collect the revenue due thereon, and not to acquire property other than what is necessary to effect such collection. On the second query, we opine that while there is no provision of law expressly authorizing the return of the properties taken by the government, in excess of the taxes due, such return may be made on the ground of equity, in accordance with the procedure set forth in Sections 79(f) and 567 of the Revised Administrative Code, which you aptly cite. We are constrained to answer the third query in the negative in view of the long period that has lapsed since the properties were finally forfeited to the government in 1971, which is well beyond even the longest period for redemption under analogous provisions which might apply in the absence of a specific provision of the Tax Code upon the matter. Our extended discussion on your three queries follow. You state that upon his death on October 13, 1963 Laureano Sia left an estate consisting of various real properties; that his heirs failed and/or refused to pay the deficiency estate and inheritance taxes assessed against said estate; that because of the continued failure/refusal of the heirs to pay the taxes due the government, the mass of real properties comprising the estate of the deceased was levied upon and sold at public auction on March 11, 1970 to satisfy the taxes due thereon; that on April 1, 1971, upon the failure of the heirs to exercise their right of redemption over the said properties, the same were declared absolutely forfeited to the government, pursuant to Section 328 (now Section 315) of the Tax Code; and that the title to such properties is now consolidated in the name of the Republic of the Philippines. You further aver that in 1974 pursuant to a directive of the Bureau of Internal Revenue (BIR), the BIR Regional Director at Naga City made a reappraisal of the forfeited properties and reported that the fair market value of the properties at the time of forfeiture amounted to P2,387,080.20; and that by deducting therefrom the taxes, legal increments and other expenses amounting to P413,465.51 the amount of P1,973,614.59 was ascertained to be the excess. This is the amount which the heirs to the estate, through their representatives, now seek, in their letters above-mentioned, to be returned, or its equivalent in property "on the grounds of equity and the constitutional guarantees against the deprivation of property without due process and just compensation." With respect to the first question, while Section 328 (now Section 315) of the National Internal Revenue Code provides for the forfeiture of subject properties in favor of the government for the failure of the owners to pay the taxes due thereon, this section never intended to authorize the Government to acquire properties in excess of what it is entitled to. Indeed, the sole object of a tax sale is to enable the state to collect its revenue and not to acquire property or to strip a taxpayer of his property further than is absolutely necessary to effect such collection. (People vs. Gustafson, 127 P2d 627 [1942]; Hess vs. Westerwick, 76 A2d 745 [1950]). It is clear that in the present case, grave error was committed in the levy and subsequent forfeiture of the properties which were in excess of what was legally due the Government. The officers who conducted the tax sale overstepped their authority in unnecessarily auctioning the whole estate when a sale of a portion thereof would have been sufficient to satisfy the tax liability. It may not necessarily be concluded from the absence of bidders at such sale, that there were interested buyers who did not submit bids because they found the tax obligations due on the entire property to be more than its market value. It is quite possible that many prospective bidders were not aware of such sale. In fact, the BIR confirmed that the total market value of the estate at the time of its forfeiture was much more than the total tax liability due thereon. Therefore, it would be logical to suppose that had there been bidders, the proceeds of the sale would have far exceeded the taxes due. Such surplus should lawfully have been given to the owner of the properties sold. Thus, we are confronted with the iniquitous situation where the owner/s of the estate lost portions thereof merely because nobody was ostensibly interested in acquiring the same at the auction sale or, perchance those interested were not aware of that sale. You correctly point out that there is no "definitive statute on the matter" but such inadequacy should not bar the resolution of the matter as the law enjoins that where there is doubt in the interpretation or application of laws, the presumption is that it is intended that right and justice shall prevail (See Art. 10, Civil Code). In the absence of such a provision of law, considerations of equity should govern. Equity, which in its broadest and most general signification denotes the spirit of fairness, justness and right dealing in the intercourse of humanity (Harnett County vs. Reardon, 165 SE 701 [1932]; Black's Law Dictionary, Rev. 4th Ed., p. 634), should be resorted to where the law is inadequate, and should come to the aid of its execution according to the principles of justice. (Hinds vs. Minus, 64 SW 2nd 1093 [1933]) Its office and function is to correct the law which, by reason of its universality, is deficient. (Kingshighway Bridge vs. Farell, 136 SW 2d 335 [1940]) Our own Supreme Court has held that there are certain instances when not only strict legality, but fairness, justness and righteousness should be taken into account. (Aytona vs. Castillo 4 SCRA 1 [1962]) Thus, to rectify what appears to be a grave injustice to the heirs of Laureano Sia, we believe that it is proper and equitable for the Government to return the excess of the forfeited estate. As the United States Supreme Court so aptly stated in a case involving a similar question: "To withhold the surplus from the owner, would be to violate the 5th amendment in the Constitution and to deprive him of his property without due process of law or to take his property for public use without just compensation. If he affirms the propriety of selling or taking more than enough of his land to pay the tax and penalty and interests and costs and applies for the surplus money, he must receive at least that. (U.S. vs. Sanniel Lawton, 110 U.S. 146 [1884] 28 Law Ed. 100)" As regards the second query, it has already been observed that the rules of equity may provide the basis for the return of the excess portions of the forfeited estate. And since said portions have already been titled in the name of the Government, we think that their conveyance to the original owners may be effected, as you correctly state, under Section 79(f) and 567 of the Revised Administrative Code, which read respectively: "Sec. 79(f). In cases in which the Government of the Republic of the Philippines is a party to any deed or other instrument conveying the title to real estate or to any other property the value of which is in excess of one hundred thousand pesos, the respective Department Secretary shall prepare the necessary papers which together with the proper recommendation, shall be submitted to the Congress of the Philippines for approval by the same. Such deed, instrument, or contract shall be executed and signed by the President of the Philippines unless the authority therefor be expressly vested by law in another office." "Sec. 667. Authority of the President of the Philippines to execute contracts relative to real property. When the Republic of the Philippines is a party to a deed conveying the title of real property belonging to said government, said deed or contract shall be executed on behalf of said government by the President of the Philippines or by an officer duly designated by him, unless authority to execute the same is by law expressly vested in some other officer." In so far as the third query is concerned, we are constrained to rule that the heirs of Laureano Sia no longer have "the primary option at this time to repurchase the forfeited properties." The forfeiture of the properties took place way back in 1971, or nine (9) years ago, and the ownership thereof has already been consolidated in the name of the State. The statutory time limit of one (1) year is the period of redemption prescribed in tax sales under the Tax Code and in execution sales under the Rules of Court (Sec. 36, Rule 39). Under the Civil Code, the conventional redemption period is only four (4) years (Art. 1604). Thus, even if we were to apply analogous laws on redemption (which may be invoked in view of the silence of the Tax Code regarding the period of redemption of forfeited tax-delinquent properties) the period of redemption available to the owner of the forfeited property in the situation before us has long since expired and lapsed. dctai Please be guided accordingly. Very truly yours, (SGD.) RICARDO C. PUNO Minister of Justice