Facts:
Petitioner HSBC is the owner of 2,000 railroad ties it had acquired from the firm of Pujalte & Co. which the latter assigned to it after it was unable to pay a large sum of money it then owed to HSBC.The firm of Pujalte & Co. is engaged in the business of timber, and it was shown that prior to the assignment of the railroad ties to HSBC it owed to theBIR forest charges, one of the taxes enumerated in the NIRC, amounting toP8328.93. It executed a bond of P2000 to secure the payment of the forest charges and was allowed to remove the timber from the public forests.More than a year later, when some of the timber were already made into railroad ties and transferred to third parties like HSBC, the Collector instituted collection proceedings against Pujalte. To enforce collection, the CIR went after thee property of Pujalte & Co. including that which were already in the possession of HSBC, who at the time it acquired the property had no notice of the lien nor of the delinquent tax due from Pujalte.
Issue:
Whether or not the CIR can still enforce the lien
Ruling:
No, the lien does not follow the property subject to the tax into the hands of a third party when at the time of transfer, no demand for payment had been made and when the purchaser then had no notice of the existence of the lien.Under the general rule of the Civil law, possession of movables is not necessary to the validity of a lien, whether created by contract or by act of law. Such lien will attach upon movable property even in the hands of a bona fide purchaser without notice. Under the law of taxation however, the tax lien does not establish itself upon property which has been transferred to an innocent purchaser prior to demand. A demand is necessary to create and bring the lien into operation.Furthermore, in order that the lien may follow the property into the hands of a third party, it is essential that the latter should have notice, either actual or constructive. The reason behind this is the benevolence of our Constitution which prohibits the taking of property without due process of law. The policy of the law is against upholding secret liens and charges against property of Innocent purchasers or encumbrances for value. At the time HSBC acquired the property there was nothing to show that Pujalte & Co. were delinquent taxpayers nor were there any public records that may be consulted to protect it from loss by reason of the existence of a secret lien.Minor issue on the right of HSBC to recover interest from the undue enforcement of the lien: The reckoning date for the computation of interest should be the date when the taxpayer lost the income from the funds by payment under protest. In this case, it is not from the filing of the complaint for collection but on the date HSBC was deprived of the property.
Petitioner HSBC is the owner of 2,000 railroad ties it had acquired from the firm of Pujalte & Co. which the latter assigned to it after it was unable to pay a large sum of money it then owed to HSBC.The firm of Pujalte & Co. is engaged in the business of timber, and it was shown that prior to the assignment of the railroad ties to HSBC it owed to theBIR forest charges, one of the taxes enumerated in the NIRC, amounting toP8328.93. It executed a bond of P2000 to secure the payment of the forest charges and was allowed to remove the timber from the public forests.More than a year later, when some of the timber were already made into railroad ties and transferred to third parties like HSBC, the Collector instituted collection proceedings against Pujalte. To enforce collection, the CIR went after thee property of Pujalte & Co. including that which were already in the possession of HSBC, who at the time it acquired the property had no notice of the lien nor of the delinquent tax due from Pujalte.
Issue:
Whether or not the CIR can still enforce the lien
Ruling:
No, the lien does not follow the property subject to the tax into the hands of a third party when at the time of transfer, no demand for payment had been made and when the purchaser then had no notice of the existence of the lien.Under the general rule of the Civil law, possession of movables is not necessary to the validity of a lien, whether created by contract or by act of law. Such lien will attach upon movable property even in the hands of a bona fide purchaser without notice. Under the law of taxation however, the tax lien does not establish itself upon property which has been transferred to an innocent purchaser prior to demand. A demand is necessary to create and bring the lien into operation.Furthermore, in order that the lien may follow the property into the hands of a third party, it is essential that the latter should have notice, either actual or constructive. The reason behind this is the benevolence of our Constitution which prohibits the taking of property without due process of law. The policy of the law is against upholding secret liens and charges against property of Innocent purchasers or encumbrances for value. At the time HSBC acquired the property there was nothing to show that Pujalte & Co. were delinquent taxpayers nor were there any public records that may be consulted to protect it from loss by reason of the existence of a secret lien.Minor issue on the right of HSBC to recover interest from the undue enforcement of the lien: The reckoning date for the computation of interest should be the date when the taxpayer lost the income from the funds by payment under protest. In this case, it is not from the filing of the complaint for collection but on the date HSBC was deprived of the property.
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