In a dispute over property rights, the Supreme Court affirmed that a judgment creditor’s claim, perfected through levy and execution before a tax lien is registered, has priority. This means that if you win a court case and act quickly to seize property to satisfy the judgment, your claim to that property is generally superior to the government’s later-registered tax lien, even if the tax assessment was made earlier. This ruling underscores the importance of diligent action in enforcing court judgments and understanding the nuances of credit preference under Philippine law.

When Creditors Clash: How a Condo Dispute Defines Lien Priorities

The case of Bureau of Internal Revenue vs. TICO Insurance Company, Inc., Glowide Enterprises, Inc., and Pacific Mills, Inc. (G.R. No. 204226, April 18, 2022) revolves around conflicting claims to condominium units owned by TICO Insurance. Glowide and PMI, TICO’s clients, had a fire insurance policy and obtained a judgment against TICO for unpaid insurance proceeds. The BIR, on the other hand, sought to enforce tax liens on the same properties due to TICO’s unpaid tax liabilities. The central legal question was: who had the superior right to the condominium units – the judgment creditors (Glowide and PMI) or the tax authority (BIR)?

The factual backdrop involves a fire that damaged properties insured by TICO, leading Glowide and PMI to sue TICO. The Regional Trial Court (RTC) of Quezon City granted Glowide and PMI’s application for a writ of preliminary attachment, which was then levied on TICO’s condominium units in December 2000. Subsequently, the RTC QC ordered TICO to pay Glowide and PMI a substantial sum. When TICO failed to satisfy the judgment, Glowide and PMI moved for execution, and notices of levy on execution were annotated on the condominium titles in June 2002.

Meanwhile, the Insurance Commission placed TICO under liquidation, and TICO attempted to halt the execution, arguing that its tax assessments should take precedence. However, the RTC QC ruled that Glowide and PMI’s claims were preferred because tax assessments weren’t preferred credits against specific immovable property. TICO’s appeal to the Court of Appeals (CA) was dismissed, and the CA decision became final. A sheriff’s sale followed, with Glowide and PMI acquiring the condominium units as the highest bidders in April 2004. They received a final deed of sale in April 2005 after TICO failed to redeem the properties.

On the other side, the BIR alleged that TICO had unpaid tax liabilities dating back to 1996 and 1997. The BIR issued a warrant of distraint and/or levy and a notice of tax lien on TICO’s properties, including the condominium units. This notice of tax lien was annotated on the condominium titles in February 2005. The BIR argued that its claim enjoyed absolute preference under the Civil Code, and its tax lien attached at the time the assessments were made. These competing claims prompted TICO to file an interpleader case with the RTC Makati to determine who had the superior right to the properties.

The RTC Makati sided with the BIR, holding that tax claims had preference under the Civil Code. However, the CA reversed this decision, ruling in favor of Glowide and PMI. The CA reasoned that their rights, which reverted to the date of the levy on attachment (December 2000), were superior to the BIR’s later-annotated tax lien. The Supreme Court agreed with the CA, denying the BIR’s petition.

One key issue the Supreme Court addressed was the BIR’s procedural lapse. The BIR had filed its motion for reconsideration of the CA’s decision one day late. The Court emphasized that the perfection of an appeal within the prescribed period is jurisdictional. Failure to do so deprives the appellate court of jurisdiction to alter the final judgment. The Court noted that while it has allowed liberal application of procedural rules in the past, such exceptions are rare and require meritorious and exceptional circumstances, which were absent in this case. The BIR’s excuse of inadvertence by counsel’s document management division was deemed insufficient.

The Court also addressed the propriety of TICO’s interpleader complaint. Interpleader is a special civil action designed to protect a person against double vexation in respect of a single liability. The Court found that TICO’s interpleader complaint was improper because it amounted to a collateral attack on a final and executed judgment in favor of Glowide and PMI. To explain this principle further, it is established that a successful litigant who has secured a final judgment cannot later be impleaded in an interpleader suit to prove their claim anew. Such action would undermine the immutability of final judgments, which is a cornerstone of the justice system.

As highlighted in Wack Wack Golf & Country Club, Inc. v. Won:

Indeed, if a stakeholder defends a suit filed by one of the adverse claimants and allows said suit to proceed to final judgment against him, he cannot later on have that part of the litigation repeated in an interpleader suit.

In analyzing the priority of rights, the Supreme Court underscored the significance of registration. An execution sale retroacts to the date of annotation of the levy on attachment. The purchaser in the auction sale (Glowide and PMI) has the right to a certificate of title as if it were annotated on the same date. This principle means that even if the BIR’s tax assessment was made earlier, the BIR’s tax lien is not valid against any judgment creditor until notice of such lien is filed with the Register of Deeds. Section 219 of the Tax Code explicitly states:

That this lien shall not be valid against any mortgagee, purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the office of the Register of Deeds of the province or city where the property of the taxpayer is situated or located.

Because Glowide and PMI annotated their levy on attachment and purchased the condominium units before the BIR’s tax lien was registered, their rights were deemed superior. At the time the BIR registered its tax lien in 2005, the condominium units were no longer considered TICO’s property. The Supreme Court then discussed concurrence and preference of credits, as it is applied in insolvency proceedings.

Credits are classified into three general categories: (a) special preferred credits, (b) ordinary preferred credits, and (c) common credits. Special preferred credits, as enumerated in Articles 2241 and 2242 of the Civil Code, are considered mortgages, pledges, or liens. These credits exclude all others to the extent of the value of the property. Ordinary preferred credits, listed in Article 2244, do not create liens on determinate property but establish rights to have the insolvent’s assets applied in a specific order of priority.

The Supreme Court determined that TICO’s tax claim was an ordinary preferred credit under Article 2244 because it was not based on taxes due on the specific condominium units. On the other hand, Glowide and PMI’s claim was a special preferred credit under Article 2242(7) of the Civil Code. Special preferred credits are superior to ordinary preferred credits. Because of this, the Court did not find reason to depart from the CA’s findings that Glowide and PMI’s claim is preferred over the BIR’s.

FAQs

What was the key issue in this case?	The central issue was determining who had the superior right to condominium units: judgment creditors who had levied on the properties or the BIR seeking to enforce tax liens.
What is an interpleader action?	An interpleader action is a legal proceeding where a party holding property subject to conflicting claims asks the court to determine the rightful claimant.
Why was the interpleader action deemed improper in this case?	The interpleader action was improper because it constituted a collateral attack on a final judgment already secured by Glowide and PMI against TICO.
What is a tax lien?	A tax lien is a legal claim by the government against a taxpayer’s property for unpaid taxes.
When does a tax lien become valid against third parties?	Under Section 219 of the Tax Code, a tax lien is not valid against any mortgagee, purchaser, or judgment creditor until notice of the lien is filed with the Register of Deeds.
What is the significance of the date of annotation?	The date of annotation of a levy or lien on a property title is crucial because it establishes priority among competing claims; earlier annotation generally means superior rights.
What are preferred credits under the Civil Code?	Preferred credits are claims that have priority over other claims in the distribution of a debtor’s assets, classified as either special preferred or ordinary preferred.
What was the court’s final ruling?	The Supreme Court ruled in favor of Glowide and PMI, affirming the CA’s decision that their rights to the condominium units were superior to the BIR’s tax lien.

This case illustrates the critical importance of timely action and proper registration in securing property rights. The diligent pursuit of a judgment and prompt recording of the levy on attachment proved decisive for Glowide and PMI. The BIR’s failure to timely register its tax lien resulted in its claim being subordinated to the prior rights of the judgment creditors.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: BIR vs. TICO Insurance, G.R. No. 204226, April 18, 2022