It is settled that the requirements provided by the Local Government Code (LGC) for the sale of a real property to answer for the delinquent real property tax thereon are mandatory. Non-compliance with such requirements renders the sale null and void. Before the taxpayer can question the validity of the sale, however, Section 267 of the LGC requires the taxpayer to deposit with the court the amount for which the real property was sold, together with interest of two percent (2%) per month from the date of sale to the time of the institution of the action.
Jurisdictional Requirement
The deposit is a jurisdictional requirement which must be satisfied before the court can entertain any action assailing the validity of the public auction sale…
In the case of National Housing Authority v. Iloilo City [G.R. NO. 172267], the Supreme Court declared that such deposit is a jurisdictional requirement, thus:
As is apparent from a reading of the foregoing provision, a deposit equivalent to the amount of the sale at public auction plus two percent (2%) interest per month from the date of the sale to the time the court action is instituted is a condition a “prerequisite,” to borrow the term used by the acknowledged father of the Local Government Code ‘which must be satisfied before the court can entertain any action assailing the validity of the public auction sale. The law, in plain and unequivocal language, prevents the court from entertaining a suit unless a deposit is made. This is evident from the use of the word “shall” in the first sentence of Section 267. Otherwise stated, the deposit is a jurisdictional requirement the nonpayment of which warrants the failure of the action.
Rationale of the Deposit Requirement
In the same case, the Supreme Court elucidated the reason behind the deposit requirement under Section 267 of the LGC in this wise:
The deposit requirement, to be sure, is not a tax measure. As expressed in Section 267 itself, the amount deposited shall be paid to the purchaser at the auction sale if the deed is declared invalid; otherwise, it shall be returned to the depositor. The deposit, equivalent to the value for which the real property was sold plus interest, is essentially meant to reimburse the purchaser of the amount he had paid at the auction sale should the court declare the sale invalid.
Clearly, the deposit precondition is an ingenious legal device to guarantee the satisfaction of the tax delinquency, with the local government unit keeping the payment on the bid price no matter the final outcome of the suit to nullify the tax sale.
Deposit Requirement Not Applicable to Government and Its Agencies
In view of such rationale behind the deposit requirement, the Supreme Court clarified that the deposit requirement does not apply to the government of any of its agencies. The Supreme Court stated:
Thus, the requirement is not applicable if the plaintiff is the government or any of its agencies as it is presumed to be solvent, and more so where the tax exempt status of such plaintiff as basis of the suit is acknowledged. In this case, NHA is indisputably a tax-exempt entity whose exemption covers real property taxes and so its property should not even be subjected to any delinquency sale. Perforce, the bond mandated in Section 267, whose purpose it is to ensure the collection of the tax delinquency should not be required of NHA before it can bring suit assailing the validity of the auction sale.
Deposit Requirement Applies to Initiatory Action for Annulment of Sale
In the case of Sps. Plaza v. Lustiva [G.R. No. 172909], the Supreme Court further clarified that the deposit requirement under Section 267 of the LGC applies only to initiatory actions assailing the validity of a tax sale, thus:
A simple reading of the title readily reveals that the provision relates to actions for annulment of tax sales. The section likewise makes use of terms “entertain” and “institution” to mean that the deposit requirement applies only to initiatory actions assailing the validity of tax sales.
Citing NHA v. Iloilo City and Wong v. Iloilo City [G.R. No. 161748], the Supreme Court held:
These rulings clearly render inapplicable the petitioners’ insistence that the respondents should have made a deposit to the court. The suit filed by the petitioners was an action for injunction and damages; the issue of nullity of the auction was raised by the respondents themselves merely as a defense and in no way converted the action to an action for annulment of a tax sale.
In Filinvest Development Corporation v. Del Rosario [G.R. No. 253115], The Supreme Court reiterated and applied the rule laid down by Sps. Plaza v. Lustiva, hence:
In the case of Sps. Plaza v. Lustiva cited by Filinvest in the present Petition, the Court clarified that the deposit requirement applies only to initiatory actions assailing the validity of tax sales, as the section makes use of term “entertain” and “institution.” The deposit is a jurisdictional requirement which must be satisfied before the court can entertain any action assailing the validity of the public auction sale.
In the case at bar, it was respondent who filed a petition for confirmation of final bill of sale and entry of new certificate of title. The issue as to the nullity of the public auction sale was raised by Filinvest merely as a defense and in no way converted the action for annulment of a tax sale. Hence, Filinvest need not make a deposit to the court before the latter can question the validity of the tax sale.