CASE DIGEST: SUPREME TRANSLINER, INC., vs. BPI FAMILY SAVINGS BANK. GR No. 165617. February 25, 2011

FACTS:

Petitioner represented by its Managing Director Moises Alvarez and Paulita Alvarez, obtained a loan from BPI secured by a lot in the name of Alvarez' as collateral. For non-payment of the loan, the mortgage was extrajudicially foreclosed and the property was sold to the bank as the highest bidder in the public auction. A Certificate of Sale was issued in favor of the bank and the same was registered. Before the expiration of the 1 year Redemption period, mortgagors notified the bank of their intention to redeem the property. Accordingly, a statement of account was prepared by the bank indicting the total amount due under the mortgage loan agreement. Included in such computation, the payment of Capital Gains Tax (CGT) and Documentary Stamps Tax (DST).

TAXPAYER'S ARGUMENT:

Mortgagors claim that they paid the redemption price demanded by defendant bank under extreme pressure and that CGT and DST as argued must not be included in the charge of redemption price because there is no legal basis in such inclusion.

GOVERNMENT'S ARGUMENT:

The bank argues that mortgagors are estopped from questioning the redemption price because there is a valid negotiation between the bank and the mortgagor.

ISSUE:

Whether the CGT and DST may be included in the redemption price.

RULING:

No for CGT, yes for DST. There is no legal basis for the inclusion of the CGT in the redemption price. In the foreclosure, there is no actual transfer of the mortgaged real property until after the expiration of the 1 year redemption period as provided in Act No. 3135 and title thereto is consolidated in the name of the mortgage in case of non-redemption. In the interim, the mortgagor is given the option to whether or not to redeem the real property. The issuance of the Certificate of Sale does not by itself transfer ownership.

RR No.4-99 governs in case the mortgagor exercises his right of redemption within one year from the issuance of the certificate of sale and it provides that no CGT shall be imposed because no capital gains has been derived by the mortgagor and no sale or transfer of real property was realized.

The transfer shall only be subject to the 15.00 peso DST imposed under Sec. 188 of the Tax Code because no land or realty was sold or transferred for a consideration.