GONZALO PUYAT & SONS, INC., PLAINTIFF AND APPELLEE, VS. CITY OF MANILA AND MARCELINO SARMIENTO, AS CITY TREASURER OF MANILA, DEFENDANTS AND APPELLANTS.

“* *. Of the payments made by the plaintiff, only
that made on October 25, 1950, in the amount of P1,250.00 has
prescribed. Payments made in 1951 and thereafter are still recoverable
since the extra-judicial demand made on October 30, 1956 was well
within the six year prescriptive period of the New Civil Code.

In view of the foregoing considerations, judgment is hereby rendered in
favor of the plaintiff, ordering the defendants to refund the amount of
P29,824,00, without interest. No costs.

Defendants’ counterclaim is hereby dismissed for not having been substantiated.”

On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc.,
filed an action for refund of Retail Dealers Taxes paid by it,
corresponding to the first Quarter of 1950 up to the third Quarter of
1956, amounting to P33,785.00, against the City of Manila and its City
Treasurer. The case was submitted on the following stipulation of
Facts, to wit—

1. That the plaintiff is a corporation duly organized and existing
   according to the laws, of the Philippines, with offices at Manila;
   while defendant City of Manila is a Municipal Corporation duly
   organized in accordance with the laws of the Philippines, and defendant
   Mafcelino Sarmiento is the duly qualified incumbent City Treasurer of
   Manila;

2. That the plaintiff is engaged in the business of manufacturing
   and selling all kinds of furniture at its factory at 190
   Rodriguez-Arias, San Miguel, Manila, and has a display room located at
   604-606 Rizal Avenue, Manila, wherein it displays the various kinds of
   furniture manufactured by it and sells some goods imported by it, such,
   as billiard balls, bowling balls and other accessories;

3. That acting pursuant to the provisions of Sec. 1, group II, of
   Ordinance No. 3364, defendant City Treasurer of Manila assessed from
   plaintiff retail dealer’s tax corresponding to the quarters hereunder
   stated ow the sales of furniture manufactured and sold by it at its
   factory site, all of which assessments plaintiff paid without protest
   in the erroneous belief that it was liable therefor, on the dates and
   in the amount enumerated herein below:

   Period		Date pa id		O.R. No.		Amount assessed and paid
   	First Quarter 1950		Jan. 25, 1950		436271V		P1,255.00
   	Second Quarter 1950		Apr. 25, 1950		215895X		1,250.00
   	Third Quarter 1950		July 25, 1950		243321X		1,250.00
   	Fourth Quarter 1950		Oct. 25, 1850		271165X		1,250.00

   (Follows, the assessment for different quarters in 1951, 1&52,
   1953, 1954 and 1955, fixing the saine amounts quarterly). * * *.

   	First Quarter 1956		Jan. 25, 1956		823047X		Pl, 250.00
   	Second Quarter 1956		Apr. 25, 1956		855949X		1,250.00
   	Third Quarter 1956		July 25, 1956		880789X		1,250.00 =======
   		TOTAL					P33,785.00

4. That plaintiff, being a manufacturer of various kinds of furniture,
   is exempt from the payment of taxes imposed under the provisions of
   Sec. 1, Group II, of Ordinance No. 3364, which took effect on September
   24, 1956, on the sale of the various kinds of furniture manufactured by
   it pursuant to the provisions of See. 18(a) of Republic Act No. 409
   (Revised Charter of Manila), as restated in Section 1 of Oridnance No.
   8816.

5. That, however, plaintiff, is liable for the payment of taxes
   prescribed in Section 1, Group II of Ordinance No. 3364, as amended by
   Sec. 1, Group II of Ordinance No. 3816, which took effect on September
   24, 1056, on the sales of imported billiard balls, bowling balls and
   other accessories at its display room. The taxeppaid by the plaintiff
   on the sales of said articles are as follows.

* * * * * * *

6. That on October 30, 1956, the plaintiff filed with defendant City
   Treasurer of Manila, a formal request for refund of the retail dealer’s
   taxes unduly paid by it as aforestated in paragraph 3, hereof.

7. That on July 24, 1958, the defendant City Treasurer of Manila definitely denied said request for refund.
8. Hence on August 21, 1958, plaintiff filed the present complaint.
9. Based on the above stipulation of facts, the legal issues to hr resolved by this Honorable Court are: (1) the period of prescription applicable in matters of refund of municipal taxes erroneously paid by a taxpayer and (2) refund of taxes not paid under protest.* * *.”

which was the basis of the judgment heretofore recited.

Said judgment was directly appealed to this Court on two dominant
issues to wit: (1) Whether or not the amounts paid by
plaintiff-appellee, as retail dealer’s taxes under Ordinance 1925, as
amended by Ordinance No. 3364 of the City of Manila, without protest,
are refundable; and (2) Assuming arguendo, that plaintiff-appellee is
entitled to the refund of the retail taxes in question, whether or not
the claim for refund filed in October 1956, in so far as said claim
refers to taxes paid from 1950 to 1952 has already prescribed.

Under the first issue, defendants-appellants contend that the taxes
in question were voluntarily paid by appellee company and since, in
this jurisdiction, in order that a legal basis arise for claim of
refund of taxes erroneously assessed, payment thereof must be made
under protest, and this being a condition sine qua non, and no
protest having been made,—verbally or in writing, thereby indicating
that the payment was voluntary, the action must fail. Cited in support
of the above contention, are the cases of Zaragoza vs. Alfonso, 46 Phil., 160-161, and Gavino vs. Municipality of Calapan, 71, Phil., 438.

In refutation of the above stand of appellants, appellee avers
that the payments could not have been voluntary. At most, they were
paid “mistakenly and in good faith” and “without protest in the
erroneous belief that it was liable thereof.” Voluntariness is
incompatible with protest and mistake. It submits that this is a simple
case of “solutio indebiti”.

Appellants do not dispute the fact that appellee-company is
exempted from the payment of the tax in question. This is manifest from
the reply of appellant City Treasurer, stating that sales of
manufactured products at the factory site are not taxable either under
the Wholesalers’ Ordinance or under the Retailers’ Ordinance. With this
admission, it would seem clear that the taxes collected from appellee
were paid, thru an error or mistake, which places said act of payment
within the pale of the new Civil Code provisions on Solutio Indebiti.
The appellant City of Manila, at the very start, notwithstanding the
Ordinance imposing the Retailer’s Tax, had no right to demand payment
thereof.

“If something is received when there is no right to
demand it, and it was duly delivered through mistake, the obligation to
return it arises” (Art. 2154, NCC).

Appellee categorically stated the payment was not voluntarily made, (a
fact found also by the lower court), but on the erroneous belief that
they were due. Under this circumstance, the amount paid, even without
protest is
recoverable. “If the payer was in doubt whether the debt was due” he
may recover if he proves that it was not due” (Art. 2156 NCC). Appellee
had duly proved that taxes were not lawfully due. There is, therefore,
no doubt that the provisions of Solutio Indebiti in the new Civil Code, apply to the admitted facts of the case.

Withal, appellant quoted Manress as saying:”* * De la misma
opinion son el Sr. Sanchez Roman y el Sr. Galcon, el cual afirma que si
la paga so hizo por error de derecho, ni existe el cuasi-contrato ni
esta obligado a la restitucion el que cobro, aunque no se debiera lo
que se pago” (Manresa, Tomo 12, paginas 611-612), This opinion,
however, has already lost its persuasiveness, in view of the provisions
of the Civil Code, recognizing “error de derecho” as a basis for the
quasi-contract of solutio indebiti.

“Payment by reason of a mistake in the construction or
application of a doubtful or difficult question of law may come within
the scope of the preceding article” (Art. 2155).

There is no gainsaying the fact that the payments made by appellee was
due to a mistake in the construction of a doubtful question of law. The
reason underlying similar provisions, as applied to illegal taxation,
in the United States, is expressed in the case of Newport vs. Ringo, 37 Ky. 635, 636; 10 S.W.2, in the following manner:

“It is too well settled in this state to the citation
of authority that if money be paid through a clear mistake of law oi
fact, essentially affecting the rights of the parties, and which, in
law of conscience was not payable, and should not be retained by the
party receiving it, it may be recovered. Both law and sound morality so
dictate. Especially should this be the rule as to illegal taxation. The
taxpayer has no voice in the imposition of the burden. He has the right
to presume that the taxing power has been lawfully exercised. He should
not be required to know more than those in authority over him, nor
should he suffer loss by complying with what he bona, fide believes to
be his duty as a good citizen. Upon the contrary, he should be promoted
to its ready performance by refunding to him any legal exaction paid by
him in ignorance of its illegality; and, certainly, in such a case, if
be subject to a penalty for nonpayment, his compliance under belief of
its legality, and without awaiting a resort to judicial proceedings,
should not be regarded in law as so far voluntary as to affect his
right of recovery.”

“Every person who through an act or performance by another,
or any other means, acquires or comes into possession of something at
the expense of the latter without just or legal grounds, shall return
the same to him” (Art. 22, Civil Code). It would seem unedifying for
the government, (here the City of Manila), that knowing it has no right
at all to collect or to receive money for alleged taxes paid by
mistake, it would be reluctant to return the same. No one should.
enrich itself unjustly at the expense of another (Art. 2142, Civil
Code).

Admittedly, plaintiff-appellee paid the tax without protest. Equally
admitted is the fact that section 76 of the Charter of Manila provides
that “No court shall entertain any suit asserting the validity of tax
assessed under this article until the taxpayer shall have paid, under protest,
the taxes assessed against him,* *”. It should be noted, however, that
the article referred to in said section is Article XII, entitled
Department of Assessment, and the sections thereunder manifestly show
that said article and its sections relate to assessment, collection and
recover of real estate taxes only. Said section 76, therefor, is not applicable to the case at bar, which relates to the recovery of retail dealer taxes.

In the opinion of the Secretary of Justice (Op. 99, Series of 1957), in
a question similar to the case at bar, it was held that the requirement
of protest refers only to the payment of taxes which are directly
imposed by the charter itself, that is, real estate taxes, which view
was sustained by judicial and administrative precedents, one of which,
is the case of Medina, et al vs.
City of Baguio, 91 Phil., 854. In other words, protest is not necessary
for the recovery of retail dealer’s taxes, like the present, because
they are not directly imposed by the charter. In the Medina case, the
Charter of Baguio (Chap. 61, Revised Adm. Code), provides that “no
court shall entertain any suit assailing the validity of a tax assessed
under this charter until the tax-payer shall have paid, under protest,
the taxes assessed against him (sec. 2574 (b), Rev. Adm. Code), a
proviso similar to section 76 of the Manila Charter. The refund of
specific taxes paid under a void ordinance was ordered, although ft did
not appear that payment thereof was made under protest.

In a recent case, We said: The appellants argue that
the sum the refund of which is sought by the appellee, was not paid
under protest and hence is not refundable. Again, the trial court
correctly held that being unauthorized, it is not a tax assessed under
the Charter of the appellant City of Davao and for that reason, no
protest is necessary for a claim or demand for its refund” (Citing the
Medina Case, supra: East Asiatic Co. Ltd. vs. City of Davao, G.R. No. L-16253, Aug. 21, 1962). Lastly, being a case of solutio indebiti, protest is not required as a condition sine qua non for its application.

The next issue in discussion is that of prescription. Appellants
maintain that article 1146 (NCC), which provides for a period of four
(4) years (upon injury to the rights of the plaintiff), apply to the
case. On the other hand, appellee contends that provisions of Act 190
(Code of Civ. Procedure) should apply, insofar as payments made before
the effectivity of the New Civil Code on August 30, 1950, the period of
which is ten (10) years, (Sec. 40, Act No. 190; Osorio vs.
Tan Jongko, 98 Phil., 55;. 51 Off. Gaz., 8221) and article 1145 (NCC),
for payments made after and effectivity, providing for a period of six
(6) years (upon quasi-contracts like solutio indebiti). Even if
the provisions of Act No. 190 should apply to those payments made
before the effectivity of the new Civil Code, because “prescription
already running before the effectivity of this Code shall be governed
by laws previously in force * *” (Art. 1116,NCC), still payments made
before August 30, 1950, are no longer recoverable in view of the second
paragraph of said article (1116), which provides: “but if since the
time this Code took effect the entire period herein required for
prescription should elapse, the present Code shall be applicable even
though by the former laws a longer period might be required”. Anent the
payments made after August 30, 1950, it is obvious that the action has
t prescribed with respect to those made before October 30, 1950 only,
considering the fact that the prescription of action is interrupted * *
* when there is a written extra-judicial demand * *” (Art. 1155, NCC),
and the written demand in the case at bar was made on October 30, 1956
(Stipulation of Facts)

Modified in the sense that only
payments made on or after October 30, 1950 should be refunded, the
decision appealed from is affirmed, in all other respects. No costs.

Bengzon, C. J., Bautista Angelo, Labrador, Concepcion, Dizon, Regala and Makalintal, JJ., concur.