G.R. No. L-17447 - Gonzalo Puyat and Sons, Inc. vs. City of Manila

Case Summary (G.R. No. L-17447)

Applicable Constitution and Legal Framework

Applicable constitution: 1935 Constitution (decision date 1963, thus the pre-1987 constitutional framework is applicable).
Statutory and regulatory framework invoked in the decision: Ordinance No. 3364 (Retail Dealers’ Ordinance) and its amendment by Ordinance No. 3816; Ordinance No. 8816; Section 18(a) of Republic Act No. 409 (Revised Charter of Manila); Section 76 of the Manila Charter (relating to real estate tax suits); Civil Code provisions on quasi-contracts and unjust enrichment (Arts. 22, 2142, 2154–2156); the New Civil Code prescriptive provisions (Arts. 1116, 1145, 1146, 1155); and transitional rules and Act No. 190 (Code of Civil Procedure), Sec. 40, as applicable to prescription for acts prior to the New Civil Code’s effectivity. Administrative and judicial precedents relied upon include the Secretary of Justice opinion (Op. No. 99, series of 1957), Medina v. City of Baguio, and East Asiatic Co. Ltd. v. City of Davao. Earlier cases cited by the appellant (Zaragoza v. Alfonso; Gavino v. Municipality of Calapan) were considered in the parties’ arguments.

Stipulation of Facts and Payments

The parties stipulated that Gonzalo Puyat & Sons, Inc. paid retail-dealers’ taxes quarterly from the first quarter of 1950 through the third quarter of 1956, a total of P33,785.00, with individual quarter payments generally of P1,250.00. The company was engaged in manufacturing furniture (exempt from the retail tax under the Manila Charter and Ordinance 8816 as restating RA 409 §18(a)) and selling some imported items (billiard balls, bowling balls, accessories) at its display room (taxable under the Retail Dealers’ Ordinance). The company filed an extrajudicial written request for refund with the City Treasurer on October 30, 1956; the Treasurer denied the request on July 24, 1958; the company filed suit in August 1958.

Legal Issues Presented

The Supreme Court identified and resolved two principal legal issues:

Whether retail-dealers’ taxes paid without protest are recoverable when the payments were made under a mistake of law or fact (i.e., whether protest is a condition precedent to recovery); and
Whether the claims for refund of taxes paid in the years 1950–1952 had prescribed by the time the refund claim was filed (i.e., the applicable prescriptive period and its interruption).

Analysis — Recoverability without Protest (Solutio Indebiti)

Appellants argued payments were voluntary and that, under local charters and precedent, recovery of taxes requires payment under protest. The respondent argued that payments were made under a mistake of law or fact (in good faith) and therefore constituted solutio indebiti (payment of what is not due) recoverable under the Civil Code. The Court analyzed pertinent Civil Code provisions: (1) Art. 2154 (return where something received without right due to mistake), (2) Art. 2155 (payment by mistake of law may be covered), (3) Art. 2156 (payer in doubt may recover), and the general unjust enrichment rule (Arts. 22 and 2142). The Court concluded that where taxes are collected without lawful basis (i.e., the tax did not legally attach to the manufacture-site sales) and the taxpayer paid in error and in good faith, the doctrine of solutio indebiti applies and the payment may be recovered even though no protest preceded payment.

Analysis — Scope and Applicability of Charter Protest Requirement

The Court distinguished Section 76 of the Manila Charter, which requires payment under protest before a court will entertain suits “asserting the validity of tax assessed under this article,” and held that section 76 and analogous charter provisions pertain to real-estate assessment/collection matters under the charter’s Department of Assessment provisions. Because the tax in dispute was a retail-dealer’s tax imposed by municipal ordinance (not a tax directly imposed by the charter’s assessment article), the charter’s protest requirement did not operate as a condition precedent to suit. The Court relied on the Secretary of Justice opinion and judicial precedents (Medina; East Asiatic) that reached the same conclusion for analogous municipal tax refunds. Consequently, the absence of protest did not bar recovery in this case.

Analysis — Prescription (Applicable Periods and Interruption)

The Court examined the prescriptive periods applicable to claims for reimbursement depending on the dates of payment (relative to the New Civil Code’s effectivity on August 30, 1950):

For payments made before the New Civil Code became effective, Act No. 190 (Code of Civil Procedure) and its ten-year prescriptive rule (Sec. 40) would ordinarily govern prescription for actions accrued under the prior law.
For quasi-contractual claims under the New Civil Code (solutio indebiti), Art. 1145 prescribes six years; Art. 1146 prescribes four years for obligations arising from damage to the rights of another; transitional Art. 1116 provides that prescription already running before the Code is governed by prior laws but adds that if the entire prescriptive period required by the Code elapses after the Code’s effectivity, the present Code applies even if the former law allowed

Case Syllabus (G.R. No. L-17447)

Citation and Panel

Reported at 117 Phil. 985, G.R. No. L-17447, decided April 30, 1963.
Opinion authored by Justice Paredes.
Concurrence listed: Bengzon, C.J., Bautista, Angelo, Labrador, Concepcion, Dizon, Regala and Makalintal, JJ.

Procedural History

The action below was instituted in the Court of First Instance (CFI) of Manila.
CFI rendered judgment in favor of plaintiff-appellee ordering refund of certain retail dealers' taxes; defendants’ counterclaim was dismissed.
The City of Manila and its City Treasurer appealed directly to the Supreme Court.
The appeal presented two dominant issues: (1) whether taxes voluntarily paid without protest were refundable; and (2) whether claims for refund referring to taxes paid from 1950 to 1952 had prescribed.
The Supreme Court reviewed the case and rendered a decision modifying and affirming aspects of the lower court's judgment.

Stipulated Facts (Parties and Business Activities)

The stipulation identifies the parties: plaintiff Gonzalo Puyat & Sons, Inc. (a Philippine corporation with offices in Manila); defendants City of Manila (a municipal corporation) and Marcelino Sarmiento (duly qualified City Treasurer of Manila).
Plaintiff is engaged in manufacturing and selling furniture at its factory (190 Rodriguez-Arias, San Miguel, Manila) and maintains a display room (604–606 Rizal Avenue) where it displays manufactured furniture and sells some imported goods (billiard balls, bowling balls, other accessories).
The City Treasurer assessed and plaintiff paid retail dealer’s taxes pursuant to Sec. 1, Group II, of Ordinance No. 3364 on sales of furniture manufactured and sold at the factory site.
Plaintiff contends it was exempt from tax on sales of manufactured furniture under Sec. 18(a) of Republic Act No. 409 (Revised Charter of Manila) as restated in Section 1 of Ordinance No. 8816, but concedes liability for taxes on sales of imported articles at its display room.
On October 30, 1956, plaintiff filed a formal request with the City Treasurer for refund of the taxes; the request was denied by the City Treasurer on July 24, 1958.
The complaint for refund was filed by plaintiff in August 1958 (the source references both August 11, 1958 and August 21, 1958).

Detailed Payment Schedule (as set forth in the stipulation)

The stipulation lists quarterly retail dealer’s tax payments made by plaintiff from the first quarter of 1950 through the third quarter of 1956, with individual payment dates, official receipt numbers, and amounts. Representative entries include:
- First Quarter 1950 — Jan. 25, 1950 — O.R. No. 436271V — P1,255.00
- Second Quarter 1950 — Apr. 25, 1950 — O.R. No. 215895X — P1,250.00
- Third Quarter 1950 — July 25, 1950 — O.R. No. 243321X — P1,250.00
- Fourth Quarter 1950 — Oct. 25, 1950 — O.R. No. 271165X — P1,250.00
- Quarterly payments of P1,250.00 continued through 1951, 1952, 1953, 1954 and 1955 and into 1956.
- First Quarter 1956 — Jan. 25, 1956 — O.R. No. 823047X — P1,250.00
- Second Quarter 1956 — Apr. 25, 1956 — O.R. No. 855949X — P1,250.00
- Third Quarter 1956 — July 25, 1956 — O.R. No. 880789X — P1,250.00
The aggregate total of the taxes paid and sought to be refunded as stipulated is P33,785.00.
The stipulation separates taxes on manufactured furniture (claimed exempt) from taxes on imported merchandise sold in the display room (admitted taxable).

Legal Issues Presented

Whether amounts paid by plaintiff as retail dealer’s taxes under Ordinance 1925, as amended by Ordinance No. 3364, without protest, are refundable.
If plaintiff is entitled to refund, whether claims for refunds for taxes paid in the period 1950–1952 (and specifically payments made before specified dates) are barred by prescription.

Judgment Below (CFI) — Dispositive Portion (as quoted in the record)

The CFI held that only the payment of October 25, 1950 in the amount of P1,250.00 had prescribed.
The CFI found payments made in 1951 and thereafter were still recoverable because the extra-judicial demand made on October 30, 1956 was within the six-year prescriptive period of the New Civil Code.
Judgment ordered defendants to refund P29,824.00 without interest; no costs. Defendants’ counterclaim dismissed for lack of substantiation.

Appellants’ (Defendants’) Contentions

The taxes were voluntarily paid by plaintiff without protest; thus, under the jurisdiction’s authorities, refund claims require prior payment under protest as a condition precedent.
Cited precedents supporting the protest requirement include Zaragoza vs. Alfonso (46 Phil. 160–161) and Gavino vs. Municipality of Calapan (71 Phil. 438).
Appellants argued prescription (apparently Article 1146 of the New Civil Code providing a four-year period for actions upon injuries to rights) should bar recovery for earlier payments.

Appellee’s (Plaintiff’s) Contentions

Payments were not voluntary but made mistakenly and in good faith under an erroneous belief of liability—i.e., the facts constitute solutio indebiti (payment by mistake).
Plaintiff asserted it was exempt from the retail dealer’s