taxation.

 13 CEBU did not acquiesce in the demand, hence, the present suit filed
37 G.R. No. 51593 November 5, 1992 25 October 1972 in the Court of First Instance of Manila.

On 29 May 1973, the Court of First Instance of Manila, Branch XXII,

NATIONAL DEVELOPMENT COMPANY, plaintiff-appellee,
promulgated a decision 14 the dispositive portion of which reads —
vs.
CEBU CITY and AUGUSTO PACIS as Treasurer of Cebu City, defendant-
appellants. WHEREFORE, judgment is hereby rendered sentencing the
City of Cebu, thru the Treasurer of said City, to refund to the
plaintiff, National Development Company, the real estate taxes
BELLOSILLO, J.:
paid by it for the parcel of land covered by Presidential
Proclamation No. 430 of August 10, 1939, and the warehouse
Is a public land reserved by the President for warehousing purposes in favor of a erected thereon from and after October 25, 1966, with interests
government-owned or controlled corporation, 1 as well as the warehouse
thereon at the legal rate from the date of the filing of the
subsequently erected thereon, exempt from real property tax? complaint and the costs of the suit.
Petitioner National Development Company (NDC), a government-owned or
The defendants appealed to the Court of Appeals which however certified the
controlled corporation (GOCC) existing by virtue of C.A. 182 2 and E.O. case to Us as one involving pure questions of law, pursuant to Sec. 17, R.A.
399, 3 is authorized to engage in commercial, industrial, mining, agricultural and
296.
other enterprises necessary or contributory to economic development or
important to public interest. It also operates, in furtherance of its objectives,
In this appeal, CEBU assigns five (5) errors 15 imputed to the trial court which
subsidiary corporations one of which is the now defucnt National Warehousing
may be synopsized into whether NDC is exempted from payment of the real
Corporation (NWC). 4
estate taxes on the land reserved by the President for warehousing purposes as
well as the warehouse constructed thereon, and in the affirmative, whether NDC
On August 10, 1939, the President issued Proclamation No. 4305 reserving may recover in refund unprotested real estate taxes it paid from 1948 to 1970.
Block no. 4, Reclamation Area No. 4, of Cebu City, consisting of 4,599 square
meters, for warehousing purposes under the administration of
On the first question, CEBU insists on taxability of the subject properties,
NWC. 6 Subsequently, in 1940, a warehouse with a floor area of 1,940 square
claiming that no law grants NDC exemption from real estate taxes, and that
meters more or less, was constructed thereon. 7
NDC, as recipient of the land reserved by the President pursuant to Sec. 83 of
the Public Land Act, 16 is liable for payment or ordinary (real estate) taxes under
On October 4, 1947, E.O. 93 dissolved NWC 8 with NDC taking over its assets
Sec. 115 therefore. CEBU contends that the properties have ceased to be tax
and functions. 9 exempt under the Assessment Law. 17 when the government disposed of them in
favor of NDC, and even assuming that title to the land remains with the
Commencing 1948, Cebu City (CEBU) assessed and collected from NDC real government (ownership being the basis for real estate taxability under the
estate taxes on the land and the warehouse thereon. 10 By the first quarter of Assessment Law), the Supreme Court rulings establish increasing rather than
1970, a total of P100,316.31 was paid by NDC 11 of which only P3,895.06 was "ownership" as basis for real estate tax liability.
under protest. 12
On the other hand, NDC maintains the Sec. 3 of the Assessment Law, which
On 20 March 1970, NDC wrote the City Assessor demanding full refund of the exempts properties owned by the Republic from real estate tax, includes subject
real estate taxes paid to CEBU claiming that the land and the warehouse properties in the exemption. It invokes the ruling in Board of Assessment
standing thereon belonged to the Republic and therefore exempt from Appeals vs. CTA & NWSA  18 which held that properties of NWSA, a GOCC,

Page 1 of 6
were exempt from real estate tax because Sec. 3 of the Assessment Law applied corporations, and in this sense, it is an entity different from the
to all government properties whether held in governmental or proprietary government, defendant corporation may be sued without its
capacity. NDC rejects the applicability of Sec. 115 of the Public Land Act to the consent, and is subject to taxation. In the case NDC vs. Jose
subject land, claiming that provision contemplates dispositions of public land Yulo Tobias, 7 SCRA 692, it was held that . . . plaintiff is
with eventual transfer of title. In addition, NDC believes that it is neither a neither the Government of the Republic nor a branch or
grantee of a public land nor an applicant within the purview of the same subdivision thereof, but a government owned and controlled
provision. corporation which cannot be said to exercise a sovereign
function (Association Cooperativa de Credito Agricola de
As already adverted to, one of the principal issues before Us is the interpretation Miagao vs. Monteclaro, 74 Phil. 281). it is a business
of a provision of the Assessment Law, the precursor of the then Real Property corporation, and as such, its causes of action are subject to the
Tax Code and the Local Government Code, where "ownership" of the property statute of limitations. . . . That plaintiff herein does not exercise
and not "use" is the test of tax liability. 19 sovereign powers — and, hence, cannot invoke the exemptions
thereof –– but is an agency for the performance of purely
Section, 3 par. (a), of the Assessment Law, on which NDC claims real estate tax corporate, proprietary or business functions, is apparent from its
exemption, provides — Organic Act (Commonwealth Act 182, as amended by
Commonwealth Act 311) pursuant to Section 3 of which it
Section 3. Property exempt from tax. — The exemptions shall "shall be subject to the provisions of the Corporation Law
be as follows: (a) Property owned by the United States of insofar as they are not inconsistent" with the provisions of said
America, the Commonwealth of the Philippines, any province, Commonwealth Act, "and shall have the general powers
city, municipality at municipal district . . . mentioned in said" Corporation Law, and, hence, "may engage
in commercial, industrial, mining, agricultural, and other
The same opinion of NDC was passed upon in National Development enterprises which may be necessary or contributory to the
Co. v. Province of Nueva Ecija  20 where We held that its properties were not economic development of the country, or important in the
comprehended in Sec. 3, par (a), of the Assessment Law. In part, We stated: public interest," as well as "acquire, hold, mortgage and alienate
personal and real property in the Philippines or elsewhere; . . .
make contracts of any kind and description", and "perform any
1. Commonwealth Act No. 182 which created NDC contains no
and all acts which a corporation or natural persons is authorized
provision exempting it from the payment of real estate tax on
to perform under the laws now existing or which may be
properties it may acquire . . . There is justification in the
enacted hereafter."
contention of plaintiff-appellee that . . . [I]t is undeniable that to
any municipality the principal source of revenue with which it
would defray its operation will came from real property taxes. If We find no compelling reason why the foregoing ruling, although referring to
the National Development Company would be exempt from lands which would eventually be transferred to private individuals, should not
paying real property taxes over these properties, the town of apply equally to this case.
Gabaldon will bee deprived of much needed revenues with
which it will maintain itself and finance the compelling needs NDC cites Board of Assessment Appeals, Province of Laguna v. Court of Tax
of its inhabitants (p. 6, Brief of Plaintiff-Appellee). Appeal and National Waterworks and Sewerage Authority (NWSA). In that case,
We held that properties of NWSA, a GOCC, were exempt from real estate tax
2. Defendant-appellant NDC does not come under classification because Sec. 3, par (c), of R.A. 470 did not distinguish between those possessed
of municipal or public corporation in the sense that it may sue by the government in sovereign/governmental/political capacity and those in
and be sued in the same manner as any other private private/proprietary/patrimonial character.

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The conflict between NDC v. Nueva Ecija, supra, and BAA v. CTA and NWSA, certain aspects of the economic life of our people. A
supra, is more superficial than real. The NDC decision speaks of properties government agency therefore, must necessarily after refer to the
owned by NDC, while the BAA ruling concerns properties belonging to the government itself to the Republic, as distinguished from any
Republic. The latter case appears to be exceptional because the parties therein government instrumentality which has a personality distinct and
stipulated — separate from it (Section 2).

1. That the petitioner National Waterworks and Sewerage The foregoing discussion does not mean that because NDC, like most GOCC's
Authority (NAWASA) is a public corporation created by virtue engages in commercial enterprises all properties of the government and its
of Republic Act. No. 1383, and that it is owned by the unincorporated agencies possessed in propriety character are taxable. Similarly,
Government of the Philippines as well as all property in the case at bar, NDC proceeded on the premise that the BAA ruling declared
comprising waterworks and sewerage systems placed under all properties owed by GOCC's as properties in the name of the Republic, hence,
it (Emphasis supplied). exempt under Sec. 3 of the Assessment Law. 22

There, the Court observed: "It is conceded, in the stipulation of facts, that the To come within the ambit of the exemption provided in Art. 3, par. (a), of the
property involved in this case "is owned by the Government of the Philippines." Assessment Law, it is important to establish that the property is owned by the
Hence, it belongs to the Republic of the Philippines and falls squarely within government or its unincorporated agency, and once government ownership is
letter of the above provision." determined, the nature of the use of the property, whether for proprietary or
sovereign purposes, becomes immaterial. What appears to have been ceded to
In the case at bar, no similar statement appears in the stipulation of facts, hence, NWC (later transferred to NDC), in the case before Us, is merely the
ownership of subject properties should first be established. For, while it may be administration of the property while the government retains ownership of what
stated that the Republic owns NDC, it does not necessary follow that properties has been declared reserved for warehousing purposes under Proclamation No.
owned by NDC, are also owned by Republic — in the same way that 430.
stockholders are not ipso facto owners of the properties of their corporation.
Incidentally, the parties never raised the issued the issue of ownership from the
The Republic, like any individual, may form a corporation with personality and court a quo to this Court.
existence distinct from its own. The separate personality allows a GOCC to hold
and possess properties in its own name and, thus, permit greater independence A reserved land is defined as a "[p]ublic land that has been withheld or kept
and flexibility in its operations. It may, therefore, be stated that tax exemption of back from sale or disposition." 23 The land remains "absolute property of the
property owned by the Republic of the Philippines "refers to properties owned government." 24 The government "does not part with its title by reserving them
by the Government and by its agencies which do not have separate and distinct (lands), but simply gives notice to all the world that it desires them for a certain
personalities (unincorporated entities). We find the separate opinion of Justice purpose." 25 Absolute disposition of land is not implied from reservation; 26 it
Bautista-Angelo in Gonzales v. Hechanova, et al., 21 appropriate and merely means "a withdrawal of a specified portion of the public domain from
enlightening — disposal under the land laws and the appropriation thereof, for the time being, to
some particular use or purpose of the general government." 27 As its title
. . . The Government of the Republic of the Philippines under remains with the Republic, the reserved land is clearly recovered by the tax
the Revised Administrative Code refers to that entity through exemption provision.
which the functions of government are exercised, including the
various arms through which political authority is made effective CEBU nevertheless contends that the reservation of the property in favor of
whether they be provincial, municipal or other form of local NWC or NDC is a form of disposition of public land which, subjects the
government, whereas a government instrumentality refers to recipient (NDC ) to real estate taxation under Sec. 115 of the Public Land Act.
corporations owned or controlled by the government to promote as amended by R.A. 436, 28 which estate:
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 Sec 115. All lands granted by virtue of this Act, including Sec. 8. Only those lands shall be declared open to disposition or
homesteads upon which final proof has not been made or concession which have been officially delimited and classified
approved shall, even though and while the title remains in the and, when practicable, surveyed, and which have not been
State, be subject to the ordinary taxes, which shall be paid by reserved for public or quasi-public uses, nor appropriated by
the grantee or the applicant, beginning with the year next the Government, nor in any manner become private property ,
following the one in which the homestead application has been nor those on which a private right authorized and recognized by
filed, or the concession has been approved, or the contract has this Act or any valid law may be claimed, or which, having
been signed, as the case may be, on the basis of the value fixed been reserved or appropriated, have ceased to be so.
in such filing, approval or signing of the application, concession
or contract. Sec. 88. The tract or tracts of land reserved under the provisions
of section eighty-three shall be non-alienable and shall not be
The essential question then is whether lands reserved pursuant to Sec. 83 are subject to occupation, entry, sale, lease, or other disposition
comprehended in Sec. 115 and, therefore, taxable. until again declared alienable under the provisions of this Act
or by proclamation of the President (Emphasis supplied)
Section 115 of the Public Land Act should be treated as an exception to Art. 3,
par. (a), of the Assessment Law. While ordinary public lands are tax exempt As We view it, the effect of reservation under Sec. 83 is to segregate a piece of
because title thereto belongs to the Republic, Sec. 115 subjects them to real public land and transform it into non-alienable or non-disposable under the
estate tax even before ownership thereto is transferred in the name of the Public Land Act. Section 115, on the other hand, applies to disposable public
beneficiaries. Sec. 115 comprehends three (3) modes of disposition of Lands lands. Clearly, therefore, Sec. 115 does not apply to lands reserved under Sec.
under the Public Land Act, to wit: homestead, concession, and contract. 83. Consequently, the subject reserved public land remains tax exempt.

Liability to real property taxes under Sec. 115 is predicated on (a) filing of However, as regards the warehouse constructed on a public reservation, a
homestead application, (b) approval of concession and, (c) signing of contract. different rule should apply because "[t]he exemption of public property from
Significantly, without these words, the date of the accrual of the real estate tax taxation does not extend to improvements on the public lands made by pre-
would be indeterminate. Since NDC is not a homesteader and no "contract" emptioners, homesteaders and other claimants, or occupants, at their own
(bilateral agreement) was signed, it would appear, then, that reservation under expense, and these are taxable by the state . . ." 29 Consequently, the warehouse
Sec. 83, being a unilateral act of the President, falls under "concession". constructed on the reserved land by NWC (now under administration by NDC),
indeed, should properly be assessed real estate tax as such improvement does
"Concession" as a technical term under the Public Land Act is synonymous with not appear to belong to the Republic.
"alienation" and "disposition", and is defined in Sec. 10 as "any of the methods
authorized by this Act for the acquisition, lease, use, or benefit of the lands of Since the reservation is exempt from realty tax, the erroneous tax payments
the public domain other than timber or mineral lands." Logically, where Sec. collected by CEBU should be refunded to NDC. This is in consonance with Sec.
115 contemplates authorized methods for acquisition, lease, use, or benefit 40, par. (a) of the former Real Property Tax Code which exempted from
under the Act, the taxability of the land would depend on whether reservation taxation real property owned by the Republic of the Philippines or any of its
under Sec. 83 is one such method of acquisition, etc. Tersely put, is reservation political subdivisions, as well as any GOCC so exempt by its charter. 30
synonymous with alienation? Or, are the two terms antithetical and mutually
exclusive? Indeed, reservation connotes retention, while concession (alienation) As regards the requirement of paying under protest before judicial recourse,
signifies cession. CEBU argues that in any case NDC is not entitled to refund because Sec. 75 of
R.A. 3857, the Revised Charter of the City of Cebu, 31 requires payment under
Section 8 and 88 of the Public Land Act provide that reserved lands are protest before resorting to judicial action for tax refund; that it could not have
excluded from that may be subject of disposition, to wit –— acted on the first demand letter of NDC of 20 May 1970 because it was sent to
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the City Assessor and not to the City Treasurer; that, consequently, there having arises." There is, therefore, created a tie or juridical relation in
been no appropriate prior demand, resort to judicial remedy is premature; and, the nature of solutio indebiti, expressly classified as quasi-
that even on the premise that there was proper demand, NDC has yet to exhaust contract under Section 2, Chapter I of Title XVII of the New
administrative remedies by way of appeal to the Department of Finance and/or Civil code.
Auditor General before taking judicial action.
The quasi-contract of solutio indebiti is one of the concrete
NDC does not agree. It disputes the applicability of the payment-under- manifestations of the ancient principle that no one shall enrich
protest requirement is Sec. 75 of the Revised Cebu City Charter because the himself unjustly at the expense of another . . . Hence, it would
issue is not the validity of tax assessment but recovery of erroneous payments seem unedifying for the government, that knowing it has no
under Arts. 2154 and 2155 of the Civil Code. 32 It cites the case of East Asiatic right at all to collect or to receive money for alleged taxes paid
Co., Ltd. v. City of Davao  33 which held that where the tax is unauthorized, "it is by mistake, it would be reluctant to return the same . . .
not a tax assessed under the charter of the appellant City of Davao and for that Petitioner is not unsatisfied in the assessment of its property.
reason no protest is necessary for a claim or demand for its refund." In Ramie Assessment having been made, it paid the real estate taxes
Textiles, Inc. vs. Mathay, Sr.,  34 We held — without knowing that it is exempt.

. . . Protest is not a requirement in order that a taxpayer who As regards the claim for refund of tax payments spanning more than twenty (20)
paid under a mistaken belief that it is required by law, may years, We also said in Ramie Textiles that —
claim for a refund. Section 54 35 of Commonwealth Act No. 470
does not apply to petitioner which could conceivably not have Solutio indebiti is a quasi-contract, and the instant case being in
been expected to protest a payment it honestly believed to be the nature of solutio indebiti, the claim for refund must be
due. The same refers only to the case where the taxpayer, commenced within six (6) years from date of payment pursuant
despite his knowledge of the erroneous or illegal assessment, to Article 1145 (2) of the New Civil Code 36 . . .
still pays and fails to make the proper protest, for in such case,
he should manifest an unwillingness to pay, and failing so, the We sustain the appellate court to the extent that its decision covers improperly
taxpayer is deemed to have waved his right to claim a refund. collected taxes on the reserved land under Proclamation No. 430, thus —

In the case at bar, petitioner, therefore, cannot be said to have The defense of prescription invoked by the defendant which
waived his right. He had no knowledge of the fact that it was counsel for the plaintiff, however, did not answer in its
exempted from payment of the realty tax under Commonwealth memorandum, is partly well-taken. Actions for refund of taxes
Act No. 470. Payment was made through error or mistake, in illegally collected must be commenced within six (6) years
the honest belief that petitioner was liable, and therefore could from the date of collection. . . . .
not have been made under protest, but with complete
voluntariness. In any case, a taxpayer should not be held to The stipulation of facts and the pleadings filed by the parties do
suffer loss by his good intention to comply with what he not contain data specifying when and how much were paid by
believes is his legal obligation, where such obligation does not the year, of the taxes sought to be refunded. Accordingly, the
really exist . . . The fact that petitioner paid thru error or Court has no other alternative but to order the refund of an
mistake, and the government accepted the payment, gave rise to undetermined amount based, however, on the date of payment
the application of the principle of solutio indebiti under Article counted six (6) years backward from October 25, 1972, when
2154 of the New Civil Code, which provides that "if something the complaint in this case was filed. 37
is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it
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As regards exhaustion of administrative remedies, We agree with the trial court
that the case constitutes an exception to the rule, as it involves purely question
of law. 38 Specifically, on the requirement of appeal to the Secretary of Finance,
We further held in the same Ramie Textiles that "[E]qually not applicable is
Section 17 of Commonwealth Act No. 470 39 cited by respondent in relation to
the right of a, property owner to contest the validity of assessment . . ."

Respondent CEBU likewise invites Our attention to the availability of appeal to

the Government Auditing Office although no authority is cited to Us. We do not
find any either to sustain the procedure.

WHEREFORE, finding that National Development Company (NDC) is exempt

from real estate tax on the reserved land but liable for the warehouse erected
thereon, the decision appealed from is accordingly MODIFIED. Consequently,
let this case be remanded to the court of origin, now the Regional Trial Court of
Manila, to determine the proper liability of NDC, particularly on its warehouse,
and effect the corresponding refund, payment or set-off, as the case may be,
conformably with this decision. No costs.

SO ORDERED.

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