G.R. No. and Date: G.R. No. L-12182, March 27, 1918

FACTS:
The plaintiffs owned a parcel of land on the Escolta in Manila. In late 1913, they demolished the old improvements and began constructing a reinforced concrete building. The building was not fully completed by December 1914, lacking various essential elements such as partitions, sanitary and electrical installations, elevators, roof, and some doors and windows. It was finally completed on February 15, 1915. No taxes on the improvements were levied or paid for 1914. In November and December 1914, the City Assessor and Collector inspected the building, assessed the new improvements at P300,000 for the year 1915, and sent a notice to the plaintiffs on December 1, 1914 (received December 25, 1914) requiring a declaration of the new improvements. The plaintiffs were formally notified of the assessment on January 15, 1915. They paid the resulting tax of P3,000 under protest on June 30, 1915, and subsequently filed suit in the Court of First Instance of Manila to recover the amount with legal interest. The trial court ruled in favor of the plaintiffs.

ISSUE:
1. Whether the Court of First Instance had jurisdiction over the suit to recover the tax paid under protest, despite the plaintiffs not having first appealed to the Board of Tax Appeals.
2. Whether the assessment and collection of taxes on the Roxas Building for the year 1915 were legal.
3. Whether the plaintiffs are entitled to recover legal interest on the amount illegally collected.

RULING:
1. On Jurisdiction: Yes, the Court of First Instance had jurisdiction. The general rule requiring exhaustion of administrative remedies (appeal to the Board of Tax Appeals) before judicial recourse does not apply when the tax assessment is claimed to be wholly void and illegal, not merely excessive or erroneous. The plaintiffs’ contention that the assessor levied a tax on property exempt by law (an incomplete building) and violated statutory procedures raises a question of legality, not correctness. For an illegal or void tax, the taxpayer may bring a direct action in court to recover the amount paid under protest.

2. On the Legality of the Assessment: No, the assessment was illegal and void. Under the Manila Charter (Administrative Code of 1917), the duty of a property owner to submit a sworn declaration of new improvements arises only within 60 days after the completion of such improvements (which would have been April 15, 1915, for the Roxas Building). Correspondingly, the city assessor’s duty is to add the value of improvements to the assessment list during the first 15 days of December for improvements placed during the preceding year. The building was not completed until February 1915; therefore, it could not be considered an improvement made “during the preceding year” (1914) for assessment in December 1914. The attempted assessment in late 1914 was premature and violated the statutory timeline. Furthermore, the notice sent in December 1914 did not comply with the legal period for notification. Consequently, there was no valid assessment for the year 1915.

3. On Interest: Yes, the plaintiffs are entitled to recover legal interest from the date of the illegal exaction (June 30, 1915). The City of Manila, as a public corporation with the power to sue and be sued, is not entitled to sovereign immunity from interest on judgments for illegally collected taxes. Following American authorities, a municipal corporation that wrongfully exacts and withholds money is liable for interest thereon, absent laches by the plaintiff.

DISPOSITIVE PORTION:
The judgment of the Court of First Instance was AFFIRMED. The plaintiffs are entitled to recover the sum of P3,000 paid under protest, with legal interest from June 30, 1915. No costs were awarded.

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