G.R. No. L-17447; April 30, 1963
GONZALO PUYAT & SONS, INC., plaintiff-appellee, vs. CITY OF MANILA AND MARCELO SARMIENTO, as City Treasurer of Manila, defendants-appellants.

FACTS

Gonzalo Puyat & Sons, Inc., a furniture manufacturer, paid retail dealer’s taxes to the City of Manila from the first quarter of 1950 through the third quarter of 1956, totaling P33,785.00. The payments were made without protest under the erroneous belief that the company was liable. The company maintained a factory and a separate display room. On October 30, 1956, the company formally requested a refund, asserting that as a manufacturer selling its own products at its factory site, it was exempt from the retail tax under the city charter and ordinances. The City Treasurer denied the request in July 1958, prompting the company to file an action for refund. The parties submitted a stipulation of facts confirming the company’s exempt status for sales of its manufactured furniture, though it remained liable for taxes on sales of imported items at its display room.

ISSUE

The core issues were: (1) whether taxes voluntarily paid without protest are refundable, and (2) whether the claim for refund had prescribed with respect to payments made from 1950 to 1952.

RULING

The Supreme Court ruled in favor of the taxpayer, ordering a refund for recoverable payments. On the first issue, the Court held that protest was not a condition sine qua non for refund. The payments were made under a mistake of fact, as the taxpayer was legally exempt. This situation constituted a case of solutio indebiti (payment not due) under the Civil Code, where the principle of unjust enrichment applies. The City’s own admission that the sales at the factory site were not taxable solidified the erroneous nature of the collection. The Court distinguished this from cases where a tax is legally due but contested, noting that for an unauthorized or illegal exaction, no protest is necessary to claim a refund.
On the issue of prescription, the Court applied different prescriptive periods based on the date of payment relative to the effectivity of the New Civil Code on August 30, 1950. For payments made before this date, the old Code of Civil Procedure governed, providing a ten-year prescriptive period. However, the Court applied Article 1116 of the New Civil Code, which states that if the entire prescriptive period under the new code elapses after its effectivity, the new code applies. Since the six-year period under the New Civil Code for quasi-contracts like solutio indebiti had fully run by the time of the extra-judicial demand in October 1956, the claim for the pre-August 1950 payment (specifically for the first quarter of 1950) was deemed prescribed. For payments made on or after August 30, 1950, the six-year prescriptive period under Article 1145 of the New Civil Code applied. The written demand on October 30, 1956, interrupted prescription, making all payments from October 30, 1950, onwards still recoverable. Thus, the trial court’s decision was modified, affirming the refund only for payments made on or after October 30, 1950.