National Development Co vs Cebu City

Date: November 5, 1992

Plaintiff – Appellee: National Development Co
Defendants – Appellants: Cebu City and Augusto Pacis

Ponente: Bellosillo

Facts: National Development Company (NDC) is a GOCC authorized to engage in commercial, industrial, mining, agricultural and other
enterprises necessary or contributory to economic development or important to public interest. It also operates subsidiary corporations
one of which is National Warehousing Corporation (NWC).
On August 10, 1939, the President issued Proclamation No. 430 reserving Block no. 4, Reclamation Area No. 4, of Cebu City for
warehousing purposes under the administration of NWC. Subsequently, in 1940, a warehouse with a floor area of 1,940 square meters
more or less, was constructed thereon. In 1947, EO 93 dissolved NWC with NDC taking over its assets and functions.
In 1948, Cebu City assessed and collected from NDC real estate taxes on the land and the warehouse thereon. By the first quarter
of 1970, a total of P100,316.31 was paid by NDC 11 of which only P3,895.06 was under protest. NDC asked for a full refund contending that
the land and the warehouse belonged to the Republic and therefore exempt from taxation. The CFI ordered Cebu City to refund to NDC the
real estate taxes paid by it.

Issue: WON the NDC is exempt from real estate taxes

Held: No

Ratio: As already adverted to, one of the principal issues before Us is the interpretation of a provision of the Assessment Law, the precursor
of the then Real Property Tax Code and the Local Government Code, where "ownership" of the property and not "use" is the test of tax
liability. Section, 3 par. (a), of the Assessment Law, on which NDC claims real estate tax exemption, provides Section 3. Property exempt
from tax. The exemptions shall be as follows: (a) Property owned by the United States of America, the Commonwealth of the Philippines,
any province, city, municipality at municipal district.
The same opinion of NDC was passed upon in National Development Co. v. Province of Nueva Ecija where We held that its
properties were not comprehended in Sec. 3, par (a), of the Assessment Law. Commonwealth Act No. 182 which created NDC contains no
provision exempting it from the payment of real estate tax on properties it may acquire. NDC does not come under classification of
municipal or public corporation in the sense that it may sue and be sued in the same manner as any other private corporations, and in this
sense, it is an entity different from the government, NPC may be sued without its consent, and is subject to taxation. That plaintiff herein
does not exercise sovereign powers and, hence, cannot invoke the exemptions thereof but is an agency for the performance of purely
corporate, proprietary or business functions, is apparent from its Organic Act.
We find no compelling reason why the foregoing ruling, although referring to lands which would eventually be transferred to
private individuals, should not apply equally to this case.
NDC cites Board of Assessment Appeals, Province of Laguna v. CTA and National Waterworks and Sewerage Authority (NWSA). In
that case, the properties of NWSA, a GOCC, were exempt from real estate tax because Sec. 3, par (c), of R.A. 470 did not distinguish
between those possessed by the government in sovereign/governmental/political capacity and those in private proprietary patrimonial
character. The conflict between NDC v. Nueva Ecija, supra, and BAA v. CTA and NWSA, , is more superficial than real. The NDC decision
speaks of properties owned by NDC, while the BAA ruling concerns properties belonging to the Republic
In the case at bar, no similar statement appears in the stipulation of facts, hence, ownership of subject properties should first be
established. For, while it may be stated that the Republic owns NDC, it does not necessary follow that properties owned by NDC, are also
owned by Republic in the same way that stockholders are not ipso facto owners of the properties of their corporation.
The Republic may form a corporation with personality and 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 and flexibility in its operations. It may, therefore,
be stated that tax exemption of property owned by the Republic of the Philippines "refers to properties owned by the Government and by
its agencies which do not have separate and distinct personalities (unincorporated entities).
The foregoing discussion does not mean that because NDC, like most GOCC's engages in commercial enterprises all properties of
the government and its unincorporated agencies possessed in propriety character are taxable. Similarly, in the case at bar, NDC proceeded
on the premise that the BAA ruling declared all properties owed by GOCC's as properties in the name of the Republic, hence, exempt under
Sec. 3 of the Assessment Law.

Issue: WON the property is exempt from payment of real estate taxes

Held: Yes

Ratio: To come within the ambit of the exemption provided in Art. 3, par. (a), of the Assessment Law, it is important to establish that the
property is owned by the government or its unincorporated agency, and once government ownership is determined, the nature of the use
of the property, whether for proprietary or sovereign purposes, becomes immaterial. What appears to have been ceded to NWC (later
transferred to NDC), in the case before Us, is merely the administration of the property while the government retains ownership of what
has been declared reserved for warehousing purposes under Proclamation No. 430.
 A reserved land is defined as a "[p]ublic land that has been withheld or kept back from sale or disposition." The land remains
"absolute property of the government." The government "does not part with its title by reserving them (lands), but simply gives notice to
all the world that it desires them for a certain purpose." Absolute disposition of land is not implied from reservation; it merely means "a
withdrawal of a specified portion of the public domain from disposal under the land laws and the appropriation thereof, for the time being,
to some particular use or purpose of the general government." As its title remains with the Republic, the reserved land is clearly recovered
by the tax exemption provision.
CEBU nevertheless contends that the reservation of the property in favor of NWC or NDC is a form of disposition of public land
which, subjects the recipient (NDC ) to real estate taxation under Sec. 115 of the Public Land Act.
The essential question then is whether lands reserved pursuant to Sec. 83 are comprehended in Sec. 115 and, therefore, taxable.
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 because title thereto belongs to the Republic, Sec. 115 subjects them to real estate tax even before ownership
thereto is transferred in the name of the beneficiaries. Sec. 115 comprehends three (3) modes of disposition of Lands under the Public Land
Act, to wit: homestead, concession, and contract.
Liability to real property taxes under Sec. 115 is predicated on (a) filing of homestead application, (b) approval of concession and,
(c) signing of contract. Significantly, without these words, the date of the accrual of the real estate tax would be indeterminate. Since NDC
is not a homesteader and no "contract" (bilateral agreement) was signed, it would appear, then, that reservation under Sec. 83, being a
unilateral act of the President, falls under "concession". "Concession" as a technical term under the Public Land Act is synonymous with
"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 the public domain other than timber or mineral lands." Logically, where Sec. 115 contemplates authorized methods
for acquisition, lease, use, or benefit under the Act, the taxability of the land would depend on whether reservation under Sec. 83 is one
such method of acquisition, etc. Tersely put, is reservation synonymous with alienation? Or, are the two terms antithetical and mutually
exclusive? Indeed, reservation connotes retention, while concession (alienation) signifies cession.
Section 8 and 88 of the Public Land Act provide that reserved lands are excluded from that may be subject of disposition. As We
view it, the effect of reservation under Sec. 83 is to segregate a piece of public land and transform it into non-alienable or non-disposable
under the Public Land Act. Section 115, on the other hand, applies to disposable public lands. Clearly, therefore, Sec. 115 does not apply to
lands reserved under Sec. 83. Consequently, the subject reserved public land remains tax exempt.
However, as regards the warehouse constructed on a public reservation, a different rule should apply because "[t]he exemption of
public property from taxation does not extend to improvements on the public lands made by pre-emptioners, homesteaders and other
claimants, or occupants, at their own expense, and these are taxable by the state . . ." Consequently, the warehouse constructed on the
reserved land by NWC (now under administration by NDC), indeed, should properly be assessed real estate tax as such improvement does
not appear to belong to the Republic.
Since the reservation is exempt from realty tax, the erroneous tax payments collected by CEBU should be refunded to NDC. This is
in consonance with Sec. 40, par. (a) of the former Real Property Tax Code which exempted from taxation real property owned by the
Republic of the Philippines or any of its political subdivisions, as well as any GOCC so exempt by its charter.
As regards the requirement of paying under protest before judicial recourse, 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, requires payment under protest before resorting to judicial
action for tax refund; that it could not have acted on the first demand letter of NDC of 20 May 1970 because it was sent to the City Assessor
and not to the City Treasurer; that, consequently, there having been no appropriate prior demand, resort to judicial remedy is premature;
and, that even on the premise that there was proper demand, NDC has yet to exhaust administrative remedies by way of appeal to the
Department of Finance and/or Auditor General before taking judicial action.
NDC does not agree. It disputes the applicability of the payment-under-protest requirement is Sec. 75 of the Revised Cebu City
Charter because the issue is not the validity of tax assessment but recovery of erroneous payments under Arts. 2154 and 2155 of the Civil
Code. It cites the case of East Asiaticvs City of Davao which held that where the tax is unauthorized, "it is not a tax assessed under the
charter of the City of Davao and for that reason no protest is necessary for a claim or demand for its refund."
In the case at bar, petitioner, therefore, cannot be said to have waived his right. He had no knowledge of the fact that it was
exempted from payment of the realty tax under Commonwealth Act No. 470. Payment was made through error or mistake, in the honest
belief that petitioner was liable, and therefore could not have been made under protest, but with complete voluntariness. In any case, a
taxpayer should not be held to suffer loss by his good intention to comply with what he believes is his legal obligation, where such
obligation does not really exist . . . The fact that petitioner paid thru error or mistake, and the government accepted the payment, gave rise
to the application of the principle of solutio indebiti under Article 2154 of the New Civil Code, which provides that "if something is received
when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises." There is, therefore,
created a tie or juridical relation in the nature of solutio indebiti, expressly classified as quasi-contract under Section 2, Chapter I of Title
XVII CC.
The quasi-contract of solutio indebiti is one of the concrete manifestations of the ancient principle that no one shall enrich himself
unjustly at the expense of another . . . Hence, it would seem unedifying for the government, 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 . . . Petitioner is not unsatisfied in the
assessment of its property. Assessment having been made, it paid the real estate taxes without knowing that it is