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