Domestic Petroleum Retailer Corporation vs. Manila International Airport Authority

The quasi-contract of solutio indebiti does not apply where the payor and payee are bound by a pre-existing contractual relationship and the payment was made not by mistake of fact or law but under protest and in compliance with an administrative resolution subsequently declared void; in such cases, the action is governed by the ten-year prescriptive period for written contracts, and the cause of action accrues only upon judicial declaration of the administrative act's invalidity.

Domestic Petroleum Retailer Corporation (DPRC) entered into a Contract of Lease with the Manila International Airport Authority (MIAA) on June 4, 1998, for a parcel of land and building located at Domestic Road, Pasay City. The contract stipulated specific monthly rentals and provided that any price escalation required the issuance of a valid Administrative Order and prior notice to DPRC. On April 2, 1998, MIAA issued Resolution No. 98-30, effective June 1, 1998, unilaterally increasing rentals without prior notice or public hearing. DPRC initially refused payment but subsequently paid the increased amounts under protest from December 11, 1998, to December 5, 2005, totaling ₱9,593,179.87. On December 1, 2004, the Supreme Court nullified Resolution No. 98-30 in Manila International Airport Authority v. Airspan Corporation for non-observance of notice and hearing requirements. DPRC ceased paying the increased rate on January 1, 2006, and demanded a refund of overpayments on July 27, 2006, which MIAA ignored.

• The Lease Agreement: On June 4, 1998, DPRC and MIAA executed a Contract of Lease for a 1,631.12-square-meter parcel of land and a 630.88-square-meter building at Domestic Road, Pasay City. DPRC agreed to pay monthly rentals of ₱75,357.74 for the land and ₱33,310.46 for the building. Section 2.06 of the contract stipulated that price escalation was conditional upon MIAA issuing a valid Administrative Order and providing DPRC with prior notice thereof.
• The Unilateral Increase: On April 2, 1998, MIAA passed Resolution No. 98-30, effective June 1, 1998, increasing rentals for concessionaires and lessees without prior notice or public hearing. Administrative Order No. 1, Series of 1998, reflected the new rates.
• Payment Under Protest: DPRC initially refused the increased rates. On November 19, 1998, MIAA demanded payment of arrears based on the increased rates. DPRC protested in writing on December 8, 1998, challenging the validity of Resolution No. 98-30, but signified its intention to comply in good faith by paying the charged amount. On December 11, 1998, DPRC paid ₱628,895.43 under protest and continued paying the increased rates until December 5, 2005, for a total overpayment of ₱9,593,179.87.
• Judicial Nullity: On December 1, 2004, the Supreme Court promulgated its Decision in Manila International Airport Authority v. Airspan Corporation, G.R. No. 157581, nullifying Resolution No. 98-30 for failure to observe notice and hearing requirements under the Administrative Code.
• Demand and Refusal: On December 21, 2005, DPRC advised MIAA of its intention to stop paying the increased rate, reverting to the original contractual rate effective January 1, 2006. On July 27, 2006, DPRC sent a written demand for refund of ₱9,593,179.87. MIAA ignored the demand, prompting DPRC to file suit on December 23, 2008.

• Nature of the Cause of Action: DPRC argued that the CA erred in characterizing the claim as one based on the quasi-contract of solutio indebiti subject to a six-year prescriptive period under Article 1145(2) of the Civil Code. The claim was founded on the Contract of Lease, specifically the violation of Section 2.06 regarding the conditions for price escalation, and was therefore an action upon a written contract governed by the ten-year period under Article 1144(1).
• Non-Prescription: The claim had not prescribed. The cause of action accrued only on December 1, 2004, when the Supreme Court declared Resolution No. 98-30 void in Airspan, as only then did the presumption of legality of the administrative resolution cease. Alternatively, prescription was interrupted by the written extrajudicial demand on July 27, 2006, which restarted the prescriptive period.

• Applicability of Solutio Indebiti: MIAA countered that the claim was for recovery of undue payment, falling under the quasi-contract of solutio indebiti, because the Contract of Lease contained no provision expressly entitling DPRC to a refund of overpayments.
• Prescription: The six-year prescriptive period applied, and the claim for payments made from December 11, 1998, to December 5, 2002, had already prescribed by the time of the complaint in 2008.
• Distinction from Airspan: MIAA argued that the Airspan case did not apply to DPRC's situation.

• Solutio Indebiti: Whether the CA correctly applied the quasi-contract of solutio indebiti and the six-year prescriptive period under Article 1145(2) to reduce the refund amount.
• Prescription: Whether DPRC's claim for the full refund of overpaid rentals had prescribed.

• Solutio Indebiti: The CA erred in applying solutio indebiti. The requisites for this quasi-contract are: (1) a payment made when there exists no binding relation between the payor and the recipient, and (2) payment through mistake, not liberality or other cause. Here, the parties were bound by a Contract of Lease—a binding juridical relationship—thereby negating the first requisite. Furthermore, DPRC's payments were made deliberately and under protest, not through mistake of fact or law. DPRC consistently maintained that Resolution No. 98-30 was void but paid pending judicial resolution because administrative resolutions enjoy a presumption of legality. The cause of action was contractual, based on MIAA's violation of the lease terms by imposing an unauthorized price escalation.
• Prescription: The claim had not prescribed. The applicable period was ten years under Article 1144(1) for written contracts. Following Español v. Board of Administrators, Philippine Veterans Administration, the cause of action against the government for refund based on a void administrative policy accrues only from the date of judicial declaration of invalidity—here, December 1, 2004. Thus, the complaint filed on December 23, 2008, was within the ten-year period. Moreover, Article 1155 provides that written extrajudicial demand interrupts prescription, causing the period to commence anew from receipt of the demand. The July 27, 2006 demand interrupted the running of prescription, giving DPRC until July 27, 2016, to file suit.

• Solutio Indebiti — This quasi-contract, grounded in the principle that no one shall enrich himself unjustly at the expense of another, requires two concurring conditions: (1) payment is made when there exists no binding relation between the payor (who has no duty to pay) and the person who received the payment; and (2) the payment is made through mistake (error of fact or construction/application of doubtful law), not through liberality or other cause. It does not apply where parties are bound by a pre-existing contract.
• Accrual of Cause of Action Against the Government — A claimant has a cause of action for payment or refund against the government based on the nullification of an administrative policy only from the time the Court declares the administrative policy invalid. This is because administrative regulations have the force of law and enjoy a presumption of legality until judicially declared void; only then can the government's act be deemed a violation of the claimant's right.
• Interruption of Prescription by Written Demand — Under Article 1155 of the Civil Code, the prescription of actions is interrupted when a written extrajudicial demand is made. Such demand wipes out the period that has already elapsed and starts anew the prescriptive period from the receipt of the demand.

• "The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the expense of another."
• "Solutio indebiti applies only where no binding relation exists between the payor and the person who received the payment..."
• "It is only when this Court declared invalid the questioned administrative policy... can the appellee be said to have a cause of action... because it is at that point in time, when the presumption of legality of the questioned administrative policy had been rebutted and thus it can be said with certainty that [the government's] act was in violation of [the claimant's] right."
• "Written extrajudicial demand wipes out the period that has already elapsed and starts anew the prescriptive period."

• National Commercial Bank of Saudi Arabia v. Court of Appeals, 444 Phil. 615 (2003) — Controlling precedent holding that solutio indebiti is inapplicable where parties are bound by a contract (letter of credit), and that the ten-year prescriptive period for written contracts applies instead of the six-year period for quasi-contracts.
• Genova v. De Castro, 454 Phil. 662 (2003) — Followed for the principle that solutio indebiti does not apply where payments are made pursuant to an underlying agreement.
• Manila International Airport Authority v. Airspan Corporation, 486 Phil. 1136 (2004) — The decision that nullified Resolution No. 98-30, establishing the date when the cause of action accrued.
• Español v. Board of Administrators, Philippine Veterans Administration, 221 Phil. 667 (1985) — Controlling precedent on the accrual of cause of action against the government only upon judicial declaration of the invalidity of an administrative policy.
• Ledesma v. Court of Appeals, 295 Phil. 1070 (1993) — Cited for the doctrine that written extrajudicial demand interrupts prescription and commences a new period.

• Article 2154, Civil Code — Defines solutio indebiti as the obligation to return something received when there is no right to demand it and it was unduly delivered through mistake.
• Article 1145(2), Civil Code — Prescribes a six-year period for actions upon a quasi-contract.
• Article 1144(1), Civil Code — Prescribes a ten-year period for actions upon a written contract.
• Article 1155, Civil Code — Provides that prescription is interrupted by a written extrajudicial demand.
• Article 1657, Civil Code — Obligates the lessee to pay the price of the lease according to the terms stipulated.
• Article 1659, Civil Code — Allows the aggrieved party in a lease to ask for rescission and indemnification for damages if the other party fails to comply with obligations.

Antonio T. Carpio (Chairperson), Marvic Mario Victor F. Leonen (Perlas-Bernabe?), J. Reyes, Jr., and Lazaro-Javier, JJ., concur.

Note: The text indicates "Carpio, (Chairperson), Perlas-Bernabe, J. Reyes, Jr., and Lazaro-Javier, JJ., concur."