Olizon vs. Central Bank of the Philippines

The prescriptive period for recovering taxes illegally collected is six years under Article 1145(2) of the Civil Code, because the obligation to refund amounts received by reason of a mistake in the construction or application of a law arises from a quasi-contract (solutio indebiti), not from an obligation created by law under Article 1144(2).

The Central Bank of the Philippines, pursuant to its charter under Republic Act No. 601, was authorized to collect special excise taxes on foreign exchange transactions. The Bank collected such taxes from Olizon under the authority of Monetary Board Resolution No. 286, dated May 3, 1951. The Supreme Court had previously declared similar collections illegal in prior cases, establishing that the resolution under which the Bank acted was void.

Francisco S. Olizon paid special excise taxes on foreign exchange to the Central Bank of the Philippines on four separate occasions: March 21, 1952 (P3,186.24), December 4, 1952 (P840.65), November 25, 1953 (P2,488.98), and January 4, 1955 (P2,734.53), totaling P9,713.94, under Central Bank Official Receipts Nos. 047895, 052279, 491743, and 663339, respectively. These amounts were collected pursuant to Monetary Board Resolution No. 286, dated May 3, 1951, which the Central Bank later conceded was illegal, expressly citing the prior rulings in PNB vs. Zulueta and PNB and Central Bank vs. Union Books, Inc. declaring such collections invalid.

On March 10, 1958, Olizon requested the Central Bank to refund the amounts paid, plus an additional P463.54 supported by a statement from the Philippine National Bank. The Central Bank refused, arguing that the claim had prescribed, contending that the action should be filed within five years from the date of payment under Article 1149 of the Civil Code, since the tax code did not provide a specific prescriptive period. The lower court rejected this theory and ruled that the prescriptive period was ten years under Article 1144 of the Civil Code, holding that the obligation to refund was one created by law.

During the appeal's pendency, the Supreme Court decided Belman Cia, Inc. vs. Central Bank, ruling that the prescriptive period was six years. The Central Bank thereafter filed a memorandum conceding the refundability of all claims except for P436.54, asserting that the papers necessary to determine whether that claim had prescribed were lost or unavailable, and that the conceded amounts "should be refunded" only "upon presentation of satisfactory proof." The Bank also raised for the first time in its memorandum in lieu of oral argument that Olizon had an outstanding liability of P4,963.62 in unpaid special excise taxes on remittances to import cotton goods and gladiolus bulbs, urging that any refund be set off against this alleged liability.

The Philippine National Bank verified that all foreign exchange involved in the collection bills was remitted to the United States between August 28, 1949 and November 28, 1949, before the Exchange Tax Law took effect on March 28, 1951, establishing that the assessment and collection of the exchange taxes were erroneous and illegal.

• Prescriptive Period — Ten Years: Plaintiff-appellee argued that the action was timely because the prescriptive period was ten years from the date of payment under Article 1144(2) of the Civil Code, since the payment was made by reason of a mistake in the interpretation of Republic Act 601, and the obligation to return arose by virtue of Articles 2154 and 2155 of the Civil Code, making it an obligation created by law.

• Prescriptive Period — Five Years: The Central Bank initially argued that the claim had prescribed, contending that for purposes of recovering a tax paid illegally or erroneously, the action should be filed within five years from the date of payment, as governed by Article 1149 of the Civil Code, since the tax code did not provide for the same.
• Suit Against the State: The Central Bank urged that the action could no longer be maintained because the amounts involved had already been turned over to the national treasury, making the suit effectively one against the State without its consent.
• Set-Off: The Central Bank represented for the first time in its memorandum in lieu of oral argument that Olizon had an outstanding liability of P4,963.62 in unpaid special excise taxes on remittances to import cotton goods and gladiolus bulbs, urging that any refund be set off against this alleged liability.

• Prescriptive Period: Whether the action for refund of illegally collected special excise taxes is governed by the six-year prescriptive period for quasi-contracts under Article 1145(2) of the Civil Code, or the ten-year period for obligations created by law under Article 1144(2).
• Suit Against the State: Whether the action for refund against the Central Bank constitutes a suit against the State without its consent, given that the amounts collected had been turned over to the national treasury.
• Set-Off: Whether the Central Bank may raise an alleged outstanding liability of the plaintiff-appellee as a set-off against the refund at such a late stage in the proceedings.

• Prescriptive Period: Six years. The action is governed by Article 1145(2) of the Civil Code, which provides a six-year prescriptive period for actions upon quasi-contracts, because the obligation to refund arises from solutio indebiti under Articles 2154 and 2155, not from an obligation created by law under Article 1144(2).
• Suit Against the State: No. The suit is properly brought against the Central Bank, an entity authorized by its charter to sue and be sued, and the consent of the State to be sued has been given.
• Set-Off: No. The matter of the appellee's alleged outstanding unpaid accounts is a fit subject for a counterclaim, and the Rules of Court provide the manner by which they may be impleaded or raised in the suit; raising it at so late a stage as the period for oral argument denies the appellee full protection of his rights.

• Prescriptive Period: The Court held that Articles 2154 and 2155 of the Civil Code, which the movant-appellee relied upon, specifically refer to obligations of the nature of solutio indebiti, which are expressly classified as quasi-contracts under Section 2, Chapter I, Title XVII of the Civil Code. Consequently, the applicable prescriptive period is not Article 1144(2) but Article 1145(2), which provides that actions upon quasi-contracts must be commenced within six years. Since the Central Bank explicitly and unequivocally confirmed that the claims were made within the six-year period, the prescription issue was resolved in favor of the appellee. The Court further noted that the Bank, having admitted its error and accepted the correct period to be six years, ought not to be too technical but should earnestly endeavor to remove or overcome minor technicalities that might stand in the way of a prompt refund.

• Suit Against the State: The Court rejected the Bank's argument, holding that the suit was brought against the Central Bank of the Philippines, an entity authorized by its charter to sue and be sued, and therefore the consent of the State to be sued has been given. Citing Central Azucarera San Pedro vs. Central Bank, the Court noted that in suits for refund, the Central Bank is the proper party defendant pursuant to Section 5 of Republic Act No. 601, which provides that the refund of taxes shall be made by the Central Bank.

• Set-Off: The Court found the Bank's representation untenable, holding that the matter of the appellee's outstanding unpaid accounts is a fit subject for a counterclaim, and the Rules of Court provide the manner by which they may be impleaded or raised in the suit. The Court emphasized that raising a counterclaim at so late a stage as the period for oral argument denies the appellee full and complete protection of his rights, since the proceedings had practically terminated and the appellee would hardly have time to explain or defend himself from the countersuit.

• Solutio Indebiti as a Quasi-Contract — Under Articles 2154 and 2155 of the Civil Code, a person who receives something without just cause, by reason of a mistake in the construction or application of a doubtful question of law, is obliged to return it. The Court applied this doctrine to hold that the Central Bank's obligation to refund the illegally collected taxes arose from a quasi-contract, not from an obligation created by law, thereby making the six-year prescriptive period under Article 1145(2) applicable.

• Prescriptive Period for Recovery of Illegal Tax Collections — Actions upon quasi-contracts must be brought within six years from the time the right of action accrues, under Article 1145(2) of the Civil Code. The Court applied this rule to tax refund claims arising from illegal collections, following the ruling in Belman Cia, Inc. vs. Central Bank.

• Suability of the Central Bank — The Central Bank, being a corporation that may sue and be sued under its charter, is the proper party defendant in suits for refund of illegally collected taxes, and such suits do not constitute suits against the State without its consent. The Court relied on Section 5 of Republic Act No. 601, which provides that refunds of taxes shall be made by the Central Bank.

• "However, Articles 2154 and 2155 relied upon, specifically refer to obligations of the nature of solutio indebiti which are expressway classified as quasi-contracts under Section 2, Chapter I of Title XVII Of the New Civil Code. Consequently, the law regarding prescription applicable to the action herein involved is not Article 1144 (2) cited by the movant, but Article 1145 (2) of the New Civil Code providing: 'ART. 1145. The following actions mug be commenced within six years: (1) ... (2) ... (3) Upon a quasi-contract.'" — This passage establishes the controlling prescriptive period for the action, distinguishing between obligations created by law and quasi-contracts.

• "This suit is brought against the Central Bank of the Philippines, an entity authorized by its charter to sue and be sued. The consent of the State to thus be sued, therefore, has been given." — This passage disposes of the defense that the action was a suit against the State without its consent.

• "In accordance with Arts. 2154 and 2155 of the new Civil Code of the Philippines, there would be an obligation on the part of defendant Central Bank to refund the said amounts received by reason of a mistake in the construction or application of a doubtful question of law." — This passage articulates the basis of the Central Bank's obligation to refund, grounded in the quasi-contract of solutio indebiti.

• Belman Cia, Inc. vs. Central Bank, G.R. No. L-15044, May 30, 1960 — Controlling precedent establishing that the prescriptive period for recovering illegally collected special excise taxes is six years; the Court followed this ruling in resolving the prescription issue.
• Central Azucarera San Pedro vs. Central Bank, G.R. No. L-7713, September 29, 1958 — Followed for the proposition that the Central Bank is the proper party defendant in suits for refund pursuant to Section 5 of Republic Act No. 601.
• PNB vs. Zulueta, G.R. No. L-7271, August 30, 1957 — Cited by the Central Bank as authority for the illegality of Monetary Board Resolution No. 286, which the Bank conceded.
• PNB and Central Bank vs. Union Books, Inc., G.R. No. L-8490, August 30, 1957 — Cited by the Central Bank as authority for the illegality of Monetary Board Resolution No. 286, which the Bank conceded.

• Article 1144(2), Civil Code — Provides a ten-year prescriptive period for actions upon obligations created by law; the Court held this provision inapplicable because the obligation to refund arises from a quasi-contract, not from an obligation created by law.
• Article 1145(2), Civil Code — Provides a six-year prescriptive period for actions upon quasi-contracts; the Court applied this provision as the controlling prescriptive period for the refund claim.
• Article 1149, Civil Code — Provides a five-year prescriptive period for all other actions whose periods are not fixed in the Code or in other laws; the Central Bank initially relied on this provision but later conceded its error.
• Articles 2154 and 2155, Civil Code — Define the quasi-contract of solutio indebiti, obliging a person who receives something without just cause to return it; the Court applied these provisions to establish the Central Bank's obligation to refund.
• Section 5, Republic Act No. 601 — Provides that refunds of taxes shall be made by the Central Bank of the Philippines; the Court cited this provision to establish the Central Bank as the proper party defendant in refund suits.

Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes, and Makalintal, JJ., concurred.

• Labrador, Barrera, and Dizon, JJ.: Took no part in the decision.