Republic
of the Philippines
Supreme Court
Manila
THIRD DIVISION
PLANTERS PRODUCTS, INC., G.R. No. 166006
Petitioner,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus
- CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
Promulgated:
FERTIPHIL
CORPORATION,
Respondent. March 14, 2008
x - -
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- - - - - - - - x
D E C I S I O N
REYES, R.T., J.:
THE Regional Trial Courts (
The principle is relevant
in this petition for review on certiorari
of the Decision[1] of
the Court of Appeals (CA) affirming with modification that of
the
The Facts
Petitioner PPI and private respondent
Fertiphil are private corporations incorporated under Philippine laws.[3] They are both engaged in the importation and
distribution of fertilizers, pesticides and agricultural chemicals.
On
3. The
Administrator of the Fertilizer Pesticide Authority to include in its fertilizer
pricing formula a capital contribution component of not less than P10 per bag. This capital contribution shall be collected
until adequate capital is raised to make PPI viable. Such
capital contribution shall be applied by FPA to all domestic sales of
fertilizers in the
Pursuant to the LOI, Fertiphil paid P10
for every bag of fertilizer it sold in the domestic market to the Fertilizer
and Pesticide Authority (FPA). FPA then
remitted the amount collected to the Far East Bank and Trust Company, the
depositary bank of PPI. Fertiphil paid P6,689,144
to FPA from
After the 1986 Edsa Revolution, FPA
voluntarily stopped the imposition of the P10 levy. With the return of democracy, Fertiphil
demanded from PPI a refund of the amounts it paid under LOI No. 1465, but PPI
refused to accede to the demand.[7]
Fertiphil filed a complaint for collection and
damages[8]
against FPA and PPI with the RTC in
In its Answer,[10] FPA,
through the Solicitor General, countered that the issuance of LOI No. 1465 was
a valid exercise of the police power of the State in ensuring the stability of
the fertilizer industry in the country. It
also averred that Fertiphil did not sustain any damage from the LOI because the
burden imposed by the levy fell on the ultimate consumer, not the seller.
On
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against the defendant Planters Product, Inc., ordering the latter to pay the former:
1) the sum of P6,698,144.00 with
interest at 12% from the time of judicial demand;
2) the sum of P100,000 as attorney’s
fees;
3) the cost of suit.
SO ORDERED.[11]
Ruling
that the imposition of the P10
It
is apparent that the imposition of P10 per fertilizer bag sold in the
country by LOI 1465 is purportedly in the exercise of the power of
taxation. It is a settled principle that
the power of taxation by the state is plenary.
Comprehensive and supreme, the principal check upon its abuse resting in
the responsibility of the members of the legislature to their constituents. However, there are two kinds of limitations
on the power of taxation: the inherent limitations and the constitutional
limitations.
One of the inherent limitations is
that a tax may be levied only for public purposes:
The power to tax can be resorted to only for a constitutionally valid public purpose. By the same token, taxes may not be levied for purely private purposes, for building up of private fortunes, or for the redress of private wrongs. They cannot be levied for the improvement of private property, or for the benefit, and promotion of private enterprises, except where the aid is incident to the public benefit. It is well-settled principle of constitutional law that no general tax can be levied except for the purpose of raising money which is to be expended for public use. Funds cannot be exacted under the guise of taxation to promote a purpose that is not of public interest. Without such limitation, the power to tax could be exercised or employed as an authority to destroy the economy of the people. A tax, however, is not held void on the ground of want of public interest unless the want of such interest is clear. (71 Am. Jur. pp. 371-372)
In the case at bar, the plaintiff
paid the amount of P6,698,144.00 to the Fertilizer and Pesticide
Authority pursuant to the P10 per bag of fertilizer sold imposition
under LOI 1465 which, in turn, remitted the amount to the defendant Planters
Products, Inc. thru the latter’s depository bank, Far East Bank and Trust
Co. Thus, by virtue of LOI 1465 the
plaintiff, Fertiphil Corporation, which is a private domestic corporation, became
poorer by the amount of P6,698,144.00 and the defendant, Planters
Product, Inc., another private domestic corporation, became richer by the
amount of P6,698,144.00.
Tested by the standards of
constitutionality as set forth in the afore-quoted jurisprudence, it is quite
evident that LOI 1465 insofar as it imposes the amount of P10 per
fertilizer bag sold in the country and orders that the said amount should go to
the defendant Planters Product, Inc. is unlawful because it violates the
mandate that a tax can be levied only for a public purpose and not to benefit,
aid and promote a private enterprise such as Planters Product, Inc.[12]
PPI
moved for reconsideration but its motion was denied.[13] PPI then filed a notice of appeal with the
CA Decision
On
IN
VIEW OF
In
affirming the
The question then is whether it was
proper for the trial court to exercise its power to judicially determine the
constitutionality of the subject statute in the instant case.
As a rule, where the controversy can
be settled on other grounds, the courts will not resolve the constitutionality
of a law (Lim v. Pacquing, 240 SCRA
649 [1995]). The policy of the courts is to avoid
ruling on constitutional questions and to presume that the acts of political
departments are valid, absent a clear and unmistakable showing to the contrary.
However, the courts are not
precluded from exercising such power when the following requisites are
obtaining in a controversy before it:
First, there must be before the court an actual case calling for the
exercise of judicial review. Second, the
question must be ripe for adjudication.
Third, the person challenging the validity of the act must have standing
to challenge. Fourth, the question of
constitutionality must have been raised at the earliest opportunity; and
lastly, the issue of constitutionality must be the very lis mota of the case (Integrated
Bar of the Philippines v. Zamora, 338 SCRA 81 [2000]).
Indisputably, the present case was
primarily instituted for collection and damages. However, a perusal of the complaint also
reveals
that the instant action is founded on the claim that the levy imposed was an
unlawful and unconstitutional special assessment. Consequently, the requisite that the
constitutionality of the law in question be the very lis mota of the case is present, making it proper for the trial
court to rule on the constitutionality of LOI 1465.[16]
The
CA held that even on the assumption that LOI No. 1465 was issued under the
police power of the state, it is still unconstitutional because it did not
promote public welfare. The CA explained:
In
declaring LOI 1465 unconstitutional, the trial court held that the levy imposed
under the said law was an invalid exercise of the State’s power of taxation
inasmuch as it violated the inherent and constitutional prescription that
taxes be levied only for public purposes.
It reasoned out that the amount collected under the levy was remitted to
the depository bank of PPI, which the
latter used to advance its private interest.
On the other hand, appellant submits
that the subject statute’s passage was a valid exercise of police power. In addition, it disputes the court a quo’s findings arguing that the
collections under LOI 1465 was for the benefit of Planters Foundation,
Incorporated (
Of the three fundamental powers of
the State, the exercise of police power has been characterized as the most
essential, insistent and the least limitable of powers, extending as it does to
all the great public needs. It may be
exercised as long as the activity or the property sought to be regulated has
some relevance to public welfare (Constitutional Law, by Isagani A. Cruz, p.
38, 1995 Edition).
Vast as the power is, however, it
must be exercised within the limits set by the Constitution, which requires the
concurrence of a lawful subject and a lawful method. Thus, our courts have laid down the test to
determine the validity of a police measure as follows: (1) the interests of the
public generally, as distinguished from those of a particular class, requires
its exercise; and (2) the means employed are reasonably necessary for the
accomplishment of the purpose and not unduly oppressive upon individuals (National Development Company v. Philippine
Veterans Bank, 192 SCRA 257 [1990]).
It is upon applying this established
tests that We sustain the trial court’s holding LOI 1465 unconstitutional. To be sure, ensuring the continued supply
and distribution of fertilizer in the country is an undertaking imbued with
public interest. However, the method by
which LOI 1465 sought to achieve this is by no means a measure that will
promote the public welfare. The
government’s commitment to support the successful rehabilitation and continued
viability of PPI, a private corporation, is an unmistakable attempt to mask the
subject statute’s impartiality. There is
no way to treat the self-interest of a favored entity,
like PPI, as identical with the general interest of the country’s farmers or
even the Filipino people in general.
Well to stress, substantive due process exacts fairness and equal protection
disallows distinction where none is needed.
When a statute’s public purpose is spoiled by private interest, the use
of police power becomes a travesty which must be struck down for being an
arbitrary exercise of government power. To
rule in favor of appellant would contravene the general principle that revenues
derived from taxes cannot be used for purely private purposes or for the
exclusive benefit of private individuals.[17]
The CA did
not accept PPI’s claim that the levy imposed under LOI No. 1465 was for the
benefit of Planters Foundation, Inc., a foundation created to hold in trust the
stock ownership of PPI. The CA stated:
Appellant next claims that the
collections under LOI 1465 was for the benefit of Planters Foundation,
Incorporated (
“2. Upon the effective date of this
Letter of Undertaking, the Republic shall cause FPA to include in its
fertilizer pricing formula a capital recovery component, the proceeds of which
will be used initially for the purpose of funding the unpaid portion of the
outstanding capital stock of Planters presently held in trust by Planters
Foundation, Inc. (Planters Foundation), which unpaid capital is estimated at
approximately P206 million (subject to validation by Planters and
Planters Foundation) (such unpaid portion of the outstanding capital stock of
Planters being hereafter referred to as the ‘Unpaid Capital’), and subsequently
for such capital increases as may be required for the continuing viability of
Planters.
The capital recovery component shall
be in the minimum amount of P10 per bag, which will be added to the
price of all domestic sales of fertilizer in the
The capital recovery component shall
continue to be charged and collected until payment in full of (a) the Unpaid
Capital and/or (b) any shortfall in the payment of the Subsidy Receivables, (c)
any carrying cost accruing from the date hereof on the amounts which may be
outstanding from time to time of the Unpaid Capital and/or the Subsidy
Receivables and (d) the capital increases contemplated in paragraph 2
hereof. For the purpose of the foregoing
clause (c), the ‘carrying cost’ shall be at such rate as will represent the
full and reasonable cost to Planters of servicing its debts, taking into
account both its peso and foreign currency-denominated obligations.” (Records,
pp. 42-43)
Appellant’s proposition is open to
question, to say the least. The LOU
issued by then Prime Minister Virata taken together with the Justice
Secretary’s Opinion does not preponderantly demonstrate that the collections
made were held in trust in favor of millions of farmers. Unfortunately for appellant, in the absence
of sufficient evidence to establish its claims, this Court is constrained to
rely on what is explicitly provided in LOI 1465 – that one of the primary aims
in imposing the levy is to support the successful rehabilitation and continued
viability of PPI.[18]
PPI moved for reconsideration but its
motion was denied.[19] It then filed the present petition with this
Court.
Issues
Petitioner
PPI raises four issues for Our consideration, viz.:
I
THE
CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY ATTACKED
II
LOI 1465,
BEING A LAW IMPLEMENTED FOR THE PURPOSE OF ASSURING THE FERTILIZER SUPPLY
THE AMOUNT COLLECTED
UNDER THE CAPITAL RECOVERY COMPONENT WAS REMITTED TO THE GOVERNMENT,
IV
THE PRINCIPLE OF
UNJUST VEXATION (SHOULD BE ENRICHMENT) FINDS NO APPLICATION IN THE INSTANT CASE.[20] (Underscoring supplied)
Our Ruling
We
shall first tackle the procedural issues of locus
standi and the jurisdiction of the
Fertiphil has locus standi because it suffered direct
injury; doctrine of standing is a mere procedural technicality which may be
waived.
PPI argues that Fertiphil has no locus standi to question the
constitutionality of LOI No. 1465 because it does not have a “personal and
substantial interest in the case or will sustain direct injury as a result of
its enforcement.”[21] It asserts that Fertiphil did not suffer any
damage from the
We cannot agree. The doctrine of locus standi or the right of appearance in a court of justice has
been adequately discussed by this Court in a catena of cases. Succinctly put, the doctrine requires a
litigant to have a material interest in the outcome of a case. In private suits, locus standi requires a litigant to be a “real party in interest,”
which is defined as “the
party who stands to be benefited or injured by the judgment in the suit or the
party entitled to the avails of the suit.”[23]
In public suits, this Court recognizes
the difficulty of applying the doctrine especially when plaintiff
asserts a public right on behalf of the general public because of conflicting
public policy issues. [24] On one end, there is the right of the
ordinary citizen to petition the courts to be freed from unlawful government
intrusion and illegal official action. At the other end, there is the public policy
precluding excessive judicial interference in official acts, which may
unnecessarily hinder the delivery of basic public services.
In this jurisdiction, We have adopted
the “direct injury test” to determine locus
standi in public suits. In People v. Vera,[25]
it was held that a person who impugns the validity of a statute must have
“a personal and substantial interest in the case such that he has sustained, or
will sustain direct injury as a result.” The “direct injury test” in public suits is
similar to the “real party in interest” rule for private suits under Section 2,
Rule 3 of the 1997 Rules of Civil Procedure.[26]
Recognizing
that a strict application of the “direct injury” test may hamper public
interest, this Court relaxed the requirement in cases of “transcendental
importance” or with “far reaching implications.” Being a mere procedural technicality, it has
also been held that locus standi may
be waived in the public interest.[27]
Whether or not the complaint for
collection is characterized as a private or public suit, Fertiphil has locus standi to file it. Fertiphil suffered a direct injury from the
enforcement of LOI No. 1465. It was
required, and it did pay, the P10 levy imposed for every bag of
fertilizer sold on the domestic market. It may be true that Fertiphil has passed some
or all of the levy to the ultimate consumer, but that
does not disqualify it from attacking the constitutionality of the LOI or from
seeking a refund. As seller, it bore the
ultimate burden of paying the levy. It
faced the possibility of severe sanctions for failure to pay the levy. The fact of payment is sufficient injury to
Fertiphil.
Moreover, Fertiphil suffered harm
from the enforcement of the LOI because it was compelled to factor in its
product the levy. The levy certainly
rendered the fertilizer products of Fertiphil and other domestic sellers much
more expensive. The harm to their
business consists not only in fewer clients because of the increased price, but
also in adopting alternative corporate strategies to meet the demands of LOI No.
1465. Fertiphil and other fertilizer
sellers may have shouldered all or part of the levy just to be competitive in
the market. The harm occasioned on the
business of Fertiphil is sufficient injury for purposes of locus standi.
Even assuming arguendo that there is no direct injury, We find that the liberal
policy consistently adopted by this Court on locus standi must apply. The
issues raised by Fertiphil are of paramount public importance. It involves not only the constitutionality of
a tax law but, more importantly, the use of taxes for public purpose. Former President Marcos issued LOI No. 1465
with the intention of rehabilitating an ailing private company. This is clear from the text of the LOI. PPI is expressly named in the LOI as the
direct beneficiary of the levy. Worse,
the levy was made dependent and conditional upon PPI becoming financially
viable. The LOI provided that “the capital contribution shall be collected
until adequate capital is raised to make PPI viable.”
The
constitutionality of the levy is already in doubt on a plain reading of the
statute. It is Our constitutional duty
to squarely resolve the issue as the final arbiter of all justiciable
controversies. The doctrine of standing,
being a mere procedural technicality, should be waived, if at all, to
adequately thresh out an important constitutional issue.
PPI insists that the
Fertiphil counters that the
constitutionality of the LOI was adequately pleaded in its complaint. It claims that the constitutionality of LOI No.
1465 is the very lis mota of the case
because the trial court cannot determine its claim without resolving the issue.[30]
It is settled that the
SECTION 5. The Supreme Court shall have the following powers:
x x x x
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court may provide, final judgments and orders of lower courts in:
(a) All cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question. (Underscoring supplied)
In Mirasol v. Court of Appeals,[31] this
Court recognized the power of the
On the first issue. It is settled that Regional Trial Courts have the authority and jurisdiction to consider the constitutionality of a statute, presidential decree, or executive order. The Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation not only in this Court, but in all Regional Trial Courts.[32]
In the recent case of Equi-Asia Placement, Inc. v. Department of
Foreign Affairs,[33]
this Court reiterated:
There
is no denying that regular courts have jurisdiction over cases involving the
validity or constitutionality of a rule or regulation issued by administrative
agencies. Such jurisdiction, however, is
not limited to the Court of Appeals or to this Court alone for even the
regional trial courts can take cognizance of actions assailing a specific rule
or set of rules promulgated by administrative bodies. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or
executive agreement, presidential decree, order, instruction, ordinance, or
regulation in the courts, including the regional trial courts.[34]
Judicial review of official acts on
the ground of unconstitutionality may be sought or availed of through any of
the actions cognizable by courts of justice, not necessarily in a suit for
declaratory relief. Such review may be
had in criminal actions, as in People v.
Ferrer[35]
involving the constitutionality of the now defunct Anti-Subversion law, or in
ordinary actions, as in Krivenko v.
Register of Deeds[36] involving
the constitutionality of laws prohibiting aliens from acquiring public lands. The constitutional issue, however, (a) must be
properly raised and presented in the case, and (b) its resolution is necessary to a
determination of the case, i.e., the issue of constitutionality must be the
very lis mota presented.[37]
Contrary to PPI’s claim, the
constitutionality of LOI No. 1465 was properly and adequately raised in the
complaint for collection filed with the
6. The P10 per bag levied under LOI 1465 on domestic sales of all grades of
fertilizer in the Philippines, is unlawful, unjust, uncalled for,
unreasonable, inequitable and oppressive because:
x x x x
(c) It favors only one private domestic corporation, i.e., defendant PPPI, and imposed at the expense and disadvantage of the other fertilizer importers/distributors who were themselves in tight business situation and were then exerting all efforts and maximizing management and marketing skills to remain viable;
x x x x
(e) It was a glaring example of crony capitalism, a forced program through which the PPI, having been presumptuously masqueraded as “the” fertilizer industry itself, was the sole and anointed beneficiary;
7. The
The constitutionality of LOI No. 1465
is also the very lis mota of the
complaint for collection. Fertiphil
filed the complaint to compel PPI to refund the levies paid under the statute
on the ground that the law imposing the levy is unconstitutional. The thesis is that an unconstitutional law is
void. It has no legal effect. Being void, Fertiphil had no legal obligation
to pay the levy. Necessarily, all levies
duly paid pursuant to an unconstitutional law should be refunded under the
civil code principle against unjust enrichment. The refund is a mere consequence of the law
being declared unconstitutional. The
The P10 levy under LOI No. 1465 is an exercise
of the power of taxation.
At
any rate, the Court holds that the
PPI insists that LOI No. 1465 is a
valid exercise either of the police power or the power of taxation. It claims that the LOI was implemented for the
purpose of assuring the fertilizer supply and distribution in the country and
for benefiting a foundation created by law to hold in trust for millions of
farmers their stock ownership in PPI.
Fertiphil counters that the LOI is
unconstitutional because it was enacted to give benefit to a private company. The levy was imposed to pay the corporate debt
of PPI. Fertiphil also argues that, even
if the LOI is enacted under the police power, it is still unconstitutional
because it did not promote the general welfare of the people or public
interest.
Police power and the power of
taxation are inherent powers of the State. These powers are distinct and have different
tests for validity. Police power is the
power of the State to enact legislation that may interfere with personal
liberty or property in order to promote the general welfare,[39]
while the power of taxation is the power to levy taxes to be used for public
purpose. The main purpose of police
power is the regulation of a behavior or conduct, while taxation is revenue
generation. The “lawful subjects” and “lawful
means” tests are used to determine the validity of a law enacted under the
police power.[40] The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations.
We agree with the
In Philippine Airlines, Inc. v. Edu,[43]
it was held that the imposition of a vehicle registration fee is not an
exercise by the State of its police power, but of its taxation power, thus:
It is clear from the provisions of Section 73 of Commonwealth Act 123 and Section 61 of the Land Transportation and Traffic Code that the legislative intent and purpose behind the law requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay for the operating expenses of the administering agency. x x x Fees may be properly regarded as taxes even though they also serve as an instrument of regulation.
Taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148). If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. The same provision appears as Section 59(b) in the Land Transportation Code. It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the imposition on the registration, operation or ownership of a motor vehicle as a “tax or fee.” x x x Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an “additional” tax. Rep. Act 4136 also speaks of other “fees” such as the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec. 11). These are not to be understood as taxes because such fees are very minimal to be revenue-raising. Thus, they are not mentioned by Sec. 59(b) of the Code as taxes like the motor vehicle registration fee and chauffeurs’ license fee. Such fees are to go into the expenditures of the Land Transportation Commission as provided for in the last proviso of Sec. 61.[44] (Underscoring supplied)
The P10 levy under LOI No. 1465
is too excessive to serve a mere regulatory purpose. The levy, no doubt, was a big burden on the
seller or the ultimate consumer. It
increased the price of a bag of fertilizer by as much as five percent.[45] A plain reading of the LOI also supports the
conclusion that the levy was for revenue generation. The LOI expressly provided that the levy was
imposed “until adequate capital is raised to make PPI viable.”
Taxes are exacted only for a public purpose. The P10
levy is unconstitutional because it was not for a public purpose. The levy was
imposed to give undue benefit to PPI.
An inherent limitation on the power
of taxation is public purpose. Taxes are
exacted only for a public purpose. They
cannot be used for purely private purposes or for the exclusive benefit of
private persons.[46] The reason for this is simple. The power to tax exists for the general
welfare; hence, implicit in its power is the limitation that it should be used
only for a public purpose. It would be a
robbery for the State to tax its citizens and use the funds generated for a
private purpose. As an old United States
case bluntly put it: “To lay with one hand, the power of the government on the
property of the citizen, and with the other to bestow it upon favored
individuals to aid private enterprises and build up private fortunes, is
nonetheless a robbery because it is done under the forms of law and is called
taxation.”[47]
The term “public purpose” is not
defined. It is an elastic concept that
can be hammered to fit modern standards. Jurisprudence states that “public purpose”
should be given a broad interpretation. It does not only pertain to those purposes
which are traditionally viewed as essentially government functions, such as
building roads and delivery of basic services, but also includes those purposes
designed to promote social justice. Thus, public money may now be used for the
relocation of illegal settlers, low-cost housing and urban or agrarian reform.
While the categories of what may
constitute a public purpose are continually expanding in light of the expansion
of government functions, the inherent requirement that taxes can only be
exacted for a public purpose still stands. Public purpose is the heart of a tax law. When a tax law is only a mask to exact funds
from the public when its true intent is to give undue benefit and advantage to
a private enterprise, that law will not satisfy the requirement of “public
purpose.”
The purpose of a law is evident from
its text or inferable from other secondary sources. Here, We agree with the
First, the LOI
expressly provided that the levy be imposed to benefit PPI, a private company. The purpose is explicit from Clause 3 of the
law, thus:
3. The
Administrator of the Fertilizer Pesticide Authority to include in its
fertilizer pricing formula a capital contribution component of not less than
P10 per
bag. This capital contribution shall be
collected until adequate capital is raised to make PPI viable. Such
capital contribution shall be applied by FPA to all domestic sales of
fertilizers in the
It is a basic rule of statutory
construction that the text of a statute should be given a literal meaning. In this case, the text of the LOI is plain
that the levy was imposed in order to raise capital for PPI. The framers of the LOI did not even hide the
insidious purpose of the law. They were
cavalier enough to name PPI as the ultimate beneficiary of the taxes levied
under the LOI. We find it utterly
repulsive that a tax law would expressly name a private company as the ultimate
beneficiary of the taxes to be levied from the public. This is a clear case of crony capitalism.
Second, the
LOI provides that the imposition of the P10 levy was conditional and
dependent upon PPI becoming financially “viable.” This suggests that the levy
was actually imposed to benefit PPI. The
LOI notably does not fix a maximum amount when PPI is deemed financially
“viable.” Worse, the liability of
Fertiphil and other domestic sellers of fertilizer to pay the levy is made
indefinite. They are required to
continuously pay the levy until adequate capital is raised for PPI.
Third, the
Fourth, the
levy was used to pay the corporate debts of PPI. A reading of the Letter of Understanding[50]
dated
Republic
of the
Office of the Prime Minister
Manila
LETTER OF UNDERTAKING
TO: THE BANKING
LISTED IN ANNEX A HERETO WHICH
CREDITORS (COLLECTIVELY, THE “CREDITORS”)
OF PLANTERS PRODUCTS, INC. (“PLANTERS”)
Gentlemen:
This has reference to Planters which
is the principal importer and distributor of fertilizer, pesticides and
agricultural chemicals in the Philippines.
As regards Planters, the Philippine Government confirms its awareness of
the following: (1) that Planters has outstanding obligations in foreign currency
and/or pesos, to the Creditors, (2) that Planters is currently
experiencing financial difficulties, and (3) that there are presently
pending with the Securities and Exchange Commission of the Philippines a
petition filed at Planters’ own behest for the suspension of payment of all its
obligations, and a separate petition filed by Manufacturers Hanover Trust
Company, Manila Offshore Branch for the appointment of a rehabilitation
receiver for Planters.
In connection with the foregoing,
the Republic of the Philippines (the “Republic”) confirms that it considers and
continues to consider Planters as a major fertilizer distributor. Accordingly,
for and in consideration of your expressed willingness to consider and
participate in the effort to rehabilitate Planters, the Republic hereby
manifests its full and unqualified support of the successful rehabilitation and
continuing viability of Planters, and to that end, hereby binds and obligates
itself to the creditors and Planters, as follows:
x x
x x
2. Upon the effective date of this Letter of
Undertaking, the Republic shall cause FPA to include in its fertilizer
pricing formula a capital recovery component, the proceeds of which will be
used initially for the purpose of funding the unpaid portion of the outstanding
capital stock of Planters presently held
in trust by Planters Foundation, Inc. (“Planters Foundation”), which unpaid
capital is estimated at approximately P206 million (subject to
validation by Planters and Planters Foundation) such unpaid portion of the
outstanding capital stock of Planters being hereafter referred to as the
“Unpaid Capital”), and subsequently for such capital increases as may be
required for the continuing viability of Planters.
x x
x x
The
capital recovery component shall continue to be charged and collected until
payment in full of (a) the Unpaid Capital and/or (b) any shortfall in the
payment of the Subsidy Receivables, (c) any carrying cost accruing from the
date hereof on the amounts which may be outstanding from time to time of the
Unpaid Capital and/or the Subsidy Receivables, and (d) the capital increases
contemplated in paragraph 2 hereof. For
the purpose of the foregoing clause (c), the “carrying cost” shall be at such
rate as will represent the full and reasonable cost to Planters of servicing
its debts, taking into account both its peso and foreign currency-denominated
obligations.
REPUBLIC OF THE
PHILIPPINES
By:
(signed)
CESAR
E. A. VIRATA
Prime
Minister and Minister of Finance[51]
It is clear from the Letter of
Understanding that the levy was imposed precisely to pay the corporate debts of
PPI. We cannot agree with PPI that the
levy was imposed to ensure the stability of the fertilizer industry in the
country. The letter of understanding and
the plain text of the LOI clearly indicate that the levy was exacted for the
benefit of a private corporation.
All told, the
The LOI is still unconstitutional even if enacted
under the police power; it did not promote public interest.
Even
if We consider LOI No. 1695 enacted under the police power of the State, it
would still be invalid for failing to comply with the test of “lawful subjects”
and “lawful means.” Jurisprudence states
the test as follows: (1) the interest of the public generally, as
distinguished from those of particular class, requires its exercise; and (2) the
means employed are reasonably necessary for the accomplishment of the purpose
and not unduly oppressive upon individuals.[52]
For the same reasons as discussed, LOI
No. 1695 is invalid because it did not promote public interest. The law was enacted to give undue advantage to
a private corporation. We quote with
approval the CA ratiocination on this point, thus:
It
is upon applying this established tests that We sustain the trial court’s
holding LOI 1465 unconstitutional. To be sure, ensuring the continued supply
and distribution of fertilizer in the country is an undertaking imbued with
public interest. However, the method by
which LOI 1465 sought to achieve this is by no means a measure that will
promote the public welfare. The
government’s commitment to support the successful rehabilitation and continued
viability of PPI, a private corporation, is an unmistakable attempt to mask the
subject statute’s impartiality. There is
no way to treat the self-interest of a favored entity, like PPI, as identical with
the general interest of the country’s farmers or even the Filipino people in
general. Well to stress, substantive
due process exacts fairness and equal protection disallows distinction where
none is needed. When a statute’s
public purpose is spoiled by private interest, the use of police power becomes
a travesty which must be struck down for being an arbitrary exercise of
government power. To rule in favor
of appellant would contravene the general principle that revenues derived from
taxes cannot be used for purely private purposes or for the exclusive benefit
of private individuals. (Underscoring
supplied)
The general rule is that an unconstitutional law is
void; the doctrine of operative fact is inapplicable.
PPI also argues that Fertiphil cannot
seek a refund even if LOI No. 1465 is declared unconstitutional. It banks on the doctrine of operative fact,
which provides that an unconstitutional law has an effect before being declared
unconstitutional. PPI wants to retain
the levies paid under LOI No. 1465 even if it is subsequently declared to be
unconstitutional.
We cannot agree. It is settled that
no question, issue or argument will be entertained on appeal, unless it has
been raised in the court a quo.[53] PPI did not raise the applicability of the
doctrine of operative fact with the
At any rate, We find the doctrine
inapplicable. The general rule is that
an unconstitutional law is void. It
produces no rights, imposes no duties and affords no protection. It has no
legal effect. It is, in legal
contemplation, inoperative as if it has not been passed.[54] Being void, Fertiphil is not required to pay
the levy. All levies paid should be
refunded in accordance with the general civil code principle against unjust
enrichment. The general rule is
supported by Article 7 of the Civil Code, which provides:
When
the courts declare a law to be inconsistent with the Constitution, the former
shall be void and the latter shall govern.
The doctrine of operative fact, as an
exception to the general rule, only applies as a matter of equity and fair play.[55]
It nullifies the effects of an
unconstitutional law by recognizing that the existence of a statute prior to a
determination of unconstitutionality is an operative fact and may have
consequences which cannot always be ignored. The past cannot always be erased by a new
judicial declaration.[56]
The
doctrine is applicable when a declaration of unconstitutionality will impose an
undue burden on those who have relied on the invalid law. Thus, it was applied to a criminal case when a
declaration of unconstitutionality would put the accused in double jeopardy[57]
or would put in limbo the acts done by a municipality in reliance upon a law
creating it.[58]
Here, We do
not find anything iniquitous in ordering PPI to refund the amounts paid by
Fertiphil under LOI No. 1465. It unduly
benefited from the levy. It was proven
during the trial that the levies paid were remitted and deposited to its bank
account. Quite the reverse, it would be
inequitable and unjust not to order a refund. To do so would unjustly enrich PPI at the
expense of Fertiphil. Article 22 of the
Civil Code explicitly provides that “every person who, through an act of
performance by another comes into possession of something at the expense of the
latter without just or legal ground shall return the same to him.” We cannot allow PPI to profit from an
unconstitutional law. Justice and equity
dictate that PPI must refund the amounts paid by Fertiphil.
WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated
SO ORDERED.
RUBEN T. REYES
Associate Justice
WE CONCUR:
CONSUELO
YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ MINITA V.
CHICO-NAZARIO
Associate Justice
Associate Justice
ANTONIO EDUARDO
B. NACHURA
Associate Justice
I
attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court’s Division.
CONSUELO
YNARES-SANTIAGO
Associate Justice
Chairperson
Pursuant to Section 13, Article VIII of the
Constitution and the Division Chairperson’s Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
[1] Rollo, pp. 51-59. Penned by Associate Justice Conrado M. Vasquez, Jr., with Associate Justices Bienvenido L. Reyes and Arsenio L. Magpale, concurring.
[2]
[3]
[4] Id. at 75.
[5]
[6]
[7] Id.
[8] Id. at 195-202.
[9]
[10]
[11]
[12] Id. at 76-77.
[13] Id. at 14.
[14] Id. at 83-93. G.R. No. 156278, entitled “Planters Products, Inc. v. Fertiphil Corporation.”
[15] Id. at 59.
[16] Id. at 54-55.
[17]
[18]
[19] Id. at 61-62.
[20]
[21]
[22] Id.
[23] Rules of Civil Procedure (1997), Rule 3, Sec. 2 provides:
“A real party-in-interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law of these Rules, every action must be prosecuted or defended in the name of the real party-in-interest.”
[24] David v. Macapagal-Arroyo, G.R. Nos.
171396, 171409, 171485, 171483, 171400, 171489 & 171424,
[25] 65 Phil. 56 (1937).
[26] See note 23.
[27] See note 24.
[28] Rollo, p. 17.
[29] Id. at 18.
[30] Id. at 290.
[31] G.R.
No. 128448,
[32] Mirasol v. Court of Appeals, id. at 51.
[33]
G.R. No. 152214,
[34] Equi-Asia Placement, Inc. v. Department of
Foreign Affairs, id. at 309.
[35] G.R. Nos. L-32613-14,
[36]
79 Phil. 461 (1947).
[37] Tropical Homes, Inc. v. National Housing
Authority, G.R. No. L-48672,
[38] Rollo, pp. 197-198.
[39] Edu v. Ericta, G.R. No. L-32096,
[40] Lim v. Pacquing, G.R. Nos. 115044 &
117263,
[41] Lutz v. Araneta, 98 Phil. 148 (1966).
[42] Philippine Airlines, Inc. v. Edu, G.R.
No. L-41383,
[43] Supra.
[44] Philippine Airlines, Inc. v. Edu, supra note 42, at
327-329.
[45] Rollo, p. 197.
[46] Cruz,
[47] Bernas,
J., The 1987 Constitution of the Republic of the
[48] Rollo, p. 155.
[49]
[50] Id. at 150-154.
[51]
[52]
[53] Cojuangco, Jr. v. Court of Appeals, G.R.
No. 119398,
[54] See note 46, at 33-34.
[55] Republic v. Court of Appeals, G.R. No.
79732,
[56] Peralta v. Civil Service Commission,
G.R. No. 95832,
[57] Tan v. Barrios, G.R. Nos. 85481-82,
[58]