Republic of the Philippines In section 2, Commonwealth Act 567 provides for an increase of the
SUPREME COURT existing tax on the manufacture of sugar, on a graduated basis, on each picul
Manila
EN BANC
G.R. No. L-7859 December 22, 1955
WALTER LUTZ, as Judicial Administrator of the Intestate Estate of
the deceased Antonio Jayme Ledesma,plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal
Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor
General Guillermo E. Torres and Solicitor Felicisimo R. Rosete for
appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of Negros Occidental
to test the legality of the taxes imposed by Commonwealth Act No. 567,
otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a
declaration of emergency, due to the threat to our industry by the imminent
imposition of export taxes upon sugar as provided in the Tydings-McDuffe
Act, and the "eventual loss of its preferential position in the United States
market"; wherefore, the national policy was expressed "to obtain a
readjustment of the benefits derived from the sugar industry by the
component elements thereof" and "to stabilize the sugar industry so as to
prepare it for the eventuality of the loss of its preferential position in the
United States market and the imposition of the export taxes."
of sugar manufactured; while section 3 levies on owners or persons in
control of lands devoted to the cultivation of sugar cane and ceded to others
for a consideration, on lease or otherwise —
a tax equivalent to the difference between the money value of the
rental or consideration collected and the amount representing 12
per centum of the assessed value of such land.
According to section 6 of the law —
SEC. 6. All collections made under this Act shall accrue to a
special fund in the Philippine Treasury, to be known as the 'Sugar
Adjustment and Stabilization Fund,' and shall be paid out only for
any or all of the following purposes or to attain any or all of the
following objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself,
despite the gradual loss of the preferntial position of the Philippine
sugar in the United States market, and ultimately to insure its
continued existence notwithstanding the loss of that market and the
consequent necessity of meeting competition in the free markets of
the world;
Second, to readjust the benefits derived from the sugar industry by
all of the component elements thereof — the mill, the landowner,
the planter of the sugar cane, and the laborers in the factory and in
the field — so that all might continue profitably to engage
therein;lawphi1.net
Third, to limit the production of sugar to areas more economically
suited to the production thereof; and
Fourth, to afford labor employed in the industry a living wage and
to improve their living and working conditions: Provided, That the
President of the Philippines may, until the adjourment of the next
regular session of the National Assembly, make the necessary
disbursements from the fund herein created (1) for the
 establishment and operation of sugar experiment station or stations
and the undertaking of researchers (a) to increase the recoveries of
the centrifugal sugar factories with the view of reducing
manufacturing costs, (b) to produce and propagate higher yielding
varieties of sugar cane more adaptable to different district
conditions in the Philippines, (c) to lower the costs of raising sugar
cane, (d) to improve the buying quality of denatured alcohol from
molasses for motor fuel, (e) to determine the possibility of utilizing
the other by-products of the industry, (f) to determine what crop or
crops are suitable for rotation and for the utilization of excess cane
lands, and (g) on other problems the solution of which would help
rehabilitate and stabilize the industry, and (2) for the improvement
of living and working conditions in sugar mills and sugar
plantations, authorizing him to organize the necessary agency or
agencies to take charge of the expenditure and allocation of said
funds to carry out the purpose hereinbefore enumerated, and,
likewise, authorizing the disbursement from the fund herein
created of the necessary amount or amounts needed for salaries,
wages, travelling expenses, equipment, and other sundry expenses
of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the
Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the
Collector of Internal Revenue the sum of P14,666.40 paid by the estate as
taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-
1950; alleging that such tax is unconstitutional and void, being levied for
the aid and support of the sugar industry exclusively, which in plaintiff's
opinion is not a public purpose for which a tax may be constitutioally
levied. The action having been dismissed by the Court of First Instance, the
plaintifs appealed the case directly to this Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax
provided for in Commonwealth Act No. 567 is a pure exercise of the taxing
power. Analysis of the Act, and particularly of section 6 (heretofore quoted
in full), will show that the tax is levied with a regulatory purpose, to provide
means for the rehabilitation and stabilization of the threatened sugar
industry. In other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of
the great industries of our nation, sugar occupying a leading position among
its export products; that it gives employment to thousands of laborers in
fields and factories; that it is a great source of the state's wealth, is one of
the important sources of foreign exchange needed by our government, and
is thus pivotal in the plans of a regime committed to a policy of currency
stability. Its promotion, protection and advancement, therefore redounds
greatly to the general welfare. Hence it was competent for the legislature to
find that the general welfare demanded that the sugar industry should be
stabilized in turn; and in the wide field of its police power, the lawmaking
body could provide that the distribution of benefits therefrom be readjusted
among its components to enable it to resist the added strain of the increase
in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed.
835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc.
vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus
industry in Florida —
The protection of a large industry constituting one of the great
sources of the state's wealth and therefore directly or indirectly
affecting the welfare of so great a portion of the population of the
State is affected to such an extent by public interests as to be
within the police power of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the
sugar industry is a matter of public concern, it follows that the Legislature
may determine within reasonable bounds what is necessary for its protection
and expedient for its promotion. Here, the legislative discretion must be
allowed fully play, subject only to the test of reasonableness; and it is not
contended that the means provided in section 6 of the law (above quoted)
bear no relation to the objective pursued or are oppressive in character. If
objective and methods are alike constitutionally valid, no reason is seen
why the state may not levy taxes to raise funds for their prosecution and
attainment. Taxation may be made the implement of the state's police power
(Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U.
S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat.
316, 4 L. Ed. 579).
That the tax to be levied should burden the sugar producers themselves can
hardly be a ground of complaint; indeed, it appears rational that the tax be
obtained precisely from those who are to be benefited from the expenditure Republic of the Philippines
of the funds derived from it. At any rate, it is inherent in the power to tax
that a state be free to select the subjects of taxation, and it has been Supreme Court
repeatedly held that "inequalities which result from a singling out of one Manila
particular class for taxation, or exemption infringe no constitutional
limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. THIRD DIVISION
Ed. 1245, citing numerous authorities, at p. 1251).

PLANTERS PRODUCTS, INC., G.R. No. 166006

From the point of view we have taken it appears of no moment that the
Petitioner,
funds raised under the Sugar Stabilization Act, now in question, should be
Present:
exclusively spent in aid of the sugar industry, since it is that very enterprise
YNARES-SANTIAGO, J.,
that is being protected. It may be that other industries are also in need of
C
similar protection; that the legislature is not required by the Constitution to
hair
adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs.
pers
Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the
on,
evil where it is most felt, it is not to be overthrown because there are other
AUSTRIA-MARTINEZ,
instances to which it might have been applied;" and that "the legislative
- versus - CHICO-NAZARIO,
authority, exerted within its proper field, need not embrace all the evils
NACHURA,
within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1,
and
81 L. Ed. 893).
REYES, JJ.

Even from the standpoint that the Act is a pure tax measure, it cannot be
said that the devotion of tax money to experimental stations to seek increase Promulgated:
of efficiency in sugar production, utilization of by-products and solution of FERTIPHIL CORPORATION,
allied problems, as well as to the improvements of living and working Respondent. March 14, 2008
conditions in sugar mills or plantations, without any part of such money
being channeled directly to private persons, constitutes expenditure of tax x--------------------------------------------------x
money for private purposes, (compare Everson vs. Board of Education, 91
L. Ed. 472, 168 ALR 1392, 1400). DECISION

The decision appealed from is affirmed, with costs against appellant. So

ordered. REYES, R.T., J.:

THE Regional Trial Courts (RTC) have the authority and jurisdiction to
consider the constitutionality of statutes, executive orders, presidential
 domestic sales of fertilizers in
decrees and other issuances. The Constitution vests that power not only in the the Philippines.[5] (Underscoring supplied)
Supreme Court but in all Regional Trial Courts.

Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it
The principle is relevant in this petition for review on certiorari of
sold in the domestic market to the Fertilizer and Pesticide Authority
the Decision[1] of the Court of Appeals (CA) affirming with modification that
(FPA). FPA then remitted the amount collected to the Far East Bank and Trust
of
Company, the depositary bank of PPI. Fertiphil paid P6,689,144 to FPA
the RTC in Makati City,[2] finding petitioner Planters Products, Inc. (PPI)
from July 8, 1985 to January 24, 1986.[6]
liable to private respondent Fertiphil Corporation (Fertiphil) for the levies it
paid under Letter of Instruction (LOI) No. 1465.
After the 1986 Edsa Revolution, FPA voluntarily stopped the
imposition of the P10 levy. With the return of democracy, Fertiphil demanded
The Facts
from PPI a refund of the amounts it paid under LOI No. 1465, but PPI refused
to accede to the demand.[7]
Petitioner PPI and private respondent Fertiphil are private
corporations incorporated under Philippine laws.[3] They are both engaged in
Fertiphil filed a complaint for collection and damages[8] against FPA
the importation and distribution of fertilizers, pesticides and agricultural
and PPI with the RTC in Makati. It questioned the constitutionality of LOI
chemicals.
No. 1465 for being unjust, unreasonable, oppressive, invalid and an unlawful
imposition that amounted to a denial of due process of law.[9] Fertiphil alleged
On June 3, 1985, then President Ferdinand Marcos, exercising his
that the LOI solely favored PPI, a privately owned corporation, which used
legislative powers, issued LOI No. 1465 which provided, among others, for
the proceeds to maintain its monopoly of the fertilizer industry.
the imposition of a capital recovery component (CRC) on the domestic sale
of all grades of fertilizers in the Philippines.[4] The LOI provides:
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
3. The Administrator of the Fertilizer Pesticide Authority
to include in its fertilizer pricing formula a capital State in ensuring the stability of the fertilizer industry in the country. It also
contribution component of not less than P10 per
bag. This capital contribution shall be collected until averred that Fertiphil did not sustain any damage from the LOI because the
adequate capital is raised to make PPI viable. Such burden imposed by the levy fell on the ultimate consumer, not the seller.
capital contribution shall be applied by FPA to all

RTC Disposition
On November 20, 1991, the RTC rendered judgment in favor of Fertiphil,
disposing as follows:
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 attorneys fees;
3) the cost of suit.
SO ORDERED.[11]
Ruling that the imposition of the P10 CRC was an exercise of the States
inherent power of taxation, the RTC invalidated the levy for violating the
basic principle that taxes can only be levied for public purpose, viz.:
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 latters 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 RTC but it failed to pay the requisite appeal docket
fee. In a separate but related proceeding, this Court[14] allowed the appeal of
PPI and remanded the case to the CA for proper disposition.
CA Decision
On November 28, 2003, the CA handed down its decision affirming with
modification that of the RTC, with the following fallo:
IN VIEW OF ALL THE FOREGOING, the
decision appealed from is hereby AFFIRMED, subject to
the MODIFICATION that the award of attorneys fees is
herebyDELETED.[15]
In affirming the RTC decision, the CA ruled that the lis mota of the complaint
for collection was the constitutionality of LOI No. 1465, thus:
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 States 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
statutes passage was a valid exercise of police power. In
addition, it disputes the court a quos findings arguing that
the collections under LOI 1465 was for the benefit of
Planters Foundation, Incorporated (PFI), a foundation
created by law to hold in trust for millions of farmers, the
stock ownership of PPI.
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 courts 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 governments commitment to
support the successful rehabilitation and continued
viability of PPI, a private corporation, is an unmistakable
attempt to mask the subject statutes impartiality. There is
no way to treat the self-interest of a favored entity,
like PPI, as identical with the general interest of the
countrys 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 statutes 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 PPIs 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
(PFI), a foundation created by law to hold in trust for
millions of farmers, the stock ownership of PFI on the
strength of Letter of Undertaking (LOU) issued by then
Prime Minister Cesar Virata on April 18, 1985 and
affirmed by the Secretary of Justice in an Opinion
dated October 12, 1987, to wit:
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 Philippinesby any importer and/or
fertilizer mother company. In this
connection, the Republic hereby
acknowledges that the advances by
Planters to Planters Foundation which
were applied to the payment of the
Planters shares now held in trust by
Planters Foundation, have been assigned
to, among others, the
Creditors. Accordingly, the Republic,
through FPA, hereby agrees to deposit
the proceeds of the capital recovery
component in the special trust account
designated in the notice dated April 2,
1985, addressed by counsel for the
Creditors to Planters Foundation. Such
proceeds shall be deposited by FPA on
or before the 15th day of each month.
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)
Appellants proposition is open to question, to say the
least. The LOU issued by then Prime Minister Virata taken
together with the Justice Secretarys 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]
 VIRTUE OF THE PRINCIPLE OF
PPI moved for reconsideration but its motion was denied.[19] It then OPERATIVE FACT PRIOR TO ANY DECLARATION
filed the present petition with this Court. OF UNCONSTITUTIONALITY OF LOI 1465.

IV
Issues THE PRINCIPLE OF UNJUST VEXATION (SHOULD
BE ENRICHMENT) FINDS NO APPLICATION IN THE
INSTANT CASE.[20] (Underscoring supplied)
Petitioner PPI raises four issues for Our consideration, viz.:

Our Ruling
I
THE CONSTITUTIONALITY OF LOI 1465 CANNOT
BE COLLATERALLY ATTACKED AND BE We shall first tackle the procedural issues of locus standi and the jurisdiction
DECREED VIA A DEFAULT JUDGMENT IN A CASE
FILED FOR COLLECTION AND DAMAGES WHERE of the RTC to resolve constitutional issues.
THE ISSUE OF CONSTITUTIONALITY IS NOT THE
VERY LIS MOTA OF THE CASE. NEITHER CAN LOI
Fertiphil has locus
1465 BE CHALLENGED BY ANY PERSON OR
standi because it
ENTITY WHICH HAS NO STANDING TO DO SO.
suffered direct injury;
doctrine of standing is
II
a mere procedural
LOI 1465, BEING A LAW IMPLEMENTED FOR THE
technicality which
PURPOSE OF ASSURING THE FERTILIZER
may be waived.
SUPPLY AND DISTRIBUTION IN THE
COUNTRY, AND FOR BENEFITING A FOUNDATION
CREATED BY LAW TO HOLD IN TRUST FOR
MILLIONS OF FARMERS THEIR STOCK PPI argues that Fertiphil has no locus standi to question the
OWNERSHIP IN PPI CONSTITUTES A VALID constitutionality of LOI No. 1465 because it does not have a personal and
LEGISLATION PURSUANT TO THE EXERCISE OF
TAXATION AND POLICE POWER FOR PUBLIC substantial interest in the case or will sustain direct injury as a result of its
PURPOSES. enforcement.[21] It asserts that Fertiphil did not suffer any damage from

III the CRC imposition because incidence of the levy fell on the ultimate
THE AMOUNT COLLECTED UNDER THE CAPITAL consumer or the farmers themselves, not on the seller fertilizer company.[22]
RECOVERY COMPONENT WAS REMITTED TO THE
GOVERNMENT, AND BECAME GOVERNMENT
FUNDS PURSUANT TO AN
We cannot agree. The doctrine of locus standi or the right of
EFFECTIVE AND VALIDLY ENACTED LAW WHICH
IMPOSED DUTIES AND CONFERRED RIGHTS BY 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
[24]
general public because of conflicting public policy issues. 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
[26]
Rules of Civil Procedure.
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.
RTC may resolve
constitutional issues;
the constitutional
issue was adequately
raised in the
complaint; it is the lis
mota of the case.
PPI insists that the RTC and the CA erred in ruling on the
constitutionality of the LOI. It asserts that the constitutionality of the LOI
cannot be collaterally attacked in a complaint for collection.[28] Alternatively,
the resolution of the constitutional issue is not necessary for a determination
of the complaint for collection.[29]
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 RTC has jurisdiction to resolve the
constitutionality of a statute, presidential decree or an executive order. This
is clear from Section 5, Article VIII of the 1987 Constitution, which provides:
SECTION 5. The Supreme Court shall have the
following powers:
xxxx
(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 RTC to resolve constitutional issues, thus:
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 PPIs claim, the constitutionality of LOI No. 1465 was
properly and adequately raised in the complaint for collection filed with
the RTC. The pertinent portions of the complaint allege:
6. The CRC of 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:
xxxx
(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;
xxxx
(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 CRC was an unlawful; and
unconstitutional special assessment and its imposition is
tantamount to illegal exaction amounting to a denial of due
process since the persons of entities which had to bear the
burden of paying the CRC derived no benefit therefrom;
that on the contrary it was used by PPI in trying to regain
its former despicable monopoly of the fertilizer industry to
the detriment of other distributors and
importers.[38] (Underscoring supplied)
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 RTC surely cannot order PPI to refund Fertiphil if it
does not declare the LOI unconstitutional. It is the unconstitutionality of the
LOI which triggers the refund. The issue of constitutionality is the very lis
mota of the complaint with the RTC.
The P10 levy under
LOI No. 1465 is an
exercise of the power
of taxation.
At any rate, the Court holds that the RTC and the CA did not err in ruling
against the constitutionality of the LOI.
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 RTC that the imposition of the levy was an
exercise by the State of its taxation power. While it is true that the power of
taxation can be used as an implement of police power,[41] the primary purpose
of the levy is revenue generation. 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.[42]
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 RTC and that CA that the levy
imposed under LOI No. 1465 was not for a public purpose.
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 Philippines.[48] (Underscoring supplied)
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
 Republic of the Philippines
company as the ultimate beneficiary of the taxes to be levied from the Office of the Prime Minister
public. This is a clear case of crony capitalism. Manila

LETTER OF UNDERTAKING
Second, the LOI provides that the imposition of the P10 levy was
M
conditional and dependent upon PPI becoming financially viable. This ay
suggests that the levy was actually imposed to benefit PPI. The LOI notably 18,
198
does not fix a maximum amount when PPI is deemed financially 5
viable. Worse, the liability of Fertiphil and other domestic sellers of fertilizer
TO: THE BANKING AND FINANCIAL
to pay the levy is made indefinite. They are required to continuously pay the INSTITUTIONS
LISTED IN ANNEX A HERETO WHICH ARE
levy until adequate capital is raised for PPI. CREDITORS (COLLECTIVELY, THE CREDITORS)
OF PLANTERS PRODUCTS, INC. (PLANTERS)

Third, the RTC and the CA held that the levies paid under the LOI
were directly remitted and deposited by FPA to Far East Bank and Trust
Company, the depositary bank of PPI.[49] This proves that PPI benefited from
the LOI. It is also proves that the main purpose of the law was to give undue
benefit and advantage to PPI.
Fourth, the levy was used to pay the corporate debts of PPI. A
reading of the Letter of Understanding[50] dated May 18, 1985 signed by then
Prime Minister Cesar Virata reveals that PPI was in deep financial problem
because of its huge corporate debts. There were pending petitions for
rehabilitation against PPI before the Securities and Exchange
Commission. The government guaranteed payment of PPIs debts to its
foreign creditors. To fund the payment, President Marcos issued LOI No.
1465. The pertinent portions of the letter of understanding read:
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:
xxxx
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.
xxxx
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 RTC and the CA did not err in holding that the levy
imposed under LOI No. 1465 was not for a public purpose. LOI No. 1465
failed to comply with the public purpose requirement for tax laws.
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
 operative fact is
for the accomplishment of the purpose and not unduly oppressive upon inapplicable.
individuals.[52]
For the same reasons as discussed, LOI No. 1695 is invalid because it did not
PPI also argues that Fertiphil cannot seek a refund even if LOI No.
promote public interest. The law was enacted to give undue advantage to a
1465 is declared unconstitutional. It banks on the doctrine of operative fact,
private corporation. We quote with approval the CA ratiocination on this
which provides that an unconstitutional law has an effect before being
point, thus:
declared unconstitutional. PPI wants to retain the levies paid under LOI No.
1465 even if it is subsequently declared to be unconstitutional.
It is upon applying this established tests that We
sustain the trial courts holding LOI 1465 unconstitutional.
To be sure, ensuring the continued supply and distribution
of fertilizer in the country is an undertaking imbued with We cannot agree. It is settled that no question, issue or argument will
public interest. However, the method by which LOI 1465 be entertained on appeal, unless it has been raised in the court a quo.[53] PPI
sought to achieve this is by no means a measure that will
promote the public welfare. The governments commitment did not raise the applicability of the doctrine of operative fact with
to support the successful rehabilitation and continued the RTC and the CA. It cannot belatedly raise the issue with Us in order to
viability of PPI, a private corporation, is an unmistakable
attempt to mask the subject statutes impartiality. There is extricate itself from the dire effects of an unconstitutional law.
no way to treat the self-interest of a favored entity, like PPI,
as identical with the general interest of the countrys farmers
or even the Filipino people in general. Well to stress, At any rate, We find the doctrine inapplicable. The general rule is
substantive due process exacts fairness and equal
that an unconstitutional law is void. It produces no rights, imposes no duties
protection disallows distinction where none is
needed. When a statutes public purpose is spoiled by and affords no protection. It has no legal effect. It is, in legal contemplation,
private interest, the use of police power becomes a travesty
which must be struck down for being an arbitrary exercise inoperative as if it has not been passed.[54] Being void, Fertiphil is not required
of government power. To rule in favor of appellant would to pay the levy. All levies paid should be refunded in accordance with the
contravene the general principle that revenues derived from
taxes cannot be used for purely private purposes or for the general civil code principle against unjust enrichment. The general rule is
exclusive benefit of private individuals. (Underscoring supported by Article 7 of the Civil Code, which provides:
supplied)

ART. 7. Laws are repealed only by subsequent

The general rule is ones, and their violation or non-observance shall not be
that an excused by disuse or custom or practice to the contrary.
unconstitutional law
is void; the doctrine of
 When the courts declare a law to be inconsistent
with the Constitution, the former shall be void and the latter law. Justice and equity dictate that PPI must refund the amounts paid by
shall govern. Fertiphil.

The doctrine of operative fact, as an exception to the general rule, WHEREFORE, the petition is DENIED. The Court of Appeals Decision
[55]
only applies as a matter of equity and fair play. It nullifies the effects of an dated November 28, 2003 is AFFIRMED.
unconstitutional law by recognizing that the existence of a statute prior to a
SO ORDERED.
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] Republic of the Philippines
SUPREME COURT
Manila
The doctrine is applicable when a declaration of unconstitutionality
EN BANC
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
G.R. No. 92585 May 8, 1992
in limbo the acts done by a municipality in reliance upon a law creating it.[58]
CALTEX PHILIPPINES, INC., petitioner,
vs.
Here, We do not find anything iniquitous in ordering PPI to refund THE HONORABLE COMMISSION ON AUDIT, HONORABLE
COMMISSIONER BARTOLOME C. FERNANDEZ and
the amounts paid by Fertiphil under LOI No. 1465. It unduly benefited from
HONORABLE COMMISSIONER ALBERTO P. CRUZ, respondents.
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 DAVIDE, JR., J.:
of Fertiphil. Article 22 of the Civil Code explicitly provides that every person
This is a petition erroneously brought under Rule 44 of the Rules of
who, through an act of performance by another comes into possession of Court 1 questioning the authority of the Commission on Audit (COA) in
something at the expense of the latter without just or legal ground shall return disallowing petitioner's claims for reimbursement from the Oil Price
Stabilization Fund (OPSF) and seeking the reversal of said Commission's
the same to him. We cannot allow PPI to profit from an unconstitutional decision denying its claims for recovery of financing charges from the Fund
and reimbursement of underrecovery arising from sales to the National
Power Corporation, Atlas Consolidated Mining and Development a) Any increase in the tax collection
Corporation (ATLAS) and Marcopper Mining Corporation (MAR- from ad valorem tax or customs duty
COPPER), preventing it from exercising the right to offset its remittances imposed on petroleum products subject
against its reimbursement vis-a-vis the OPSF and disallowing its claims to tax under this Decree arising from
which are still pending resolution before the Office of Energy Affairs exchange rate adjustment, as may be
(OEA) and the Department of Finance (DOF). determined by the Minister of Finance
in consultation with the Board of
Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the Energy;
Constitutional Commissions 3 may be brought to this Court on certiorari by
the aggrieved party within thirty (30) days from receipt of a copy thereof. b) Any increase in the tax collection as
The certiorari referred to is the special civil action for certiorari under Rule a result of the lifting of tax exemptions
65 of the Rules of Court. 4 of government corporations, as may be
determined by the Minister of Finance
Considering, however, that the allegations that the COA acted with: in consultation with the Board of
(a) total lack of jurisdiction in completely ignoring and showing absolutely Energy;
no respect for the findings and rulings of the administrator of the fund itself
and in disallowing a claim which is still pending resolution at the OEA c) Any additional amount to be imposed
level, and (b) "grave abuse of discretion and completely without on petroleum products to augment the
jurisdiction" 5 in declaring that petitioner cannot avail of the right to offset resources of the Fund through an
any amount that it may be required under the law to remit to the OPSF appropriate Order that may be issued by
against any amount that it may receive by way of reimbursement therefrom the Board of Energy requiring payment
are sufficient to bring this petition within Rule 65 of the Rules of Court, by persons or companies engaged in the
and, considering further the importance of the issues raised, the error in the business of importing, manufacturing
designation of the remedy pursued will, in this instance, be excused. and/or marketing petroleum products;

The issues raised revolve around the OPSF created under Section 8 of
Presidential Decree (P.D.) No. 1956, as amended by Executive Order (E.O.)
No. 137. As amended, said Section 8 reads as follows:
Sec. 8 . There is hereby created a Trust Account in the
books of accounts of the Ministry of Energy to be
designated as Oil Price Stabilization Fund (OPSF) for the
purpose of minimizing frequent price changes brought
about by exchange rate adjustments and/or changes in
world market prices of crude oil and imported petroleum
products. The Oil Price Stabilization Fund may be
sourced from any of the following:
d) Any resulting peso cost differentials
in case the actual peso costs paid by oil
companies in the importation of crude
oil and petroleum products is less than
the peso costs computed using the
reference foreign exchange rate as fixed
by the Board of Energy.
The Fund herein created shall be used for the following:
1) To reimburse the oil companies for
cost increases in crude oil and imported
petroleum products resulting from
exchange rate adjustment and/or
 increase in world market prices of crude The material operative facts of this case, as gathered from the pleadings of
oil; the parties, are not disputed.

2) To reimburse the oil companies for On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI),
possible cost under-recovery incurred as hereinafter referred to as Petitioner, directing the latter to remit to the OPSF
a result of the reduction of domestic its collection, excluding that unremitted for the years 1986 and 1988, of the
prices of petroleum products. The additional tax on petroleum products authorized under the aforesaid Section
magnitude of the underrecovery, if any, 8 of P.D. No. 1956 which, as of 31 December 1987, amounted to
shall be determined by the Ministry of P335,037,649.00 and informing it that, pending such remittance, all of its
Finance. "Cost underrecovery" shall claims for reimbursement from the OPSF shall be held in abeyance. 6
include the following:
On 9 March 1989, the COA sent another letter to petitioner informing it that
i. Reduction in oil partial verification with the OEA showed that the grand total of its
company take as unremitted collections of the above tax is P1,287,668,820.00, broken down
directed by the Board as follows:
of Energy without the
corresponding 1986 —
reduction in the P233,190,91
landed cost of oil 6.00
inventories in the 1987 —
possession of the oil 335,065,650.
companies at the time 00
of the price change; 1988 —
719,412,254.
ii. Reduction in 00;
internal ad
valorem taxes as a directing it to remit the same, with interest and surcharges thereon, within
result of foregoing sixty (60) days from receipt of the letter; advising it that the COA will hold
government mandated in abeyance the audit of all its claims for reimbursement from the OPSF;
price reductions; and directing it to desist from further offsetting the taxes collected against
outstanding claims in 1989 and subsequent periods. 7
iii. Other factors as
may be determined by In its letter of 3 May 1989, petitioner requested the COA for an early release
the Ministry of of its reimbursement certificates from the OPSF covering claims with the
Finance to result in Office of Energy Affairs since June 1987 up to March 1989, invoking in
cost underrecovery. support thereof COA Circular No. 89-299 on the lifting of pre-audit of
government transactions of national government agencies and government-
The Oil Price Stabilization Fund (OPSF) shall be owned or controlled corporations. 8
administered by the Ministry of Energy.
In its Answer dated 8 May 1989, the COA denied petitioner's request for the
early release of the reimbursement certificates from the OPSF and repeated
its earlier directive to petitioner to forward payment of the latter's
unremitted collections to the OPSF to facilitate COA's audit action on the
reimbursement claims. 9
By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to
the COA a proposal for the payment of the collections and the recovery of
claims, since the outright payment of the sum of P1.287 billion to the OEA
as a prerequisite for the processing of said claims against the OPSF will
cause a very serious impairment of its cash position. 10 The proposal reads:
We, therefore, very respectfully propose the following:
(1) Any procedural arrangement
acceptable to COA to facilitate
monitoring of payments and
reimbursements will be administered by
the ERB/Finance Dept./OEA, as
agencies designated by law to
administer/regulate OPSF.
(2) For the retroactive period, Caltex
will deliver to OEA, P1.287 billion as
payment to OPSF, similarly OEA will
deliver to Caltex the same amount in
cash reimbursement from OPSF.
(3) The COA audit will commence
immediately and will be conducted
expeditiously.
(4) The review of current claims (1989)
will be conducted expeditiously to
preclude further accumulation of
reimbursement from OPSF.
On 7 June 1989, the COA, with the Chairman taking no part, handed down
Decision No. 921 accepting the above-stated proposal but prohibiting
petitioner from further offsetting remittances and reimbursements for the
current and ensuing years. 11 Decision No. 921 reads:
This pertains to the within separate requests of Mr.
Manuel A. Estrella, President, Petron Corporation, and
Mr. Francis Ablan, President and Managing Director,
Caltex (Philippines) Inc., for reconsideration of this
Commission's adverse action embodied in its letters dated
February 2, 1989 and March 9, 1989, the former directing
immediate remittance to the Oil Price Stabilization Fund
of collections made by the firms pursuant to P.D. 1956, as
amended by E.O. No. 137, S. 1987, and the latter
reiterating the same directive but further advising the
firms to desist from offsetting collections against their
claims with the notice that "this Commission will hold in
abeyance the audit of all . . . claims for reimbursement
from the OPSF."
It appears that under letters of authority issued by the
Chairman, Energy Regulatory Board, the aforenamed oil
companies were allowed to offset the amounts due to the
Oil Price Stabilization Fund against their outstanding
claims from the said Fund for the calendar years 1987 and
1988, pending with the then Ministry of Energy, the
government entity charged with administering the OPSF.
This Commission, however, expressing serious doubts as
to the propriety of the offsetting of all types of
reimbursements from the OPSF against all categories of
remittances, advised these oil companies that such
offsetting was bereft of legal basis. Aggrieved thereby,
these companies now seek reconsideration and in support
thereof clearly manifest their intent to make arrangements
for the remittance to the Office of Energy Affairs of the
amount of collections equivalent to what has been
previously offset, provided that this Commission
authorizes the Office of Energy Affairs to prepare the
corresponding checks representing reimbursement from
the OPSF. It is alleged that the implementation of such an
arrangement, whereby the remittance of collections due to
the OPSF and the reimbursement of claims from the Fund
 shall be made within a period of not more than one week
from each other, will benefit the Fund and not unduly
jeopardize the continuing daily cash requirements of these
firms.
Upon a circumspect evaluation of the circumstances
herein obtaining, this Commission perceives no further
objectionable feature in the proposed arrangement,
provided that 15% of whatever amount is due from the
Fund is retained by the Office of Energy Affairs, the same
to be answerable for suspensions or disallowances, errors
or discrepancies which may be noted in the course of
audit and surcharges for late remittances without
prejudice to similar future retentions to answer for any
deficiency in such surcharges, and provided further that
no offsetting of remittances and reimbursements for the
current and ensuing years shall be allowed.
Pursuant to this decision, the COA, on 18 August 1989, sent the following
letter to Executive Director Wenceslao R. De la Paz of the Office of Energy
Affairs: 12
Dear Atty. dela Paz:
Pursuant to the Commission on Audit Decision No. 921
dated June 7, 1989, and based on our initial verification of
documents submitted to us by your Office in support of
Caltex (Philippines), Inc. offsets (sic) for the year 1986 to
May 31, 1989, as well as its outstanding claims against
the Oil Price Stabilization Fund (OPSF) as of May 31,
1989, we are pleased to inform your Office that Caltex
(Philippines), Inc. shall be required to remit to OPSF an
amount of P1,505,668,906, representing remittances to
the OPSF which were offset against its claims
reimbursements (net of unsubmitted claims). In addition,
the Commission hereby authorize (sic) the Office of
Energy Affairs (OEA) to cause payment of
P1,959,182,612 to Caltex, representing claims initially
allowed in audit, the details of which are presented
hereunder: . . .
As presented in the foregoing computation the
disallowances totalled P387,683,535, which included
P130,420,235 representing those claims disallowed by
OEA, details of which is (sic) shown in Schedule 1 as
summarized as follows:
Disallowance of COA
Particulars Amount
Recovery of financing charges
P162,728,475 /a
Product sales 48,402,398 /b
Inventory losses
Borrow loan arrangement 14,034,786 /c
Sales to Atlas/Marcopper 32,097,083 /d
Sales to NPC 558
——————
P257,263,300
Disallowances of OEA 130,420,235
————————— ——————
Total P387,683,535
The reasons for the disallowances are discussed
hereunder:
a. Recovery of Financing Charges
Review of the provisions of P.D. 1596 as amended by
E.O. 137 seems to indicate that recovery of financing
charges by oil companies is not among the items for
which the OPSF may be utilized. Therefore, it is our view
that recovery of financing charges has no legal basis. The
mechanism for such claims is provided in DOF Circular
1-87.
b. Product Sales –– Sales to International Vessels/Airlines
BOE Resolution No. 87-01 dated February 7, 1987 as
implemented by OEA Order No. 87-03-095 indicating
that (sic) February 7, 1987 as the effectivity date that (sic)
oil companies should pay OPSF impost on export sales of
petroleum products. Effective February 7, 1987 sales to
international vessels/airlines should not be included as
part of its domestic sales. Changing the effectivity date of
the resolution from February 7, 1987 to October 20, 1987
as covered by subsequent ERB Resolution No. 88-12
dated November 18, 1988 has allowed Caltex to include
in their domestic sales volumes to international
vessels/airlines and claim the corresponding
reimbursements from OPSF during the period. It is our
opinion that the effectivity of the said resolution should be
February 7, 1987.
c. Inventory losses –– Settlement of Ad Valorem
We reviewed the system of handling Borrow and Loan
(BLA) transactions including the related BLA agreement,
as they affect the claims for reimbursements of ad
valorem taxes. We observed that oil companies
immediately settle ad valorem taxes for BLA transaction
(sic). Loan balances therefore are not tax paid inventories
of Caltex subject to reimbursements but those of the
borrower. Hence, we recommend reduction of the claim
for July, August, and November, 1987 amounting to
P14,034,786.
d. Sales to Atlas/Marcopper
LOI No. 1416 dated July 17, 1984 provides that "I hereby
order and direct the suspension of payment of all taxes,
duties, fees, imposts and other charges whether direct or
indirect due and payable by the copper mining companies
in distress to the national and local governments." It is our
opinion that LOI 1416 which implements the exemption
from payment of OPSF imposts as effected by OEA has
no legal basis.
Furthermore, we wish to emphasize that payment to
Caltex (Phil.) Inc., of the amount as herein authorized
shall be subject to availability of funds of OPSF as of
May 31, 1989 and applicable auditing rules and
regulations. With regard to the disallowances, it is further
informed that the aggrieved party has 30 days within
which to appeal the decision of the Commission in
accordance with law.
On 8 September 1989, petitioner filed an Omnibus Request for the
Reconsideration of the decision based on the following grounds: 13
A) COA-DISALLOWED CLAIMS ARE AUTHORIZED
UNDER EXISTING RULES, ORDERS,
RESOLUTIONS, CIRCULARS ISSUED BY THE
DEPARTMENT OF FINANCE AND THE ENERGY
REGULATORY BOARD PURSUANT TO
EXECUTIVE ORDER NO. 137.
xxx xxx xxx
B) ADMINISTRATIVE INTERPRETATIONS IN THE
COURSE OF EXERCISE OF EXECUTIVE POWER BY
DEPARTMENT OF FINANCE AND ENERGY
REGULATORY BOARD ARE LEGAL AND SHOULD
BE RESPECTED AND APPLIED UNLESS
DECLARED NULL AND VOID BY COURTS OR
REPEALED BY LEGISLATION.
xxx xxx xxx
C) LEGAL BASIS FOR RETENTION OF OFFSET
ARRANGEMENT, AS AUTHORIZED BY THE
EXECUTIVE BRANCH OF GOVERNMENT,
REMAINS VALID.
 xxx xxx xxx
On 6 November 1989, petitioner filed with the COA a Supplemental
Omnibus Request for Reconsideration. 14
On 16 February 1990, the COA, with Chairman Domingo taking no part
and with Commissioner Fernandez dissenting in part, handed down
Decision No. 1171 affirming the disallowance for recovery of financing
charges, inventory losses, and sales to MARCOPPER and ATLAS, while
allowing the recovery of product sales or those arising from export
sales. 15 Decision No. 1171 reads as follows:
Anent the recovery of financing charges you contend that
Caltex Phil. Inc. has the .authority to recover financing
charges from the OPSF on the basis of Department of
Finance (DOF) Circular 1-87, dated February 18, 1987,
which allowed oil companies to "recover cost of financing
working capital associated with crude oil shipments,"
and provided a schedule of reimbursement in terms of
peso per barrel. It appears that on November 6, 1989, the
DOF issued a memorandum to the President of the
Philippines explaining the nature of these financing
charges and justifying their reimbursement as follows:
As part of your program to promote
economic recovery, . . . oil companies
(were authorized) to refinance their
imports of crude oil and petroleum
products from the normal trade credit of
30 days up to 360 days from date of
loading . . . Conformably . . ., the oil
companies deferred their foreign
exchange remittances for purchases by
refinancing their import bills from the
normal 30-day payment term up to the
desired 360 days. This refinancing of
importations carried additional costs
(financing charges) which then became,
due to government mandate, an inherent
part of the cost of the purchases of our
country's oil requirement.
We beg to disagree with such contention. The justification
that financing charges increased oil costs and the schedule
of reimbursement rate in peso per barrel (Exhibit 1) used
to support alleged increase (sic) were not validated in our
independent inquiry. As manifested in Exhibit 2, using the
same formula which the DOF used in arriving at the
reimbursement rate but using comparable percentages
instead of pesos, the ineluctable conclusion is that the oil
companies are actually gaining rather than losing from the
extension of credit because such extension enables them
to invest the collections in marketable securities which
have much higher rates than those they incur due to the
extension. The Data we used were obtained from CPI
(CALTEX) Management and can easily be verified from
our records.
With respect to product sales or those arising from sales
to international vessels or airlines, . . ., it is believed that
export sales (product sales) are entitled to claim refund
from the OPSF.
As regard your claim for underrecovery arising from
inventory losses, . . . It is the considered view of this
Commission that the OPSF is not liable to refund such
surtax on inventory losses because these are paid to BIR
and not OPSF, in view of which CPI (CALTEX) should
seek refund from BIR. . . .
Finally, as regards the sales to Atlas and Marcopper, it is
represented that you are entitled to claim recovery from
the OPSF pursuant to LOI 1416 issued on July 17, 1984,
since these copper mining companies did not pay CPI
(CALTEX) and OPSF imposts which were added to the
selling price.
 Upon a circumspect evaluation, this Commission believes RESPONDENT COMMISSION ERRED IN
and so holds that the CPI (CALTEX) has no authority to PREVENTING CPI FROM EXERCISING ITS LEGAL
claim reimbursement for this uncollected OPSF impost RIGHT TO OFFSET ITS REMITTANCES AGAINST
because LOI 1416 dated July 17, 1984, which exempts ITS REIMBURSEMENT VIS-A-VIS THE OPSF.
distressed mining companies from "all taxes, duties,
import fees and other charges" was issued when OPSF V
was not yet in existence and could not have contemplated
OPSF imposts at the time of its formulation. Moreover, it
RESPONDENT COMMISSION ERRED IN
is evident that OPSF was not created to aid distressed
DISALLOWING CPI's CLAIMS WHICH ARE STILL
mining companies but rather to help the domestic oil
PENDING RESOLUTION BY (SIC) THE OEA AND
industry by stabilizing oil prices.
THE DOF.

Unsatisfied with the decision, petitioner filed on 28 March 1990 the present
In the Resolution of 5 April 1990, this Court required the respondents to
petition wherein it imputes to the COA the commission of the following
comment on the petition within ten (10) days from notice. 18
errors: 16
On 6 September 1990, respondents COA and Commissioners Fernandez
I and Cruz, assisted by the Office of the Solicitor General, filed their
Comment. 19
RESPONDENT COMMISSION ERRED IN
DISALLOWING RECOVERY OF FINANCING This Court resolved to give due course to this petition on 30 May 1991 and
CHARGES FROM THE OPSF. required the parties to file their respective Memoranda within twenty (20)
days from notice. 20
II
In a Manifestation dated 18 July 1991, the Office of the Solicitor General
RESPONDENT COMMISSION ERRED IN prays that the Comment filed on 6 September 1990 be considered as the
DISALLOWING Memorandum for respondents. 21
CPI's 17 CLAIM FOR REIMBURSEMENT OF
UNDERRECOVERY ARISING FROM SALES TO
Upon the other hand, petitioner filed its Memorandum on 14 August 1991.
NPC.
I. Petitioner dwells lengthily on its first assigned error contending, in
III
support thereof, that:

RESPONDENT COMMISSION ERRED IN DENYING

(1) In view of the expanded role of the OPSF pursuant to Executive Order
CPI's CLAIMS FOR REIMBURSEMENT ON SALES
No. 137, which added a second purpose, to wit:
TO ATLAS AND MARCOPPER.
2) To reimburse the oil companies for possible cost
IV underrecovery incurred as a result of the reduction of
domestic prices of petroleum products. The magnitude of
 the underrecovery, if any, shall be determined by the
Ministry of Finance. "Cost underrecovery" shall include
the following:
i. Reduction in oil company take as
directed by the Board of Energy without
the corresponding reduction in the
landed cost of oil inventories in the
possession of the oil companies at the
time of the price change;
ii. Reduction in internal ad
valorem taxes as a result of foregoing
government mandated price reductions;
foregoing (sic) exchange risk premium and recovery of
financing charges will be implemented:
1. The OPSF foreign exchange premium
shall be reduced to a flat rate of one (1)
percent for the first (6) months and 1/32
of one percent per month thereafter up
to a maximum period of one year, to be
applied on crude oil' shipments from
January 1, 1987. Shipments with
outstanding financing as of January 1,
1987 shall be charged on the basis of
the fee applicable to the remaining
period of financing.

iii. Other factors as may be determined 2. In addition, for shipments loaded

by the Ministry of Finance to result in after January 1987, oil companies shall
cost underrecovery. be allowed to recover financing charges
directly from the OPSF per barrel of
crude oil based on the following
the "other factors" mentioned therein that may be determined by the
Ministry (now Department) of Finance may include financing charges for schedule:
"in essence, financing charges constitute unrecovered cost of acquisition of
crude oil incurred by the oil companies," as explained in the 6 November
1989 Memorandum to the President of the Department of Finance; they
"directly translate to cost underrecovery in cases where the money market
placement rates decline and at the same time the tax on interest income
increases. The relationship is such that the presence of underrecovery or
overrecovery is directly dependent on the amount and extent of financing
charges."

(2) The claim for recovery of financing charges has clear legal and factual
basis; it was filed on the basis of Department of Finance Circular No.
1-87, dated 18 February 1987, which provides:

To allow oil companies to recover the costs of financing

working capital associated with crude oil shipments, the
following guidelines on the utilization of the Oil Price
Stabilization Fund pertaining to the payment of the

Less than 180 days None
180 days to 239 days 1.90
241 (sic) days to 299 4.02
300 days to 369 (sic) days 6.16
360 days or more 8.28
The above rates shall be subject to
review every sixty
days. 22
Pursuant to this circular, the Department
m of Finance, in its letter of 18
February 1987, advised the Office b of Energy Affairs as follows:
u
HON. VICENTE r T. PATERNO
Deputy Executive s Secretary
e
For Energy Affairs
m
Office of the President
Makati, Metroe Manila
n
t
Dear Sir:
R
a
This refers to tthe letters of the Oil Industry dated
December 4, 1986 e and February 5, 1987 and subsequent
discussions held P by the Price Review committee on
February 6, 1987.e
s
On the basis of o the representations made, the Department
of Finance recognizes
s the necessity to reduce the foreign
exchange riskppremium accruing to the Oil Price
Stabilization Fund
e (OPSF). Such a reduction would allow
the industry tor recover partly associated financing charges
on crude oil imports.
B Accordingly, the OPSF foreign
exchange riskafee shall be reduced to a flat charge of 1%
for the first sixr (6) months plus 1/32% of 1% per month
thereafter up to r a maximum period of one year, effective
January 1, 1987. e In addition, since the prevailing
company takel would still leave unrecovered financing
charges, reimbursement may be secured from the OPSF in
accordance with the provisions of the attached
Department of Finance circular. 23
Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096
which contains the guidelines for the computation of the foreign exchange
risk fee and the recovery of financing charges from the OPSF, to wit:
B. FINANCE CHARGES
1. Oil companies shall be allowed to
recover financing charges directly from
the OPSF for both crude and product
shipments loaded after January 1, 1987
based on the following rates:

F Less than 180 days None

i 180 days to 239 days 1.90
n 240 days to 229 (sic) days 4.02
a 300 days to 359 days 6.16
n 360 days to more 8.28
c
i 2. The above rates shall be subject to
n review every sixty days. 24
g
P
Then on 22 November 1988, the Department of Finance issued Circular No.
e
4-88 imposing further guidelines on the recoverability of financing charges,
r
to wit:
i
o
Following aredthe supplemental rules to Department of
Finance Circular
R No. 1-87 dated February 18, 1987 which
allowed the recovery
e of financing charges directly from
the Oil Price Stabilization
i Fund. (OPSF):
m
b 1. The Claim for reimbursement shall
u be on a per shipment basis.
r
s 2. The claim shall be filed with the
e Office of Energy Affairs together with
m the claim on peso cost differential for a
e particular shipment and duly certified
n supporting documents providedfor
t under Ministry of Finance No. 11-85.
R
a 3. The reimbursement shall be on the
t form of reimbursement certificate
e (Annex A) to be issued by the Office of
( Energy Affairs. The said certificate may
P be used to offset against amounts
B payable to the OPSF. The oil companies
b may also redeem said certificates in
 cash if not utilized, subject to
availability of funds. 25
The OEA disseminated this Circular to all oil companies in its
Memorandum Circular No. 88-12-017. 26
The COA can neither ignore these issuances nor formulate its own
interpretation of the laws in the light of the determination of executive
agencies. The determination by the Department of Finance and the OEA
that financing charges are recoverable from the OPSF is entitled to great
weight and consideration. 27 The function of the COA, particularly in the
matter of allowing or disallowing certain expenditures, is limited to the
promulgation of accounting and auditing rules for, among others, the
disallowance of irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures, or uses of government funds and properties. 28
(3) Denial of petitioner's claim for reimbursement would be inequitable.
Additionally, COA's claim that petitioner is gaining, instead of losing, from
the extension of credit, is belatedly raised and not supported by expert
analysis.
In impeaching the validity of petitioner's assertions, the respondents argue
that:
1. The Constitution gives the COA discretionary power to
disapprove irregular or unnecessary government
expenditures and as the monetary claims of petitioner are
not allowed by law, the COA acted within its jurisdiction
in denying them;
2. P.D. No. 1956 and E.O. No. 137 do not allow
reimbursement of financing charges from the OPSF;
3. Under the principle of ejusdem generis, the "other
factors" mentioned in the second purpose of the OPSF
pursuant to E.O. No. 137 can only include "factors which
are of the same nature or analogous to those enumerated;"
4. In allowing reimbursement of financing charges from
OPSF, Circular No. 1-87 of the Department of Finance
violates P.D. No. 1956 and E.O. No. 137; and
5. Department of Finance rules and regulations
implementing P.D. No. 1956 do not likewise allow
reimbursement of financing
charges. 29
We find no merit in the first assigned error.
As to the power of the COA, which must first be resolved in view of its
primacy, We find the theory of petitioner –– that such does not extend to the
disallowance of irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures, or use of government funds and properties,
but only to the promulgation of accounting and auditing rules for, among
others, such disallowance –– to be untenable in the light of the provisions of
the 1987 Constitution and related laws.
Section 2, Subdivision D, Article IX of the 1987 Constitution expressly
provides:
Sec. 2(l). The Commission on Audit shall have the power,
authority, and duty to examine, audit, and settle all
accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held
in trust by, or pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities, including
government-owned and controlled corporations with
original charters, and on a post-audit basis: (a)
constitutional bodies, commissions and offices that have
been granted fiscal autonomy under this Constitution; (b)
autonomous state colleges and universities; (c) other
government-owned or controlled corporations and their
subsidiaries; and (d) such non-governmental entities
receiving subsidy or equity, directly or indirectly, from or
through the government, which are required by law or the
granting institution to submit to such audit as a condition
of subsidy or equity. However, where the internal control
 system of the audited agencies is inadequate, the
Commission may adopt such measures, including
temporary or special pre-audit, as are necessary and
appropriate to correct the deficiencies. It shall keep the
general accounts, of the Government and, for such period
as may be provided by law, preserve the vouchers and
other supporting papers pertaining thereto.
(2) The Commission shall have exclusive authority,
subject to the limitations in this Article, to define the
scope of its audit and examination, establish the
techniques and methods required therefor, and promulgate
accounting and auditing rules and regulations, including
those for the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or, unconscionable
expenditures, or uses of government funds and properties.
These present powers, consistent with the declared independence of the
Commission, 30 are broader and more extensive than that conferred by the
1973 Constitution. Under the latter, the Commission was empowered to:
Examine, audit, and settle, in accordance with law and
regulations, all accounts pertaining to the revenues, and
receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the
Government, or any of its subdivisions, agencies, or
instrumentalities including government-owned or
controlled corporations, keep the general accounts of the
Government and, for such period as may be provided by
law, preserve the vouchers pertaining thereto; and
promulgate accounting and auditing rules and regulations
including those for the prevention of irregular,
unnecessary, excessive, or extravagant expenditures or
uses of funds and property. 31
Upon the other hand, under the 1935 Constitution, the power and authority
of the COA's precursor, the General Auditing Office, were, unfortunately,
limited; its very role was markedly passive. Section 2 of Article XI
thereofprovided:
Sec. 2. The Auditor General shall examine, audit, and
settle all accounts pertaining to the revenues and receipts
from whatever source, including trust funds derived from
bond issues; and audit, in accordance with law and
administrative regulations, all expenditures of funds or
property pertaining to or held in trust by the Government
or the provinces or municipalities thereof. He shall keep
the general accounts of the Government and the preserve
the vouchers pertaining thereto. It shall be the duty of the
Auditor General to bring to the attention of the proper
administrative officer expenditures of funds or property
which, in his opinion, are irregular, unnecessary,
excessive, or extravagant. He shall also perform such
other functions as may be prescribed by law.
As clearly shown above, in respect to irregular, unnecessary, excessive or
extravagant expenditures or uses of funds, the 1935 Constitution did not
grant the Auditor General the power to issue rules and regulations to
prevent the same. His was merely to bring that matter to the attention of the
proper administrative officer.
The ruling on this particular point, quoted by petitioner from the cases
of Guevarra vs. Gimenez 32 and Ramos vs.Aquino, 33 are no longer
controlling as the two (2) were decided in the light of the 1935 Constitution.
There can be no doubt, however, that the audit power of the Auditor
General under the 1935 Constitution and the Commission on Audit under
the 1973 Constitution authorized them to disallow illegal expenditures of
funds or uses of funds and property. Our present Constitution retains that
same power and authority, further strengthened by the definition of the
COA's general jurisdiction in Section 26 of the Government Auditing Code
of the Philippines 34 and Administrative Code of 1987. 35 Pursuant to its
power to promulgate accounting and auditing rules and regulations for the
prevention of irregular, unnecessary, excessive or extravagant expenditures
or uses of funds, 36 the COA promulgated on 29 March 1977 COA Circular
No. 77-55. Since the COA is responsible for the enforcement of the rules
and regulations, it goes without saying that failure to comply with them is a
ground for disapproving the payment of the proposed expenditure. As
observed by one of the Commissioners of the 1986 Constitutional
Commission, Fr. Joaquin G. Bernas: 37
 It should be noted, however, that whereas under Article
XI, Section 2, of the 1935 Constitution the Auditor
General could not correct "irregular, unnecessary,
excessive or extravagant" expenditures of public funds but
could only "bring [the matter] to the attention of the
proper administrative officer," under the 1987
Constitution, as also under the 1973 Constitution, the
Commission on Audit can "promulgate accounting and
auditing rules and regulations including those for the
prevention and disallowance of irregular, unnecessary,
excessive, extravagant, or unconscionable expenditures or
uses of government funds and properties." Hence, since
the Commission on Audit must ultimately be responsible
for the enforcement of these rules and regulations, the
failure to comply with these regulations can be a ground
for disapproving the payment of a proposed expenditure.
Indeed, when the framers of the last two (2) Constitutions conferred upon
the COA a more active role and invested it with broader and more extensive
powers, they did not intend merely to make the COA a toothless tiger, but
rather envisioned a dynamic, effective, efficient and independent watchdog
of the Government.
The issue of the financing charges boils down to the validity of Department
of Finance Circular No. 1-87, Department of Finance Circular No. 4-88 and
the implementing circulars of the OEA, issued pursuant to Section 8, P.D.
No. 1956, as amended by E.O. No. 137, authorizing it to determine "other
factors" which may result in cost underrecovery and a consequent
reimbursement from the OPSF.
The Solicitor General maintains that, following the doctrine of ejusdem
generis, financing charges are not included in "cost underrecovery" and,
therefore, cannot be considered as one of the "other factors." Section 8 of
P.D. No. 1956, as amended by E.O. No. 137, does not explicitly define what
"cost underrecovery" is. It merely states what it includes. Thus:
. . . "Cost underrecovery" shall include the following:
i. Reduction in oil company takes as directed by the Board
of Energy without the corresponding reduction in the
landed cost of oil inventories in the possession of the oil
companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of
foregoing government mandated price reductions;
iii. Other factors as may be determined by the Ministry of
Finance to result in cost underrecovery.
These "other factors" can include only those which are of the same class or
nature as the two specifically enumerated in subparagraphs (i) and (ii). A
common characteristic of both is that they are in the nature of government
mandated price reductions. Hence, any other factor which seeks to be a part
of the enumeration, or which could qualify as a cost underrecovery, must be
of the same class or nature as those specifically enumerated.
Petitioner, however, suggests that E.O. No. 137 intended to grant the
Department of Finance broad and unrestricted authority to determine or
define "other factors."
Both views are unacceptable to this Court.
The rule of ejusdem generis states that "[w]here general words follow an
enumeration of persons or things, by words of a particular and specific
meaning, such general words are not to be construed in their widest extent,
but are held to be as applying only to persons or things of the same kind or
class as those specifically mentioned. 38 A reading of subparagraphs (i) and
(ii) easily discloses that they do not have a common characteristic. The first
relates to price reduction as directed by the Board of Energy while the
second refers to reduction in internal ad valoremtaxes. Therefore,
subparagraph (iii) cannot be limited by the enumeration in these
subparagraphs. What should be considered for purposes of determining the
"other factors" in subparagraph (iii) is the first sentence of paragraph (2) of
the Section which explicitly allows cost underrecovery only if such were
incurred as a result of the reduction of domestic prices of petroleum
products.
Although petitioner's financing losses, if indeed incurred, may constitute
cost underrecovery in the sense that such were incurred as a result of the
inability to fully offset financing expenses from yields in money market
placements, they do not, however, fall under the foregoing provision of P.D.
No. 1956, as amended, because the same did not result from the reduction
of the domestic price of petroleum products. Until paragraph (2), Section 8
of the decree, as amended, is further amended by Congress, this Court can
do nothing. The duty of this Court is not to legislate, but to apply or
interpret the law. Be that as it may, this Court wishes to emphasize that as
the facts in this case have shown, it was at the behest of the Government
that petitioner refinanced its oil import payments from the normal 30-day
trade credit to a maximum of 360 days. Petitioner could be correct in its
assertion that owing to the extended period for payment, the financial
institution which refinanced said payments charged a higher interest,
thereby resulting in higher financing expenses for the petitioner. It would
appear then that equity considerations dictate that petitioner should
somehow be allowed to recover its financing losses, if any, which may have
been sustained because it accommodated the request of the Government.
Although under Section 29 of the National Internal Revenue Code such
losses may be deducted from gross income, the effect of that loss would be
merely to reduce its taxable income, but not to actually wipe out such
losses. The Government then may consider some positive measures to help
petitioner and others similarly situated to obtain substantial relief. An
amendment, as aforestated, may then be in order.
Upon the other hand, to accept petitioner's theory of "unrestricted authority"
on the part of the Department of Finance to determine or define "other
factors" is to uphold an undue delegation of legislative power, it clearly
appearing that the subject provision does not provide any standard for the
exercise of the authority. It is a fundamental rule that delegation of
legislative power may be sustained only upon the ground that some standard
for its exercise is provided and that the legislature, in making the delegation,
has prescribed the manner of the exercise of the delegated authority. 39
Finally, whether petitioner gained or lost by reason of the extensive credit is
rendered irrelevant by reason of the foregoing disquisitions. It may
nevertheless be stated that petitioner failed to disprove COA's claim that it
had in fact gained in the process. Otherwise stated, petitioner failed to
sufficiently show that it incurred a loss. Such being the case, how can
petitioner claim for reimbursement? It cannot have its cake and eat it too.
II. Anent the claims arising from sales to the National Power Corporation,
We find for the petitioner. The respondents themselves admit in their
Comment that underrecovery arising from sales to NPC are reimbursable
because NPC was granted full exemption from the payment of taxes; to
prove this, respondents trace the laws providing for such exemption. 40 The
last law cited is the Fiscal Incentives Regulatory Board's Resolution No. 17-
87 of 24 June 1987 which provides, in part, "that the tax and duty
exemption privileges of the National Power Corporation, including those
pertaining to its domestic purchases of petroleum and petroleum products . .
. are restored effective March 10, 1987." In a Memorandum issued on 5
October 1987 by the Office of the President, NPC's tax exemption was
confirmed and approved.
Furthermore, as pointed out by respondents, the intention to exempt sales of
petroleum products to the NPC is evident in the recently passed Republic
Act No. 6952 establishing the Petroleum Price Standby Fund to support the
OPSF. 41 The pertinent part of Section 2, Republic Act No. 6952 provides:
Sec. 2. Application of the Fund shall be subject to the
following conditions:
(1) That the Fund shall be used to
reimburse the oil companies for (a) cost
increases of imported crude oil and
finished petroleum products resulting
from foreign exchange rate adjustments
and/or increases in world market prices
of crude oil; (b) cost underrecovery
incurred as a result of fuel oil sales to
the National Power Corporation
(NPC); and (c) other cost
underrecoveries incurred as may be
finally decided by the Supreme
Court; . . .
Hence, petitioner can recover its claim arising from sales of petroleum
products to the National Power Corporation.
III. With respect to its claim for reimbursement on sales to ATLAS and
MARCOPPER, petitioner relies on Letter of Instruction (LOI) 1416, dated
17 July 1984, which ordered the suspension of payments of all taxes, duties,
fees and other charges, whether direct or indirect, due and payable by the
copper mining companies in distress to the national government. Pursuant
to this LOI, then Minister of Energy, Hon. Geronimo Velasco, issued
Memorandum Circular No. 84-11-22 advising the oil companies that Atlas
Consolidated Mining Corporation and Marcopper Mining Corporation are
among those declared to be in distress.
In denying the claims arising from sales to ATLAS and MARCOPPER, the
COA, in its 18 August 1989 letter to Executive Director Wenceslao R. de la
Paz, states that "it is our opinion that LOI 1416 which implements the
exemption from payment of OPSF imposts as effected by OEA has no legal
basis;" 42 in its Decision No. 1171, it ruled that "the CPI (CALTEX)
(Caltex) has no authority to claim reimbursement for this uncollected
impost because LOI 1416 dated July 17, 1984, . . . was issued when OPSF
was not yet in existence and could not have contemplated OPSF imposts at
the time of its formulation." 43 It is further stated that: "Moreover, it is
evident that OPSF was not created to aid distressed mining companies but
rather to help the domestic oil industry by stabilizing oil prices."
In sustaining COA's stand, respondents vigorously maintain that LOI 1416
could not have intended to exempt said distressed mining companies from
the payment of OPSF dues for the following reasons:
a. LOI 1416 granting the alleged exemption was issued on
July 17, 1984. P.D. 1956 creating the OPSF was
promulgated on October 10, 1984, while E.O. 137,
amending P.D. 1956, was issued on February 25, 1987.
b. LOI 1416 was issued in 1984 to assist distressed copper
mining companies in line with the government's effort to
prevent the collapse of the copper industry. P.D No. 1956,
as amended, was issued for the purpose of minimizing
frequent price changes brought about by exchange rate
adjustments and/or changes in world market prices of
crude oil and imported petroleum product's; and
c. LOI 1416 caused the "suspension of all taxes, duties,
fees, imposts and other charges, whether direct or indirect,
due and payable by the copper mining companies in
distress to the Notional and Local Governments . . ." On
the other hand, OPSF dues are not payable by (sic)
distressed copper companies but by oil companies. It is to
be noted that the copper mining companies do not pay
OPSF dues. Rather, such imposts are built in or already
incorporated in the prices of oil products. 44
Lastly, respondents allege that while LOI 1416 suspends the payment of
taxes by distressed mining companies, it does not accord petitioner the same
privilege with respect to its obligation to pay OPSF dues.
We concur with the disquisitions of the respondents. Aside from such
reasons, however, it is apparent that LOI 1416 was never published in the
Official Gazette 45 as required by Article 2 of the Civil Code, which reads:
Laws shall take effect after fifteen days following the
completion of their publication in the Official Gazette,
unless it is otherwise provided. . . .
In applying said provision, this Court ruled in the case of Tañada
vs. Tuvera: 46
WHEREFORE, the Court hereby orders respondents to
publish in the Official Gazette all unpublished presidential
issuances which are of general application, and unless so
published they shall have no binding force and effect.
Resolving the motion for reconsideration of said decision, this Court, in its
Resolution promulgated on 29 December 1986, 47 ruled:
We hold therefore that all statutes, including those of
local application and private laws, shall be published as a
condition for their effectivity, which shall begin fifteen
days after publication unless a different effectivity date is
fixed by the legislature.
 Covered by this rule are presidential decrees and
executive orders promulgated by the President in the
exercise of legislative powers whenever the same are
validly delegated by the legislature or, at present, directly
conferred by the Constitution. Administrative rules and
regulations must also be published if their purpose is to
enforce or implement existing laws pursuant also to a
valid delegation.
xxx xxx xxx
WHEREFORE, it is hereby declared that all laws as
above defined shall immediately upon their approval, or
as soon thereafter as possible, be published in full in the
Official Gazette, to become effective only after fifteen
days from their publication, or on another date specified
by the legislature, in accordance with Article 2 of the
Civil Code.
LOI 1416 has, therefore, no binding force or effect as it was never published
in the Official Gazette after its issuance or at any time after the decision in
the abovementioned cases.
Article 2 of the Civil Code was, however, later amended by Executive
Order No. 200, issued on 18 June 1987. As amended, the said provision
now reads:
Laws shall take effect after fifteen days following the
completion of their publication either in the Official
Gazette or in a newspaper of general circulation in the
Philippines, unless it is otherwise provided.
We are not aware of the publication of LOI 1416 in any newspaper of
general circulation pursuant to Executive Order No. 200.
Furthermore, even granting arguendo that LOI 1416 has force and effect,
petitioner's claim must still fail. Tax exemptions as a general rule are
construed strictly against the grantee and liberally in favor of the taxing
authority. 48The burden of proof rests upon the party claiming exemption to
prove that it is in fact covered by the exemption so claimed. The party
claiming exemption must therefore be expressly mentioned in the
exempting law or at least be within its purview by clear legislative intent.
In the case at bar, petitioner failed to prove that it is entitled, as a
consequence of its sales to ATLAS and MARCOPPER, to claim
reimbursement from the OPSF under LOI 1416. Though LOI 1416 may
suspend the payment of taxes by copper mining companies, it does not give
petitioner the same privilege with respect to the payment of OPSF dues.
IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner
maintains that the Department of Finance has still to issue a final and
definitive ruling thereon; accordingly, it was premature for COA to disallow
it. By doing so, the latter acted beyond its jurisdiction. 49 Respondents, on
the other hand, contend that said amount was already disallowed by the
OEA for failure to substantiate it. 50 In fact, when OEA submitted the claims
of petitioner for pre-audit, the abovementioned amount was already
excluded.
An examination of the records of this case shows that petitioner failed to
prove or substantiate its contention that the amount of P130,420,235.00 is
still pending before the OEA and the DOF. Additionally, We find no reason
to doubt the submission of respondents that said amount has already been
passed upon by the OEA. Hence, the ruling of respondent COA
disapproving said claim must be upheld.
V. The last issue to be resolved in this case is whether or not the amounts
due to the OPSF from petitioner may be offset against petitioner's
outstanding claims from said fund. Petitioner contends that it should be
allowed to offset its claims from the OPSF against its contributions to the
fund as this has been allowed in the past, particularly in the years 1987 and
1988. 51
Furthermore, petitioner cites, as bases for offsetting, the provisions of the
New Civil Code on compensation and Section 21, Book V, Title I-B of the
Revised Administrative Code which provides for "Retention of Money for
Satisfaction of Indebtedness to Government." 52 Petitioner also mentions
communications from the Board of Energy and the Department of Finance
that supposedly authorize compensation.
Respondents, on the other hand, citing Francia vs. IAC and
Fernandez, 53 contend that there can be no offsetting of taxes against the
claims that a taxpayer may have against the government, as taxes do not
arise from contracts or depend upon the will of the taxpayer, but are
imposed by law. Respondents also allege that petitioner's reliance on
Section 21, Book V, Title I-B of the Revised Administrative Code, is
misplaced because "while this provision empowers the COA to withhold
payment of a government indebtedness to a person who is also indebted to
the government and apply the government indebtedness to the satisfaction
of the obligation of the person to the government, like authority or right to
make compensation is not given to the private person." 54 The reason for
this, as stated in Commissioner of Internal Revenue vs. Algue, Inc., 55 is that
money due the government, either in the form of taxes or other dues, is its
lifeblood and should be collected without hindrance. Thus, instead of giving
petitioner a reason for compensation or set-off, the Revised Administrative
Code makes it the respondents' duty to collect petitioner's indebtedness to
the OPSF.
Refuting respondents' contention, petitioner claims that the amounts due
from it do not arise as a result of taxation because "P.D. 1956, amended, did
not create a source of taxation; it instead established a special fund . .
.," 56 and that the OPSF contributions do not go to the general fund of the
state and are not used for public purpose, i.e., not for the support of the
government, the administration of law, or the payment of public expenses.
This alleged lack of a public purpose behind OPSF exactions distinguishes
such from a tax. Hence, the ruling in the Francia case is inapplicable.
Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby
Fund to support the OPSF; the said law provides in part that:
Sec. 2. Application of the fund shall be subject to the
following conditions:
xxx xxx xxx
(3) That no amount of the Petroleum
Price Standby Fund shall be used to pay
any oil company which has an
outstanding obligation to the
Government without said obligation
being offset first, subject to the
requirements of compensation or offset
under the Civil Code.
We find no merit in petitioner's contention that the OPSF contributions are
not for a public purpose because they go to a special fund of the
government. Taxation is no longer envisioned as a measure merely to raise
revenue to support the existence of the government; taxes may be levied
with a regulatory purpose to provide means for the rehabilitation and
stabilization of a threatened industry which is affected with public interest
as to be within the police power of the state. 57 There can be no doubt that
the oil industry is greatly imbued with public interest as it vitally affects the
general welfare. Any unregulated increase in oil prices could hurt the lives
of a majority of the people and cause economic crisis of untold proportions.
It would have a chain reaction in terms of, among others, demands for wage
increases and upward spiralling of the cost of basic commodities. The
stabilization then of oil prices is of prime concern which the state, via its
police power, may properly address.
Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that
the source of OPSF is taxation. No amount of semantical juggleries could
dim this fact.
It is settled that a taxpayer may not offset taxes due from the claims that he
may have against the government. 58Taxes cannot be the subject of
compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off. 59
We may even further state that technically, in respect to the taxes for the
OPSF, the oil companies merely act as agents for the Government in the
latter's collection since the taxes are, in reality, passed unto the end-users ––
the consuming public. In that capacity, the petitioner, as one of such
companies, has the primary obligation to account for and remit the taxes
collected to the administrator of the OPSF. This duty stems from the
fiduciary relationship between the two; petitioner certainly cannot be
considered merely as a debtor. In respect, therefore, to its collection for the
OPSF vis-a-vis its claims for reimbursement, no compensation is likewise
legally feasible. Firstly, the Government and the petitioner cannot be said to
be mutually debtors and creditors of each other. Secondly, there is no proof
that petitioner's claim is already due and liquidated. Under Article 1279 of
the Civil Code, in order that compensation may be proper, it is necessary
that:
(1) each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
(2) both debts consist in a sum of :money, or if the things
due are consumable, they be of the same kind, and also of
the same quality if the latter has been stated;
(3) the two (2) debts be due;
(4) they be liquidated and demandable;
(5) over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.
That compensation had been the practice in the past can set no valid
precedent. Such a practice has no legal basis. Lastly, R.A. No. 6952 does
not authorize oil companies to offset their claims against their OPSF
contributions. Instead, it prohibits the government from paying any amount
from the Petroleum Price Standby Fund to oil companies which have
outstanding obligations with the government, without said obligation being
offset first subject to the rules on compensation in the Civil Code.
WHEREFORE, in view of the foregoing, judgment is hereby rendered
AFFIRMING the challenged decision of the Commission on Audit, except
that portion thereof disallowing petitioner's claim for reimbursement of
underrecovery arising from sales to the National Power Corporation, which
is hereby allowed.
With costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-23645 October 29, 1968
BENJAMIN P. GOMEZ, petitioner-appellee,
vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON.
BRIGIDO R. VALENCIA, in his capacity as Secretary of Public Works
and Communications, and DOMINGO GOPEZ, in his capacity as
Acting Postmaster of San Fernando, Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General
Frine C. Zaballero and Solicitor Dominador L. Quiroz for respondents-
appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635,1 as
amended by Republic Act 2631,2 which provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the
Director of Posts shall order for the period from August nineteen to
September thirty every year the printing and issue of semi-postal
stamps of different denominations with face value showing the
regular postage charge plus the additional amount of five centavos
for the said purpose, and during the said period, no mail matter
shall be accepted in the mails unless it bears such semi-postal
stamps: Provided, That no such additional charge of five centavos
shall be imposed on newspapers. The additional proceeds realized
from the sale of the semi-postal stamps shall constitute a special
fund and be deposited with the National Treasury to be expended
by the Philippine Tuberculosis Society in carrying out its noble
work to prevent and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter
issued four (4) administrative orders numbered 3 (June 20, 1958), 7 (August
9, 1958), 9 (August 28, 1958), and 10 (July 15, 1960). All these
administrative orders were issued with the approval of the respondent
Secretary of Public Works and Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the
period from August 19 to September 30, 1957, for lack of time.
However, two denominations of such stamps, one at "5 + 5"
centavos and another at "10 + 5" centavos, will soon be released
for use by the public on their mails to be posted during the same
period starting with the year 1958.
xxx xxx xxx
During the period from August 19 to September 30 each year
starting in 1958, no mail matter of whatever class, and whether
domestic or foreign, posted at any Philippine Post Office and
addressed for delivery in this country or abroad, shall be accepted
for mailing unless it bears at least one such semi-postal stamp
showing the additional value of five centavos intended for the
Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of
mail permits or impressions of postage meters, each piece of such
mail shall bear at least one such semi-postal stamp if posted during
the period above stated starting with the year 1958, in addition to
being charged the usual postage prescribed by existing regulations.
In the case of business reply envelopes and cards mailed during
said period, such stamp should be collected from the addressees at
the time of delivery. Mails entitled to franking privilege like those
from the office of the President, members of Congress, and other
offices to which such privilege has been granted, shall each also
bear one such semi-postal stamp if posted during the said period.
Mails posted during the said period starting in 1958, which are
found in street or post-office mail boxes without the required semi-
postal stamp, shall be returned to the sender, if known, with a
notation calling for the affixing of such stamp. If the sender is
unknown, the mail matter shall be treated as nonmailable and
forwarded to the Dead Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as
follows:
In the case of the following categories of mail matter and mails
entitled to franking privilege which are not exempted from the
payment of the five centavos intended for the Philippine
Tuberculosis Society, such extra charge may be collected in cash,
for which official receipt (General Form No. 13, A) shall be issued,
instead of affixing the semi-postal stamp in the manner hereinafter
indicated:
1. Second-class mail. — Aside from the postage at the second-
class rate, the extra charge of five centavos for the Philippine
Tuberculosis Society shall be collected on each separately-
addressed piece of second-class mail matter, and the total sum thus
collected shall be entered in the same official receipt to be issued
for the postage at the second-class rate. In making such entry, the
total number of pieces of second-class mail posted shall be stated,
thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The
extra charge shall be entered separate from the postage in both of
the official receipt and the Record of Collections.
2. First-class and third-class mail permits. — Mails to be posted
without postage affixed under permits issued by this Bureau shall
each be charged the usual postage, in addition to the five-centavo
extra charge intended for said society. The total extra charge thus
received shall be entered in the same official receipt to be issued
for the postage collected, as in subparagraph 1.
3. Metered mail. — For each piece of mail matter impressed by
postage meter under metered mail permit issued by this Bureau, the
extra charge of five centavos for said society shall be collected in
cash and an official receipt issued for the total sum thus received,
in the manner indicated in subparagraph 1.
 4. Business reply cards and envelopes. — Upon delivery of
business reply cards and envelopes to holders of business reply
permits, the five-centavo charge intended for said society shall be
collected in cash on each reply card or envelope delivered, in
addition to the required postage which may also be paid in cash.
An official receipt shall be issued for the total postage and total
extra charge received, in the manner shown in subparagraph 1.
5. Mails entitled to franking privilege. — Government agencies,
officials, and other persons entitled to the franking privilege under
existing laws may pay in cash such extra charge intended for said
society, instead of affixing the semi-postal stamps to their mails,
provided that such mails are presented at the post-office window,
where the five-centavo extra charge for said society shall be
collected on each piece of such mail matter. In such case, an
official receipt shall be issued for the total sum thus collected, in
the manner stated in subparagraph 1.
Mail under permits, metered mails and franked mails not presented
at the post-office window shall be affixed with the necessary semi-
postal stamps. If found in mail boxes without such stamps, they
shall be treated in the same way as herein provided for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government
and its Agencies and Instrumentalities Performing Governmental
Functions." Adm. Order 10, amending Adm. Order 3, as amended, exempts
"copies of periodical publications received for mailing under any class of
mail matter, including newspapers and magazines admitted as second-class
mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez
mailed a letter at the post office in San Fernando, Pampanga. Because this
letter, addressed to a certain Agustin Aquino of 1014 Dagohoy Street,
Singalong, Manila did not bear the special anti-TB stamp required by the
statute, it was returned to the petitioner.
In view of this development, the petitioner brough suit for declaratory relief
in the Court of First Instance of Pampanga, to test the constitutionality of
the statute, as well as the implementing administrative orders issued,
contending that it violates the equal protection clause of the Constitution as
well as the rule of uniformity and equality of taxation. The lower court
declared the statute and the orders unconstitutional; hence this appeal by the
respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be
reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the
respondents' contention that declaratory relief is unavailing because this suit
was filed after the petitioner had committed a breach of the statute. While
conceding that the mailing by the petitioner of a letter without the additional
anti-TB stamp was a violation of Republic Act 1635, as amended, the trial
court nevertheless refused to dismiss the action on the ground that under
section 6 of Rule 64 of the Rules of Court, "If before the final termination of
the case a breach or violation of ... a statute ... should take place, the action
may thereupon be converted into an ordinary action."
The prime specification of an action for declaratory relief is that it must be
brought "before breach or violation" of the statute has been committed. Rule
64, section 1 so provides. Section 6 of the same rule, which allows the court
to treat an action for declaratory relief as an ordinary action, applies only if
the breach or violation occurs after the filing of the action but before the
termination thereof.3
Hence, if, as the trial court itself admitted, there had been a breach of the
statute before the firing of this action, then indeed the remedy of declaratory
relief cannot be availed of, much less can the suit be converted into an
ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter
in question did not constitute a breach of the statute because the statute
appears to be addressed only to postal authorities. The statute, it is true, in
terms provides that "no mail matter shall be accepted in the mails unless it
bears such semi-postal stamps." It does not follow, however, that only
postal authorities can be guilty of violating it by accepting mails without the
payment of the anti-TB stamp. It is obvious that they can be guilty of
violating the statute only if there are people who use the mails without
paying for the additional anti-TB stamp. Just as in bribery the mere offer
constitutes a breach of the law, so in the matter of the anti-TB stamp the
mere attempt to use the mails without the stamp constitutes a violation of
the statute. It is not required that the mail be accepted by postal authorities.
That requirement is relevant only for the purpose of fixing the liability of
postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is
correct because this suit was filed not only with respect to the letter which
he mailed on September 15, 1963, but also with regard to any other mail
that he might send in the future. Thus, in his complaint, the petitioner
prayed that due course be given to "other mails without the semi-postal
stamps which he may deliver for mailing ... if any, during the period
covered by Republic Act 1635, as amended, as well as other mails hereafter
to be sent by or to other mailers which bear the required postage, without
collection of additional charge of five centavos prescribed by the same
Republic Act." As one whose mail was returned, the petitioner is certainly
interested in a ruling on the validity of the statute requiring the use of
additional stamps.
II.
We now consider the constitutional objections raised against the statute and
the implementing orders.
1. It is said that the statute is violative of the equal protection clause of the
Constitution. More specifically the claim is made that it constitutes mail
users into a class for the purpose of the tax while leaving untaxed the rest of
the population and that even among postal patrons the statute
discriminatorily grants exemption to newspapers while Administrative
Order 9 of the respondent Postmaster General grants a similar exemption to
offices performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the
nature of an excise tax, laid upon the exercise of a privilege, namely, the
privilege of using the mails. As such the objections levelled against it must
be viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to
select the subjects of taxation and to grant exemptions.4 This power has
aptly been described as "of wide range and flexibility."5 Indeed, it is said
that in the field of taxation, more than in other areas, the legislature
possesses the greatest freedom in classification.6 The reason for this is that
traditionally, classification has been a device for fitting tax programs to
local needs and usages in order to achieve an equitable distribution of the
tax burden.7
That legislative classifications must be reasonable is of course undenied.
But what the petitioner asserts is that statutory classification of mail users
must bear some reasonable relationship to the end sought to be attained, and
that absent such relationship the selection of mail users is constitutionally
impermissible. This is altogether a different proposition. As explained
in Commonwealth v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship
between classification made by the legislation and its purpose is
undoubtedly true in some contexts, it has no application to a
measure whose sole purpose is to raise revenue ... So long as the
classification imposed is based upon some standard capable of
reasonable comprehension, be that standard based upon ability to
produce revenue or some other legitimate distinction, equal
protection of the law has been afforded. See Allied Stores of Ohio,
Inc. v. Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441; Brown
Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S.
Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection grounds except
by the clearest demonstration that it sanctions invidious discrimination,
which is all that the Constitution forbids. The remedy for unwise legislation
must be sought in the legislature. Now, the classification of mail users is not
without any reason. It is based on ability to pay, let alone the enjoyment of a
privilege, and on administrative convinience. In the allocation of the tax
burden, Congress must have concluded that the contribution to the anti-TB
fund can be assured by those whose who can afford the use of the mails.
The classification is likewise based on considerations of administrative
convenience. For it is now a settled principle of law that "consideration of
practical administrative convenience and cost in the administration of tax
laws afford adequate ground for imposing a tax on a well recognized and
defined class."9 In the case of the anti-TB stamps, undoubtedly, the single
most important and influential consideration that led the legislature to select
mail users as subjects of the tax is the relative ease and convenienceof
collecting the tax through the post offices. The small amount of five
centavos does not justify the great expense and inconvenience of collecting
through the regular means of collection. On the other hand, by placing the
duty of collection on postal authorities the tax was made almost self-
enforcing, with as little cost and as little inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail
users into a class. Mail users were already a class by themselves even before
the enactment of the statue and all that the legislature did was merely to
select their class. Legislation is essentially empiric and Republic Act 1635,
as amended, no more than reflects a distinction that exists in fact. As Mr.
Justice Frankfurter said, "to recognize differences that exist in fact is living
law; to disregard [them] and concentrate on some abstract identities is
lifeless logic."10
Granted the power to select the subject of taxation, the State's power to
grant exemption must likewise be conceded as a necessary corollary. Tax
exemptions are too common in the law; they have never been thought of as
raising issues under the equal protection clause.
It is thus erroneous for the trial court to hold that because certain mail users
are exempted from the levy the law and administrative officials have
sanctioned an invidious discrimination offensive to the Constitution. The
application of the lower courts theory would require all mail users to be
taxed, a conclusion that is hardly tenable in the light of differences in status
of mail users. The Constitution does not require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold
the burden of the tax in order to foster what it conceives to be a beneficent
enterprise.11 This is the case of newspapers which, under the amendment
introduced by Republic Act 2631, are exempt from the payment of the
additional stamp.
As for the Government and its instrumentalities, their exemption rests on
the State's sovereign immunity from taxation. The State cannot be taxed
without its consent and such consent, being in derogation of its sovereignty,
is to be strictly construed.12 Administrative Order 9 of the respondent
Postmaster General, which lists the various offices and instrumentalities of
the Government exempt from the payment of the anti-TB stamp, is but a
restatement of this well-known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out
tuberculosis to the exclusion of other diseases which, it is said, are equally a
menace to public health. But it is never a requirement of equal protection
that all evils of the same genus be eradicated or none at all.13 As this Court
has had occasion to say, "if the law presumably hits the evil where it is most
felt, it is not to be overthrown because there are other instances to which it
might have been applied."14
2. The petitioner further argues that the tax in question is invalid, first,
because it is not levied for a public purpose as no special benefits accrue to
mail users as taxpayers, and second, because it violates the rule of
uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by public
purpose the petitioner means benefit to a taxpayer as a return for what he
pays, then it is sufficient answer to say that the only benefit to which the
taxpayer is constitutionally entitled is that derived from his enjoyment of
the privileges of living in an organized society, established and safeguarded
by the devotion of taxes to public purposes. Any other view would preclude
the levying of taxes except as they are used to compensate for the burden on
those who pay them and would involve the abandonment of the most
fundamental principle of government — that it exists primarily to provide
for the common good.15
Nor is the rule of uniformity and equality of taxation infringed by the
imposition of a flat rate rather than a graduated tax. A tax need not be
measured by the weight of the mail or the extent of the service rendered. We
have said that considerations of administrative convenience and cost afford
an adequate ground for classification. The same considerations may induce
the legislature to impose a flat tax which in effect is a charge for the
transaction, operating equally on all persons within the class regardless of
the amount involved.16 As Mr. Justice Holmes said in sustaining the validity
of a stamp act which imposed a flat rate of two cents on every $100 face
value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of
$100, the other $172. The inequality of the tax, so far as actual
values are concerned, is manifest. But, here again equality in this
sense has to yield to practical considerations and usage. There must
be a fixed and indisputable mode of ascertaining a stamp tax. In
another sense, moreover, there is equality. When the taxes on two
sales are equal, the same number of shares is sold in each case; that
is to say, the same privilege is used to the same extent. Valuation is
not the only thing to be considered. As was pointed out by the
court of appeals, the familiar stamp tax of 2 cents on checks,
irrespective of income or earning capacity, and many others,
illustrate the necessity and practice of sometimes substituting count
for weight ...17
According to the trial court, the money raised from the sales of the anti-TB
stamps is spent for the benefit of the Philippine Tuberculosis Society, a
private organization, without appropriation by law. But as the Solicitor
General points out, the Society is not really the beneficiary but only the
agency through which the State acts in carrying out what is essentially a
public function. The money is treated as a special fund and as such need not
be appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to
execute it the respondents had to issue administrative orders far beyond
their powers. Indeed, this is one of the grounds on which the lower court
invalidated Republic Act 1631, as amended, namely, that it constitutes an
undue delegation of legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10,
provides that for certain classes of mail matters (such as mail permits,
metered mails, business reply cards, etc.), the five-centavo charge may be
paid in cash instead of the purchase of the anti-TB stamp. It further states
that mails deposited during the period August 19 to September 30 of each
year in mail boxes without the stamp should be returned to the sender, if
known, otherwise they should be treated as nonmailable.
It is true that the law does not expressly authorize the collection of five
centavos except through the sale of anti-TB stamps, but such authority may
be implied in so far as it may be necessary to prevent a failure of the
undertaking. The authority given to the Postmaster General to raise funds
through the mails must be liberally construed, consistent with the principle
that where the end is required the appropriate means are given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only
the amount of the additional charge but also that of the regular postage. In
the case of business reply cards, for instance, it is obvious that to require
mailers to affix the anti-TB stamp on their cards would be to make them pay
much more because the cards likewise bear the amount of the regular
postage.
It is likewise true that the statute does not provide for the disposition of
mails which do not bear the anti-TB stamp, but a declaration therein that
"no mail matter shall be accepted in the mails unless it bears such semi-
postal stamp" is a declaration that such mail matter is nonmailable within
the meaning of section 1952 of the Administrative Code. Administrative
Order 7 of the Postmaster General is but a restatement of the law for the
guidance of postal officials and employees. As for Administrative Order 9,
we have already said that in listing the offices and entities of the
Government exempt from the payment of the stamp, the respondent
Postmaster General merely observed an established principle, namely, that
the Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is
dismissed, without pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and
Capistrano, JJ., concur.
Zaldivar, J., is on leave.
Separate Opinions
FERNANDO, J., concurring:
I join fully the rest of my colleagues in the decision upholding Republic Act
No. 1635 as amended by Republic Act No. 2631 and the majority opinion
expounded with Justice Castro's usual vigor and lucidity subject to one
qualification. With all due recognition of its inherently persuasive character,
it would seem to me that the same result could be achieved if reliance be
had on police power rather than the attribute of taxation, as the
constitutional basis for the challenged legislation.
1. For me, the state in question is an exercise of the regulatory power
connected with the performance of the public service. I refer of course to
the government postal function, one of respectable and ancient lineage. The
United States Constitution of 1787 vests in the federal government acting
through Congress the power to establish post offices.1 The first act
providing for the organization of government departments in the
Philippines, approved Sept. 6, 1901, provided for the Bureau of Post Offices
in the Department of Commerce and Police.2 Its creation is thus a
manifestation of one of the many services in which the government may
engage for public convenience and public interest. Such being the case, it
seems that any legislation that in effect would require increase cost of
postage is well within the discretionary authority of the government.
It may not be acting in a proprietary capacity but in fixing the fees that it
collects for the use of the mails, the broad discretion that it enjoys is
undeniable. In that sense, the principle announced in Esteban v.
Cabanatuan City,3 in an opinion by our Chief Justice, while not precisely
controlling furnishes for me more than ample support for the validity of the
challenged legislation. Thus: "Certain exactions, imposable under an
authority other than police power, are not subject, however, to qualification
as to the amount chargeable, unless the Constitution or the pertinent laws
provide otherwise. For instance, the rates of taxes, whether national or
municipal, need not be reasonable, in the absence of such constitutional or
statutory limitation. Similarly, when a municipal corporation fixes the fees
for the use of its properties, such as public markets, it does not wield the
police power, or even the power of taxation. Neither does it assert
governmental authority. It exercises merely a proprietary function. And, like
any private owner, it is — in the absence of the aforementioned limitation,
which does not exist in the Charter of Cabanatuan City (Republic Act No.
526) — free to charge such sums as it may deem best, regardless of the
reasonableness of the amount fixed, for the prospective lessees are free to
enter into the corresponding contract of lease, if they are agreeable to the
terms thereof or, otherwise, not enter into such contract."
2. It would appear likewise that an expression of one's personal view both as
to the attitude and awareness that must be displayed by inferior tribunals
when the "delicate and awesome" power of passing on the validity of a
statute would not be inappropriate. "The Constitution is the supreme law,
and statutes are written and enforced in submission to its commands."4 It is
likewise common place in constitutional law that a party adversely affected
could, again to quote from Cardozo, "invoke, when constitutional
immunities are threatened, the judgment of the courts."5
Since the power of judicial review flows logically from the judicial function
of ascertaining the facts and applying the law and since obviously the
Constitution is the highest law before which statutes must bend, then
inferior tribunals can, in the discharge of their judicial functions, nullify
legislative acts. As a matter of fact, in clear cases, such is not only their
power but their duty. In the language of the present Chief Justice: "In fact,
whenever the conflicting claims of the parties to a litigation cannot properly
be settled without inquiring into the validity of an act of Congress or of
either House thereof, the courts have, not only jurisdiction to pass upon said
issue but, also, the duty to do so, which cannot be evaded without violating
the fundamental law and paving the way to its eventual destruction."6
Nonetheless, the admonition of Cooley, specially addressed to inferior
tribunals, must ever be kept in mind. Thus: "It must be evident to any one
that the power to declare a legislative enactment void is one which the
judge, conscious of the fallibility of the human judgment, will shrink from
exercising in any case where he can conscientiously and with due regard to
duty and official oath decline the responsibility."7
There must be a caveat however to the above Cooley pronouncement. Such
should not be the case, to paraphrase Freund, when the challenged
legislation imperils freedom of the mind and of the person, for given such
an undesirable situation, "it is freedom that commands a momentum of
respect." Here then, fidelity to the great ideal of liberty enshrined in the
Constitution may require the judiciary to take an uncompromising and
militant stand. As phrased by us in a recent decision, "if the liberty involved
were freedom of the mind or the person, the standard of its validity of
governmental acts is much more rigorous and exacting."8
So much for the appropriate judicial attitude. Now on the question
of awareness of the controlling constitutional doctrines.
There is nothing I can add to the enlightening discussion of the equal
protection aspect as found in the majority opinion. It may not be amiss to
recall to mind, however, the language of Justice Laurel in the leading case
of People v. Vera,9 to the effect that the basic individual right of equal
protection "is a restraint on all the three grand departments of our
government and on the subordinate instrumentalities and subdivisions
thereof, and on many constitutional powers, like the police power, taxation
and eminent domain."10 Nonetheless, no jurist was more careful in avoiding
the dire consequences to what the legislative body might have deemed
necessary to promote the ends of public welfare if the equal protection
guaranty were made to constitute an insurmountable obstacle.
A similar sense of realism was invariably displayed by Justice Frankfurter,
as is quite evident from the various citations from his pen found in the
majority opinion. For him, it would be a misreading of the equal protection
clause to ignore actual conditions and settled practices. Not for him the at
times academic and sterile approach to constitutional problems of this sort.
Thus: "It would be a narrow conception of jurisprudence to confine the
notion of 'laws' to what is found written on the statute books, and to
disregard the gloss which life has written upon it. Settled state practice
cannot supplant constitutional guaranties, but it can establish what is state
law. The Equal Protection Clause did not write an empty formalism into the
Constitution. Deeply embedded traditional ways of carrying out state
policy, such as those of which petitioner complains, are often tougher and
truer law than the dead words of the written text."11 This too, from the same
distinguished jurist: "The Constitution does not require things which are
different in fact or opinion to be treated in law as though they were the
same."12
Now, as to non-delegation. It is to be admitted that the problem of non-
delegation of legislative power at times occasions difficulties. Its strict view
has been announced by Justice Laurel in the aforecited case of People v.
Verain this language. Thus: "In testing whether a statute constitutes an
undue delegation of legislative power or not, it is usual to inquire whether
the statute was complete in all its terms and provisions when it left the
hands of the legislature so that nothing was left to the judgment of any other
appointee or delegate of the legislature. .... In United States v. Ang Tang
Ho ..., this court adhered to the foregoing rule; it held an act of the
legislature void in so far as it undertook to authorize the Governor-General,
in his discretion, to issue a proclamation fixing the price of rice and to make
the sale of it in violation of the proclamation a crime."13
Only recently, the present Chief Justice reaffirmed the above view in Pelaez
v. Auditor General,14 specially where the delegation deals not with an
administrative function but one essentially and eminently legislative in
character. What could properly be stigmatized though to quote Justice
Cardozo, is delegation of authority that is "unconfined and vagrant, one not
canalized within banks which keep it from overflowing."15
This is not the situation as it presents itself to us. What was delegated was
power not legislative in character. Justice Laurel himself, in a later
case, People v. Rosenthal,16 admitted that within certain limits, there being a
need for coping with the more intricate problems of society, the principle of
"subordinate legislation" has been accepted, not only in the United States
and England, but in practically all modern governments. This view was
reiterated by him in a 1940 decision, Pangasinan Transportation Co., Inc. v.
Public Service Commission.17 Thus: "Accordingly, with the growing
complexity of modern life, the multiplication of the subjects of
governmental regulation, and the increased difficulty of administering the
laws, there is a constantly growing tendency toward the delegation of
greater powers by the legislature, and toward the approval of the practice by
the courts."
In the light of the above views of eminent jurists, authoritative in character,
of both the equal protection clause and the non-delegation principle, it is
apparent how far the lower court departed from the path of constitutional
orthodoxy in nullifying Republic Act No. 1635 as amended. Fortunately,
the matter has been set right with the reversal of its decision, the opinion of
the Court, manifesting its fealty to constitutional law precepts, which have
been reiterated time and time again and for the soundest of reasons.
G.R. No. L-75697
VALENTIN TIO doing business under the name and style of OMI
ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE,
METRO MANILA COMMISSION, CITY MAYOR and CITY
TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own
behalf and purportedly on behalf of other videogram operators adversely
affected. It assails the constitutionality of Presidential Decree No. 1987
entitled "An Act Creating the Videogram Regulatory Board" with broad
powers to regulate and supervise the videogram industry (hereinafter briefly
referred to as the BOARD). The Decree was promulgated on October 5,
1985 and took effect on April 10, 1986, fifteen (15) days after completion of
its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the
abovementioned decree, Presidential Decree No. 1994 amended the
National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. — There shall be collected on each
processed video-tape cassette, ready for playback, regardless of
length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to
sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated
Movie Producers, Importers and Distributors Association of the Philippines,
and Philippine Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted by the Court to
intervene in the case, over petitioner's opposition, upon the allegations that
intervention was necessary for the complete protection of their rights and
that their "survival and very existence is threatened by the unregulated
proliferation of film piracy." The Intervenors were thereafter allowed to file
their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its
preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of
videograms including, among others, videotapes, discs, cassettes or
any technical improvement or variation thereof, have greatly
prejudiced the operations of moviehouses and theaters, and have
caused a sharp decline in theatrical attendance by at least forty
percent (40%) and a tremendous drop in the collection of sales,
contractor's specific, amusement and other taxes, thereby resulting
in substantial losses estimated at P450 Million annually in
government revenues;
2. WHEREAS, videogram(s) establishments collectively earn
around P600 Million per annum from rentals, sales and disposition
of videograms, and such earnings have not been subjected to tax,
thereby depriving the Government of approximately P180 Million
in taxes each year;
3. WHEREAS, the unregulated activities of videogram
establishments have also affected the viability of the movie
industry, particularly the more than 1,200 movie houses and
theaters throughout the country, and occasioned industry-wide
displacement and unemployment due to the shutdown of numerous
moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it
is imperative for the Government to create an environment
conducive to growth and development of all business industries,
including the movie industry which has an accumulated investment
of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram
establishments will not only alleviate the dire financial condition of
the movie industry upon which more than 75,000 families and
 500,000 workers depend for their livelihood, but also provide an
additional source of revenue for the Government, and at the same
time rationalize the heretofore uncontrolled distribution of
videograms;
6. WHEREAS, the rampant and unregulated showing of obscene
videogram features constitutes a clear and present danger to the
moral and spiritual well-being of the youth, and impairs the
mandate of the Constitution for the State to support the rearing of
the youth for civic efficiency and the development of moral
character and promote their physical, intellectual, and social well-
being;
7. WHEREAS, civic-minded citizens and groups have called for
remedial measures to curb these blatant malpractices which have
flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding
the moral values of the people and betraying the national economic
recovery program, bold emergency measures must be adopted with
dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the
following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross
receipts payable to the local government is a RIDER and the same
is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in
unlawful restraint of trade in violation of the due process clause of
the Constitution;
3. There is no factual nor legal basis for the exercise by the
President of the vast powers conferred upon him by Amendment
No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a
nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one
subject which shall be expressed in the title thereof" 1 is sufficiently
complied with if the title be comprehensive enough to include the general
purpose which a statute seeks to achieve. It is not necessary that the title
express each and every end that the statute wishes to accomplish. The
requirement is satisfied if all the parts of the statute are related, and are
germane to the subject matter expressed in the title, or as long as they are
not inconsistent with or foreign to the general subject and title. 2An act
having a single general subject, indicated in the title, may contain any
number of provisions, no matter how diverse they may be, so long as they
are not inconsistent with or foreign to the general subject, and may be
considered in furtherance of such subject by providing for the method and
means of carrying out the general object." 3 The rule also is that the
constitutional requirement as to the title of a bill should not be so narrowly
construed as to cripple or impede the power of legislation. 4 It should be
given practical rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax
provision of the DECREE is a rider is without merit. That section
reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. —
Notwithstanding any provision of law to the contrary, the province
shall collect a tax of thirty percent (30%) of the purchase price or
rental rate, as the case may be, for every sale, lease or disposition
of a videogram containing a reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the proceeds of the tax
collected shall accrue to the province, and the other fifty percent
(50%) shall acrrue to the municipality where the tax is collected;
PROVIDED, That in Metropolitan Manila, the tax shall be shared
equally by the City/Municipality and the Metropolitan Manila
Commission.
 xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably
necessary for the accomplishment of, the general object of the DECREE,
which is the regulation of the video industry through the Videogram
Regulatory Board as expressed in its title. The tax provision is not
inconsistent with, nor foreign to that general subject and title. As a tool for
regulation 6 it is simply one of the regulatory and control mechanisms
scattered throughout the DECREE. The express purpose of the DECREE to
include taxation of the video industry in order to regulate and rationalize the
heretofore uncontrolled distribution of videograms is evident from
Preambles 2 and 5, supra. Those preambles explain the motives of the
lawmaker in presenting the measure. The title of the DECREE, which is the
creation of the Videogram Regulatory Board, is comprehensive enough to
include the purposes expressed in its Preamble and reasonably covers all its
provisions. It is unnecessary to express all those objectives in the title or
that the latter be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh
and oppressive, confiscatory, and in restraint of trade. However, it is beyond
serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. 8 The
power to impose taxes is one so unlimited in force and so searching in
extent, that the courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of the authority
which exercises it. 9 In imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient security against erroneous and
oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue
measure prompted by the realization that earnings of videogram
establishments of around P600 million per annum have not been subjected
to tax, thereby depriving the Government of an additional source of
revenue. It is an end-user tax, imposed on retailers for every videogram they
make available for public viewing. It is similar to the 30% amusement tax
imposed or borne by the movie industry which the theater-owners pay to the
government, but which is passed on to the entire cost of the admission
ticket, thus shifting the tax burden on the buying or the viewing public. It is
a tax that is imposed uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to
answer the need for regulating the video industry, particularly because of
the rampant film piracy, the flagrant violation of intellectual property rights,
and the proliferation of pornographic video tapes. And while it was also an
objective of the DECREE to protect the movie industry, the tax remains a
valid imposition.
The public purpose of a tax may legally exist even if the motive
which impelled the legislature to impose the tax was to favor one
industry over another. 11
It is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that "inequities
which result from a singling out of one particular class for taxation
or exemption infringe no constitutional limitation". 12 Taxation has
been made the implement of the state's police power.13
At bottom, the rate of tax is a matter better addressed to the taxing
legislature.
3. Petitioner argues that there was no legal nor factual basis for the
promulgation of the DECREE by the former President under Amendment
No. 6 of the 1973 Constitution providing that "whenever in the judgment of
the President ... , there exists a grave emergency or a threat or imminence
thereof, or whenever the interim Batasang Pambansa or the regular National
Assembly fails or is unable to act adequately on any matter for any reason
that in his judgment requires immediate action, he may, in order to meet the
exigency, issue the necessary decrees, orders, or letters of instructions,
which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the
8th "whereas" clause sufficiently summarizes the justification in that grave
emergencies corroding the moral values of the people and betraying the
national economic recovery program necessitated bold emergency measures
to be adopted with dispatch. Whatever the reasons "in the judgment" of the
then President, considering that the issue of the validity of the exercise of
legislative power under the said Amendment still pends resolution in several
other cases, we reserve resolution of the question raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue
delegation of legislative power. The grant in Section 11 of the DECREE of
authority to the BOARD to "solicit the direct assistance of other agencies
and units of the government and deputize, for a fixed and limited period, the
heads or personnel of such agencies and units to perform enforcement
functions for the Board" is not a delegation of the power to legislate but
merely a conferment of authority or discretion as to its execution,
enforcement, and implementation. "The true distinction is between the
delegation of power to make the law, which necessarily involves a
discretion as to what it shall be, and conferring authority or discretion as to
its execution to be exercised under and in pursuance of the law. The first
cannot be done; to the latter, no valid objection can be made." 14 Besides, in
the very language of the decree, the authority of the BOARD to solicit such
assistance is for a "fixed and limited period" with the deputized agencies
concerned being "subject to the direction and control of the BOARD." That
the grant of such authority might be the source of graft and corruption
would not stigmatize the DECREE as unconstitutional. Should the
eventuality occur, the aggrieved parties will not be without adequate remedy
in law.
5. The DECREE is not violative of the ex post facto principle. An ex post
facto law is, among other categories, one which "alters the legal rules of
evidence, and authorizes conviction upon less or different testimony than
the law required at the time of the commission of the offense." It is
petitioner's position that Section 15 of the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a
period of forty-five (45) days after the effectivity of this Decree
within which to register with and secure a permit from the BOARD
to engage in the videogram business and to register with the
BOARD all their inventories of videograms, including videotapes,
discs, cassettes or other technical improvements or variations
thereof, before they could be sold, leased, or otherwise disposed of.
Thereafter any videogram found in the possession of any person
engaged in the videogram business without the required proof of
registration by the BOARD, shall be prima facie evidence of
violation of the Decree, whether the possession of such videogram
be for private showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE
when the required proof of registration of any videogram cannot be
presented and thus partakes of the nature of an ex post facto law.
The argument is untenable. As this Court held in the recent case of Vallarta
vs. Court of Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to
the passage of a law providing that the presumption of innocence
may be overcome by a contrary presumption founded upon the
experience of human conduct, and enacting what evidence shall be
sufficient to overcome such presumption of innocence" (People vs.
Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A
TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-
641). And the "legislature may enact that when certain facts have
been proved that they shall be prima facie evidence of the
existence of the guilt of the accused and shift the burden of proof
provided there be a rational connection between the facts proved
and the ultimate facts presumed so that the inference of the one
from proof of the others is not unreasonable and arbitrary because
of lack of connection between the two in common experience". 16
Applied to the challenged provision, there is no question that there is a
rational connection between the fact proved, which is non-registration, and
the ultimate fact presumed which is violation of the DECREE, besides the
fact that the prima facie presumption of violation of the DECREE attaches
only after a forty-five-day period counted from its effectivity and is,
therefore, neither retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-
regulated and being eased out of existence as if it were a nuisance. Being a
relatively new industry, the need for its regulation was apparent. While the
underlying objective of the DECREE is to protect the moribund movie
industry, there is no question that public welfare is at bottom of its
enactment, considering "the unfair competition posed by rampant film
piracy; the erosion of the moral fiber of the viewing public brought about by
the availability of unclassified and unreviewed video tapes containing
pornographic films and films with brutally violent sequences; and losses in
government revenues due to the drop in theatrical attendance, not to
mention the fact that the activities of video establishments are virtually
untaxed since mere payment of Mayor's permit and municipal license fees
are required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the
"demise" of the video industry. On the contrary, video establishments are
seen to have proliferated in many places notwithstanding the 30% tax
imposed.
In the last analysis, what petitioner basically questions is the necessity,
wisdom and expediency of the DECREE. These considerations, however,
are primarily and exclusively a matter of legislative concern.
Only congressional power or competence, not the wisdom of the
action taken, may be the basis for declaring a statute invalid. This
is as it ought to be. The principle of separation of powers has in the
main wisely allocated the respective authority of each department
and confined its jurisdiction to such a sphere. There would then be
intrusion not allowable under the Constitution if on a matter left to
the discretion of a coordinate branch, the judiciary would substitute
its own. If there be adherence to the rule of law, as there ought to
be, the last offender should be courts of justice, to which rightly
litigants submit their controversy precisely to maintain unimpaired
the supremacy of legal norms and prescriptions. The attack on the
validity of the challenged provision likewise insofar as there may
be objections, even if valid and cogent on its wisdom cannot be
sustained. 18
In fine, petitioner has not overcome the presumption of validity which
attaches to a challenged statute. We find no clear violation of the
Constitution which would justify us in pronouncing Presidential Decree No.
1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24756 October 31, 1968
CITY OF BAGUIO, plaintiff-appellee,
vs.
FORTUNATO DE LEON, defendant-appellant.
The City Attorney for plaintiff-appellee.
Fortunato de Leon for and in his own behalf as defendant-appellant.
FERNANDO, J.:
In this appeal, a lower court decision upholding the validity of an
ordinance1 of the City of Baguio imposing a license fee on any person, firm,
entity or corporation doing business in the City of Baguio is assailed by
defendant-appellant Fortunato de Leon. He was held liable as a real estate
dealer with a property therein worth more than P10,000, but not in excess of
P50,000, and therefore obligated to pay under such ordinance the P50
annual fee. That is the principal question. In addition, there has been a firm
and unyielding insistence by defendant-appellant of the lack of jurisdiction
of the City Court of Baguio, where the suit originated, a complaint having
been filed against him by the City Attorney of Baguio for his failure to pay
the amount of P300 as license fee covering the period from the first quarter
of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated
demands. Nor was defendant-appellant agreeable to such a suit being
instituted by the City Treasurer without the consent of the Mayor, which for
him was indispensable. The lower court was of a different mind.
In its decision of December 19, 1964, it declared the above ordinance as
amended, valid and subsisting, and held defendant-appellant liable for the
fees therein prescribed as a real estate dealer. Hence, this appeal. Assume
the validity of such ordinance, and there would be no question about the
liability of defendant-appellant for the above license fee, it being shown in
the partial stipulation of facts, that he was "engaged in the rental of his
property in Baguio" deriving income therefrom during the period covered
by the first quarter of 1958 to the fourth quarter of 1962.
The source of authority for the challenged ordinance is supplied by
Republic Act No. 329, amending the city charter of Baguio2 empowering it
to fix the license fee and regulate "businesses, trades and occupations as
may be established or practiced in the City."
Unless it can be shown then that such a grant of authority is not broad
enough to justify the enactment of the ordinance now assailed, the decision
appealed from must be affirmed. The task confronting defendant-appellant,
therefore, was far from easy. Why he failed is understandable, considering
that even a cursory reading of the above amendment readily discloses that
the enactment of the ordinance in question finds support in the power thus
conferred.
Nor is the question raised by him as to the validity thereof novel in
character. In Medina v. City of Baguio,3 the effect of the amendatory section
insofar as it would expand the previous power vested by the city charter was
clarified in these terms: "Appellants apparently have in mind section 2553,
paragraph (c) of the Revised Administrative Code, which empowers the
City of Baguio merely to impose a license fee for the purpose of rating the
business that may be established in the city. The power as thus conferred is
indeed limited, as it does not include the power to levy a tax. But on July
15, 1948, Republic Act No. 329 was enacted amending the charter of said
city and adding to its power to license the power to tax and to regulate. And
it is precisely having in view this amendment that Ordinance No. 99 was
approved in order to increase the revenues of the city. In our opinion, the
amendment above adverted to empowers the city council not only to impose
a license fee but also to levy a tax for purposes of revenue, more so when in
amending section 2553 (b), the phrase 'as provided by law' has been
removed by section 2 of Republic Act No. 329. The city council of Baguio,
therefore, has now the power to tax, to license and to regulate provided that
the subjects affected be one of those included in the charter. In this sense,
the ordinance under consideration cannot be considered ultra vires whether
its purpose be to levy a tax or impose a license fee. The terminology used is
of no consequence."
It would be an undue and unwarranted emasculation of the above power
thus granted if defendant-appellant were to be sustained in his contention
that no such statutory authority for the enactment of the challenged
ordinance could be discerned from the language used in the amendatory act.
That is about all that needs to be said in upholding the lower court,
considering that the City of Baguio was not devoid of authority in enacting
this particular ordinance. As mentioned at the outset, however, defendant-
appellant likewise alleged procedural missteps and asserted that the
challenged ordinance suffered from certain constitutional infirmities. To
such points raised by him, we shall now turn.
1. Defendant-appellant makes much of the alleged lack of jurisdiction of the
City Court of Baguio in the suit for the collection of the real estate dealer's
fee from him in the amount of P300. He contended before the lower court,
and it is his contention now, that while the amount of P300 sought was
within the jurisdiction of the City Court of Baguio where this action
originated, since the principal issue was the legality and constitutionality of
the challenged ordinance, it is not such City Court but the Court of First
Instance that has original jurisdiction.
There is here a misapprehension of the Judiciary Act. The City Court has
jurisdiction. Only recently, on September 7, 1968 to be exact, we rejected a
contention similar in character in Nemenzo v. Sabillano.4 The plaintiff in
that case filed a claim for the payment of his salary before the Justice of the
Peace Court of Pagadian, Zamboanga del Sur. The question of jurisdiction
was raised; the defendant Mayor asserted that what was in issue was the
enforcement of the decision of the Commission of Civil Service; the Justice
of the Peace Court was thus without jurisdiction to try the case. The above
plea was curtly dismissed by Us, as what was involved was "an ordinary
money claim" and therefore "within the original jurisdiction of the Justice of
the Peace Court where it was filed, considering the amount involved." Such
is likewise the situation here.
Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a
defendant this license fee corresponding to the years 1951 and 1952 was
filed with the Municipal Court of Manila, in view of the amount involved.
The thought that the municipal court lacked jurisdiction apparently was not
even in the minds of the parties and did not receive any consideration by
this Court.
Evidently, the fear is entertained by defendant-appellant that whenever a
constitutional question is raised, it is the Court of First Instance that should
have original jurisdiction on the matter. It does not admit of doubt,
however, that what confers jurisdiction is the amount set forth in the
complaint. Here, the sum sought to be recovered was clearly within the
jurisdiction of the City Court of Baguio.
Nor could it be plausibly maintained that the validity of such ordinance
being open to question as a defense against its enforcement from one
adversely affected, the matter should be elevated to the Court of First
Instance. For the City Court could rely on the presumption of the validity of
such ordinance,6 and the mere fact, however, that in the answer to such a
complaint a constitutional question was raised did not suffice to oust the
City Court of its jurisdiction. The suit remains one for collection, the lack of
validity being only a defense to such an attempt at recovery. Since the City
Court is possessed of judicial power and it is likewise axiomatic that the
judicial power embraces the ascertainment of facts and the application of
the law, the Constitution as the highest law superseding any statute or
ordinance in conflict therewith, it cannot be said that a City Court is bereft
of competence to proceed on the matter. In the exercise of such delicate
power, however, the admonition of Cooley on inferior tribunals is well
worth remembering. Thus: "It must be evident to any one that the power to
declare a legislative enactment void is one which the judge, conscious of the
fallibility of the human judgment, will shrink from exercising in any case
where he can conscientiously and with due regard to duty and official oath
decline the responsibility."7 While it remains undoubted that such a power
to pass on the validity of an ordinance alleged to infringe certain
constitutional rights of a litigant exists, still it should be exercised with due
care and circumspection, considering not only the presumption of validity
but also the relatively modest rank of a city court in the judicial hierarchy.
2. To repeat the challenged ordinance cannot be considered ultra vires as
there is more than ample statutory authority for the enactment thereof.
Nonetheless, its validity on constitutional grounds is challenged because of
the allegation that it imposed double taxation, which is repugnant to the due
process clause, and that it violated the requirement of uniformity. We do not
view the matter thus.
As to why double taxation is not violative of due process, Justice Holmes
made clear in this language: "The objection to the taxation as double may be
laid down on one side. ... The 14th Amendment [the due process clause] no
more forbids double taxation than it does doubling the amount of a tax,
short of confiscation or proceedings unconstitutional on other
grounds."8With that decision rendered at a time when American sovereignty
in the Philippines was recognized, it possesses more than just a persuasive
effect. To some, it delivered the coup de graceto the bogey of double
taxation as a constitutional bar to the exercise of the taxing power. It would
seem though that in the United States, as with us, its ghost as noted by an
eminent critic, still stalks the juridical state. In a 1947 decision,
however,9 we quoted with approval this excerpt from a leading American
decision:10 "Where, as here, Congress has clearly expressed its intention, the
statute must be sustained even though double taxation results."
At any rate, it has been expressly affirmed by us that such an "argument
against double taxation may not be invoked where one tax is imposed by the
state and the other is imposed by the city ..., it being widely recognized that
there is nothing inherently obnoxious in the requirement that license fees or
taxes be exacted with respect to the same occupation, calling or activity by
both the state and the political subdivisions thereof."11
The above would clearly indicate how lacking in merit is this argument
based on double taxation.
Now, as to the claim that there was a violation of the rule of uniformity
established by the constitution. According to the challenged ordinance, a
real estate dealer who leases property worth P50,000 or above must pay an
annual fee of P100. If the property is worth P10,000 but not over P50,000,
then he pays P50 and P24 if the value is less than P10,000. On its face,
therefore, the above ordinance cannot be assailed as violative of the
constitutional requirement of uniformity. In Philippine Trust Company v.
Yatco,12 Justice Laurel, speaking for the Court, stated: "A tax is considered
uniform when it operates with the same force and effect in every place
where the subject may be found."
There was no occasion in that case to consider the possible effect on such a
constitutional requirement where there is a classification. The opportunity
came in Eastern Theatrical Co. v. Alfonso.13 Thus: "Equality and uniformity
in taxation means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation; ..."
About two years later, Justice Tuason, speaking for this Court in Manila
Race Horses Trainers Assn. v. De la Fuente14incorporated the above excerpt
in his opinion and continued: "Taking everything into account, the
differentiation against which the plaintiffs complain conforms to the
practical dictates of justice and equity and is not discriminatory within the
meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case
decided two years later, 15 is that the statute or ordinance in question
"applies equally to all persons, firms and corporations placed in similar
situation." This Court is on record as accepting the view in a leading
American case16 that "inequalities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional
limitation."17
It is thus apparent from the above that in much the same way that the plea of
double taxation is unavailing, the allegation that there was a violation of the
principle of uniformity is inherently lacking in persuasiveness. There is no
need to pass upon the other allegations to assail the validity of the above
ordinance, it being maintained that the license fees therein imposed "is
excessive, unreasonable and oppressive" and that there is a failure to
observe the mandate of equal protection. A reading of the ordinance will
readily disclose their inherent lack of plausibility.
remedy may be resorted to by him. It would be a reflection on the state of
the law if such fidelity to duty would be met by condemnation rather than
commendation.
So, much for the analytical approach. The conclusion thus reached has a
reinforcement that comes to it from the functional and pragmatic test. If a
city treasurer has to await the nod from the city mayor before a municipal
ordinance is enforced, then opportunity exists for favoritism and undue
discrimination to come into play. Whatever valid reason may exist as to
why one taxpayer is to be accorded a treatment denied another, the
suspicion is unavoidable that such a manifestation of official favor could
have been induced by unnamed but not unknown consideration. It would
not be going too far to assert that even defendant-appellant would find no
satisfaction in such a sad state of affairs. The more desirable legal doctrine
therefore, on the assumption that a choice exists, is one that would do away
with such temptation on the part of both taxpayer and public official alike.
WHEREFORE, the lower court decision of December 19, 1964, is hereby
affirmed. Costs against defendant-appellant.

3. That would dispose of all the errors assigned, except the last two, which
would predicate a grievance on the complaint having been started by the
City Treasurer rather than the City Mayor of Baguio. These alleged errors,
as was the case with the others assigned, lack merit.

In much the same way that an act of a department head of the national
government, performed within the limits of his authority, is presumptively
the act of the President unless reprobated or disapproved,18 similarly the act
of the City Treasurer, whose position is roughly analogous, may be assumed
to carry the seal of approval of the City Mayor unless repudiated or set
aside. This should be the case considering that such city official is called
upon to see to it that revenues due the City are collected. When
administrative steps are futile and unavailing, given the stubbornness and
obduracy of a taxpayer, convinced in good faith that no tax was due, judicial
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-41631 December 17, 1976
HON. RAMON D. BAGATSING, as Mayor of the City of Manila;
ROMAN G. GARGANTIEL, as Secretary to the Mayor; THE
MARKET ADMINISTRATOR; and THE MUNICIPAL BOARD OF
MANILA, petitioners,
vs.
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the
Court of First Instance of Manila, Branch XXX and the
FEDERATION OF MANILA MARKET VENDORS,
INC., respondents.
Santiago F. Alidio and Restituto R. Villanueva for petitioners.
Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.
MARTIN, J.:
The chief question to be decided in this case is what law shall govern the
publication of a tax ordinance enacted by the Municipal Board of Manila,
the Revised City Charter (R.A. 409, as amended), which requires
publication of the ordinance before its enactment and after its approval, or
the Local Tax Code (P.D. No. 231), which only demands publication after
approval.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No.
7522, "AN ORDINANCE REGULATING THE OPERATION OF PUBLIC
MARKETS AND PRESCRIBING FEES FOR THE RENTALS OF
STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF
AND FOR OTHER PURPOSES." The petitioner City Mayor, Ramon D.
Bagatsing, approved the ordinance on June 15, 1974.
On February 17, 1975, respondent Federation of Manila Market Vendors,
Inc. commenced Civil Case 96787 before the Court of First Instance of
Manila presided over by respondent Judge, seeking the declaration of
nullity of Ordinance No. 7522 for the reason that (a) the publication
requirement under the Revised Charter of the City of Manila has not been
complied with; (b) the Market Committee was not given any participation in
the enactment of the ordinance, as envisioned by Republic Act 6039; (c)
Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated;
and (d) the ordinance would violate Presidential Decree No. 7 of September
30, 1972 prescribing the collection of fees and charges on livestock and
animal products.
Resolving the accompanying prayer for the issuance of a writ of preliminary
injunction, respondent Judge issued an order on March 11, 1975, denying
the plea for failure of the respondent Federation of Manila Market Vendors,
Inc. to exhaust the administrative remedies outlined in the Local Tax Code.
After due hearing on the merits, respondent Judge rendered its decision on
August 29, 1975, declaring the nullity of Ordinance No. 7522 of the City of
Manila on the primary ground of non-compliance with the requirement of
publication under the Revised City Charter. Respondent Judge ruled:
There is, therefore, no question that the ordinance in
question was not published at all in two daily newspapers
of general circulation in the City of Manila before its
enactment. Neither was it published in the same manner
after approval, although it was posted in the legislative
hall and in all city public markets and city public libraries.
There being no compliance with the mandatory
requirement of publication before and after approval, the
ordinance in question is invalid and, therefore, null and
void.
Petitioners moved for reconsideration of the adverse decision, stressing that
(a) only a post-publication is required by the Local Tax Code; and (b)
private respondent failed to exhaust all administrative remedies before
instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present petition
for review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict between the
Revised Charter of the City of Manila and the Local Tax Code on the
manner of publishing a tax ordinance enacted by the Municipal Board of
Manila. For, while Section 17 of the Revised Charter provides:
Each proposed ordinance shall be published in two daily
newspapers of general circulation in the city, and shall not
be discussed or enacted by the Board until after the third
day following such publication. * * * Each approved
ordinance * * * shall be published in two daily
newspapers of general circulation in the city, within ten
days after its approval; and shall take effect and be in
force on and after the twentieth day following its
publication, if no date is fixed in the ordinance.
Section 43 of the Local Tax Code directs:
Within ten days after their approval, certified true copies
of all provincial, city, municipal and barrio ordinances
levying or imposing taxes, fees or other charges shall be
published for three consecutive days in a newspaper or
publication widely circulated within the jurisdiction of the
local government, or posted in the local legislative hall or
premises and in two other conspicuous places within the
territorial jurisdiction of the local government. In either
case, copies of all provincial, city, municipal and barrio
ordinances shall be furnished the treasurers of the
respective component and mother units of a local
government for dissemination.
In other words, while the Revised Charter of the City of Manila requires
publication before the enactment of the ordinance and after the approval
thereof in two daily newspapers of general circulation in the city, the Local
Tax Code only prescribes for publication after the approval of "ordinances
levying or imposing taxes, fees or other charges" either in a newspaper or
publication widely circulated within the jurisdiction of the local government
or by posting the ordinance in the local legislative hall or premises and in
two other conspicuous places within the territorial jurisdiction of the local
government. Petitioners' compliance with the Local Tax Code rather than
with the Revised Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is
a special act since it relates only to the City of Manila, whereas the Local
Tax Code is a general law because it applies universally to all local
governments. Blackstone defines general law as a universal rule affecting
the entire community and special law as one relating to particular persons or
things of a class. 1 And the rule commonly said is that a prior special law is
not ordinarily repealed by a subsequent general law. The fact that one is
special and the other general creates a presumption that the special is to be
considered as remaining an exception of the general, one as a general law of
the land, the other as the law of a particular case. 2 However, the rule readily
yields to a situation where the special statute refers to a subject in general,
which the general statute treats in particular. The exactly is the
circumstance obtaining in the case at bar. Section 17 of the Revised Charter
of the City of Manila speaks of "ordinance" in general, i.e., irrespective of
the nature and scope thereof, whereas, Section 43 of the Local Tax Code
relates to "ordinances levying or imposing taxes, fees or other charges" in
particular. In regard, therefore, to ordinances in general, the Revised Charter
of the City of Manila is doubtless dominant, but, that dominant force loses
its continuity when it approaches the realm of "ordinances levying or
imposing taxes, fees or other charges" in particular. There, the Local Tax
Code controls. Here, as always, a general provision must give way to a
particular provision. 3 Special provision governs. 4 This is especially true
where the law containing the particular provision was enacted later than the
one containing the general provision. The City Charter of Manila was
promulgated on June 18, 1949 as against the Local Tax Code which was
decreed on June 1, 1973. The law-making power cannot be said to have
intended the establishment of conflicting and hostile systems upon the same
subject, or to leave in force provisions of a prior law by which the new will
of the legislating power may be thwarted and overthrown. Such a result
would render legislation a useless and Idle ceremony, and subject the law to
the reproach of uncertainty and unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico
sued the City of Manila for damages arising from the injuries he suffered
when he fell inside an uncovered and unlighted catchbasin or manhole on P.
Burgos Avenue. The City of Manila denied liability on the basis of the City
Charter (R.A. 409) exempting the City of Manila from any liability for
damages or injury to persons or property arising from the failure of the city
officers to enforce the provisions of the charter or any other law or
ordinance, or from negligence of the City Mayor, Municipal Board, or other
officers while enforcing or attempting to enforce the provisions of the
charter or of any other law or ordinance. Upon the other hand, Article 2189
of the Civil Code makes cities liable for damages for the death of, or injury
suffered by any persons by reason of the defective condition of roads,
streets, bridges, public buildings, and other public works under their control
or supervision. On review, the Court held the Civil Code controlling. It is
true that, insofar as its territorial application is concerned, the Revised City
Charter is a special law and the subject matter of the two laws, the Revised
City Charter establishes a general rule of liability arising from negligence
in general, regardless of the object thereof, whereas the Civil Code
constitutes a particular prescription for liability due to defective streets in
particular. In the same manner, the Revised Charter of the City prescribes a
rule for the publication of "ordinance" in general, while the Local Tax Code
establishes a rule for the publication of "ordinance levying or imposing
taxes fees or other charges in particular.
In fact, there is no rule which prohibits the repeal even by implication of a
special or specific act by a general or broad one. 7 A charter provision may
be impliedly modified or superseded by a later statute, and where a statute is
controlling, it must be read into the charter notwithstanding any particular
charter provision. 8 A subsequent general law similarly applicable to all
cities prevails over any conflicting charter provision, for the reason that a
charter must not be inconsistent with the general laws and public policy of
the state. 9 A chartered city is not an independent sovereignty. The state
remains supreme in all matters not purely local. Otherwise stated, a charter
must yield to the constitution and general laws of the state, it is to have read
into it that general law which governs the municipal corporation and which
the corporation cannot set aside but to which it must yield. When a city
adopts a charter, it in effect adopts as part of its charter general law of such
character. 10
2. The principle of exhaustion of administrative remedies is strongly
asserted by petitioners as having been violated by private respondent in
bringing a direct suit in court. This is because Section 47 of the Local Tax
Code provides that any question or issue raised against the legality of any
tax ordinance, or portion thereof, shall be referred for opinion to the city
fiscal in the case of tax ordinance of a city. The opinion of the city fiscal is
appealable to the Secretary of Justice, whose decision shall be final and
executory unless contested before a competent court within thirty (30) days.
But, the petition below plainly shows that the controversy between the
parties is deeply rooted in a pure question of law: whether it is the Revised
Charter of the City of Manila or the Local Tax Code that should govern the
publication of the tax ordinance. In other words, the dispute is sharply
focused on the applicability of the Revised City Charter or the Local Tax
Code on the point at issue, and not on the legality of the imposition of the
tax. Exhaustion of administrative remedies before resort to judicial bodies is
not an absolute rule. It admits of exceptions. Where the question litigated
upon is purely a legal one, the rule does not apply. 11 The principle may also
be disregarded when it does not provide a plain, speedy and adequate
remedy. It may and should be relaxed when its application may cause great
and irreparable damage. 12
3. It is maintained by private respondent that the subject ordinance is not a
"tax ordinance," because the imposition of rentals, permit fees, tolls and
other fees is not strictly a taxing power but a revenue-raising function, so
that the procedure for publication under the Local Tax Code finds no
application. The pretense bears its own marks of fallacy. Precisely, the
raising of revenues is the principal object of taxation. Under Section 5,
Article XI of the New Constitution, "Each local government unit shall have
the power to create its own sources of revenue and to levy taxes, subject to
such provisions as may be provided by law." 13 And one of those sources of
revenue is what the Local Tax Code points to in particular: "Local
governments may collect fees or rentals for the occupancy or use of public
markets and premises * * *." 14 They can provide for and regulate market
stands, stalls and privileges, and, also, the sale, lease or occupancy thereof.
They can license, or permit the use of, lease, sell or otherwise dispose of
stands, stalls or marketing privileges. 15
It is a feeble attempt to argue that the ordinance violates Presidential Decree
No. 7, dated September 30, 1972, insofar as it affects livestock and animal
products, because the said decree prescribes the collection of other fees and
charges thereon "with the exception of ante-mortem and post-mortem
inspection fees, as well as the delivery, stockyard and slaughter fees as may
be authorized by the Secretary of Agriculture and Natural
Resources." 16Clearly, even the exception clause of the decree itself permits
the collection of the proper fees for livestock. And the Local Tax Code
(P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments
may collect fees for the slaughter of animals and the use of corrals * * * "
Ordinance No. 7522 was not made for the corporation but for the purpose of
raising revenues for the city. That is the object it serves. The entrusting of
the collection of the fees does not destroy the public purpose of the
ordinance. So long as the purpose is public, it does not matter whether the
agency through which the money is dispensed is public or private. The right
to tax depends upon the ultimate use, purpose and object for which the fund
is raised. It is not dependent on the nature or character of the person or
corporation whose intermediate agency is to be used in applying it. The
people may be taxed for a public purpose, although it be under the direction
of an individual or private corporation. 18

4. The non-participation of the Market Committee in the enactment of Nor can the ordinance be stricken down as violative of Section 3(e) of the
Ordinance No. 7522 supposedly in accordance with Republic Act No. 6039, Anti-Graft and Corrupt Practices Act because the increased rates of market
an amendment to the City Charter of Manila, providing that "the market stall fees as levied by the ordinance will necessarily inure to the
committee shall formulate, recommend and adopt, subject to the ratification unwarranted benefit and advantage of the corporation. 19 We are concerned
of the municipal board, and approval of the mayor, policies and rules or only with the issue whether the ordinance in question is intra vires. Once
regulation repealing or maneding existing provisions of the market code" determined in the affirmative, the measure may not be invalidated because
does not infect the ordinance with any germ of invalidity. 17 The function of of consequences that may arise from its enforcement. 20
the committee is purely recommendatory as the underscored phrase
suggests, its recommendation is without binding effect on the Municipal ACCORDINGLY, the decision of the court below is hereby reversed and
Board and the City Mayor. Its prior acquiescence of an intended or set aside. Ordinance No. 7522 of the City of Manila, dated June 15, 1975, is
proposed city ordinance is not a condition sine qua non before the hereby held to have been validly enacted. No. costs.
Municipal Board could enact such ordinance. The native power of the
Municipal Board to legislate remains undisturbed even in the slightest
SO ORDERED.
degree. It can move in its own initiative and the Market Committee cannot
demur. At most, the Market Committee may serve as a legislative aide of
the Municipal Board in the enactment of city ordinances affecting the city
markets or, in plain words, in the gathering of the necessary data, studies
and the collection of consensus for the proposal of ordinances regarding city
markets. Much less could it be said that Republic Act 6039 intended to
delegate to the Market Committee the adoption of regulatory measures for
the operation and administration of the city markets. Potestas delegata non
delegare potest.

5. Private respondent bewails that the market stall fees imposed in the
disputed ordinance are diverted to the exclusive private use of the Asiatic
Integrated Corporation since the collection of said fees had been let by the
City of Manila to the said corporation in a "Management and Operating
Contract." The assumption is of course saddled on erroneous premise. The
fees collected do not go direct to the private coffers of the corporation.