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PLANTERS PRODUCTS v. FERTIPHIL CORPORATION

FACTS:

The case at hand involves a petition for review on certiorari of the decision of the Court of Appeals (CA) affirming with modification the decision of the Regional Trial Court (RTC) in Makati City. The petitioner, Planters Products, Inc. (PPI), is being held liable by the RTC for the levies it paid under Letter of Instruction (LOI) No. 1465 to the private respondent, Fertiphil Corporation (Fertiphil).

PPI and Fertiphil are both private corporations engaged in the importation and distribution of fertilizers, pesticides, and agricultural chemicals. On June 3, 1985, then President Ferdinand Marcos issued LOI No. 1465, which imposed a capital recovery component (CRC) on the domestic sale of fertilizers in the Philippines.

After the 1986 Edsa Revolution, Fertiphil then demanded a refund of the amounts it paid under LOI No. 1465, but PPI refused. Fertiphil filed a complaint for collection and damages against FPA and PPI, questioning the constitutionality of LOI No. 1465 for being unjust, unreasonable, oppressive, invalid, and an unlawful imposition that denied due process of law.

The RTC ruled in favor of Fertiphil, ordering PPI to pay the amount of P6,698,144 with interest, attorney's fees, and costs of suit. The RTC invalidated the levy, stating that it violated the principle that taxes can only be levied for public purposes.

PPI filed a complaint for collection and damages against the Bureau of Internal Revenue (BIR) and the Central Bank of the Philippines (CBP) challenging the constitutionality of Letter of Instruction (LOI) No. 1465. LOI 1465 imposed a levy of P10 per fertilizer bag sold in the country and directed the said amount to go to PPI. PPI argued that the provision was unlawful as it violated the requirement that taxes should be levied for a public purpose and not to benefit a private enterprise like PPI. The Regional Trial Court (RTC) held in favor of PPI, declaring the provision unconstitutional. The Court of Appeals (CA) affirmed the RTC decision, ruling that even if LOI No. 1465 was issued under the police power of the state, it is still unconstitutional because it did not promote public welfare.

The case involves the constitutionality of Letter of Instruction (LOI) No. 1465, which imposed a levy on fertilizer sales to support the rehabilitation and viability of Planters Products, Inc. (PPI). PPI claimed that the levy was for the benefit of Planters Foundation, Inc. (PFI), a foundation created to hold in trust the stock ownership of PPI. PPI argued that the collections under LOI 1465 were intended for the unpaid portion of PPI's outstanding capital stock held in trust by PFI. However, the Court of Appeals (CA) did not accept PPI's claim, stating that the LOI and the opinion of the Secretary of Justice did not sufficiently establish that the collections were held in trust for the benefit of farmers. The CA relied on what was explicitly provided in LOI 1465, which stated that the primary aim of the levy was to support the rehabilitation and continued viability of PPI.

ISSUES:

  1. Whether Fertiphil has locus standi to question the constitutionality of LOI No. 1465.

  2. Whether the RTC has jurisdiction to resolve the constitutional issue raised by Fertiphil in its complaint.

  3. Whether the Regional Trial Court (RTC) has the authority and jurisdiction to consider the constitutionality of a statute, presidential decree, or executive order.

  4. Whether the constitutionality of LOI No. 1465 was properly raised in the complaint for collection filed with the RTC.

  5. Whether or not the levy imposed under LOI No. 1465 was for a public purpose.

  6. Whether or not PPI benefited from the levy imposed under LOI No. 1465.

  7. Whether LOI No. 1465 complies with the public purpose requirement for tax laws.

  8. Whether LOI No. 1695 promotes public interest and was enacted under the police power of the State.

  9. Whether the doctrine of operative fact applies to the case.

RULING:

  1. Fertiphil has locus standi to question the constitutionality of LOI No. 1465 because it suffered direct injury as a result of its enforcement. The doctrine of locus standi is a mere procedural technicality that may be waived. Fertiphil, as the seller of fertilizer products, bore the burden of paying the levy imposed by the LOI and faced the possibility of severe sanctions for non-payment. The fact that Fertiphil may have passed on the levy to the ultimate consumer does not disqualify it from attacking the constitutionality of the LOI or seeking a refund.

  2. The RTC has jurisdiction to resolve the constitutional issue raised by Fertiphil in its complaint. The constitutionality of a statute, presidential decree, or executive order can be determined by the RTC, as provided in Section 5, Article VIII of the 1987 Constitution. The issue of constitutionality was adequately raised in Fertiphil's complaint and is the very "lis mota" of the case, as the determination of Fertiphil's claim is dependent on the resolution of the constitutional issue.

  3. Yes, the RTC has the authority and jurisdiction to consider the constitutionality of a statute, presidential decree, or executive order. The power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation is not limited to the Supreme Court alone, but also vested in all Regional Trial Courts.

  4. The constitutionality of LOI No. 1465 was properly raised in the complaint for collection filed with the RTC. The issue of constitutionality is the very lis mota of the complaint, as 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.

  5. The levy imposed under LOI No. 1465 was not for a public purpose. The text of the LOI is clear that the levy was imposed to raise capital for a private company, PPI. The LOI also provided that the imposition of the levy was conditional upon PPI becoming financially "viable," suggesting that the levy was actually imposed to benefit PPI. Moreover, the levies paid under the LOI were directly remitted to PPI's depositary bank, proving that PPI benefited from the levy. Lastly, the levy was used to pay the corporate debts of PPI, further indicating that it was imposed for the benefit of a private corporation.

  6. LOI No. 1465 failed to comply with the public purpose requirement for tax laws.

  7. LOI No. 1695 is invalid because it did not promote public interest and did not comply with the test of "lawful subjects" and "lawful means." It was enacted to give undue advantage to a private corporation.

  8. The doctrine of operative fact does not apply. Fertiphil is entitled to a refund of the levies paid under LOI No. 1465, as an unconstitutional law is void and has no legal effect. Refund is in accordance with the principle against unjust enrichment.

PRINCIPLES:

  • Locus standi requires a litigant to have a material interest in the outcome of a case.

  • In public suits, the "direct injury test" is used to determine locus standi, which requires the litigant to have a personal and substantial interest resulting in direct injury.

  • Locus standi may be waived in cases of "transcendental importance" or with "far reaching implications."

  • The RTC has jurisdiction to resolve the constitutionality of a statute, presidential decree, or executive order.

  • The issue of constitutionality can be adequately raised and resolved in the complaint and may be the lis mota of the case.

  • Regional Trial Courts have the authority and jurisdiction to consider the constitutionality of a statute, presidential decree, or executive order.

  • The power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation is not limited to the Supreme Court alone, but also vested in all Regional Trial Courts.

  • The issue of constitutionality must be properly raised and presented in the case, and its resolution is necessary to a determination of the case. The constitutionality of a law may be raised in any action cognizable by courts of justice.

  • Police power and taxation power are distinct and have different tests for validity.

  • The primary purpose of police power is the regulation of behavior or conduct, while the primary purpose of taxation is revenue generation.

  • Taxes must be imposed for a public purpose and cannot be used for purely private purposes or for the exclusive benefit of private persons.

  • "Public purpose" should be given a broad interpretation and includes purposes designed to promote social justice.

  • Taxes can only be exacted for a public purpose.

  • When a tax law is a mask to exact funds from the public and its true intent is to give undue benefit to a private enterprise, it does not satisfy the requirement of "public purpose".

  • The purpose of a law is evident from its text or inferable from other secondary sources.

  • Statutory Construction: The text of a statute should be given a literal meaning.

  • Public Purpose Requirement: Taxes must be imposed for a public purpose.

  • Tax laws must comply with the public purpose requirement.

  • Laws enacted under the police power of the State must promote public interest and comply with the test of "lawful subjects" and "lawful means."

  • The doctrine of operative fact applies as an exception to the general rule that an unconstitutional law is void. It recognizes the consequences of the existence of a statute before a determination of unconstitutionality.

  • Refund of amounts paid under an unconstitutional law is in accordance with the principle against unjust enrichment.