Académique Documents
Professionnel Documents
Culture Documents
00, and 53,005,045 PREFERRED SHARES (A, B & C) WITH A TOTAL PAR
VALUE OF P254,424,224.72, OR A TOTAL INVESTMENT OF P290,972,224.72, THE
EN BANC SAID INVESTMENT HAVING BEEN FUNDED BY THE DEDUCTION OF P1.00 PER PICUL
[ GR No. 77194, Mar 15, 1988 ] FROM SUGAR PROCEEDS OF THE SUGAR PRODUCERS COMMENCING THE YEAR
VIRGILIO GASTON v. REPUBLIC PLANTERS BANK + 1978-79 UNTIL THE PRESENT AS STABILIZATION FUND PURSUANT TO P.D. # 388".
DECISION
242 Phil. 377 Respondent Bank does not take issue with either petitioners or its co-respondents
as it has no beneficial or equitable interest that may be affected by the ruling in this
Petition, but welcomes the filing of the Petition since it will settle finally the issue of
MELENCIO-HERRERA, J.: legal ownership of the questioned shares of stock.
Petitioners are sugar producers, sugarcane planters and millers, who have come to
this Court in their individual capacities and in representation of other sugar Respondents PHILSUCOM and SRA, for their part, squarely traverse the petition
producers, planters and millers, said to be so numerous that it is impracticable to arguing that no trust results from Section 7 of P.D. No. 388; that the stabilization
bring them all before the Court although the subject matter of the present fees collected are considered government funds under the Government Auditing
controversy is of common interest to all sugar producers, whether parties in this Code; that the transfer of shares of stock from PHILSUCOM to the sugar producers
action or not. would be irregular, if not illegal; and that this suit is barred by laches.
Respondent Philippine Sugar Commission (PHILSUCOM, for short) was formerly the The Solicitor General aptly summarizes the basic issues thus: (1) whether the
government office tasked with the function of regulating and supervising the sugar stabilization fees collected from sugar planters and millers pursuant to Section 7 of
industry until it was superseded by its co-respondent Sugar Regulatory P.D. No. 388 are funds in trust for them, or public funds; and (2) whether shares of
Administration (SRA, for brevity) under Executive Order No. 18 on May 28, 1986. stock in respondent Bank paid for with said stabilization fees belong to the
Although said Executive Order abolished the PHILSUCOM, its existence as a juridical PHILSUCOM or to the different sugar planters and millers from whom the fees were
entity was mandated to continue for three (3) more years "for the purpose of collected or levied.
prosecuting and defending suits by or against it and enabling it to settle and close
its affairs, to dispose of and convey its property and to distribute its assets". P.D. No. 388, promulgated on February 2, 1974, which created the PHILSUCOM,
provided for the collection of a Stabilization Fund as follows:
Respondent Republic Planters Bank (briefly, the Bank) is a commercial banking
corporation. "SEC. 7. Capitalization, Special Fund of the Commission, Development and
Stabilization Fund. There is hereby established a fund for the Commission for the
Angel H. Severino, Jr., et al., who are sugarcane planters planting and milling their purpose of financing the growth and development of the sugar industry and all its
sugarcane in different mill districts of Negros Occidental, were allowed to intervene components, stabilization of the domestic market including the foreign market to
by the Court, since they have common cause with petitioners and respondents be administered in trust by the Commission and deposited in the Philippine
having interposed no objection to their intervention. Subsequently, on January 14, National Bank derived in the manner herein below cited from the following sources:
1988, the National Federation of Sugar Planters (NFSP) also moved to intervene,
which the Court allowed on February 16, 1988. a. Stabilization fund shall be collected as provided for in the various
provisions of this Decree.
Petitioners and Intervenors have come to this Court praying for a Writ
of Mandamus commanding respondents: b. Stabilization fees shall be collected from planters and millers in the amount
of Two (P2.00) Pesos for every picul produced and milled for a period of
"TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF REPUBLIC PLANTERS five years from the approval of this Decree and One (P1.00) Peso for every
BANK BY THE TRANSFER AND DISTRIBUTION OF THE SHARES OF STOCK IN THE SAID picul produced and milled every year thereafter,
BANK, NOW HELD BY AND STILL CARRIED IN THE NAME OF THE PHILIPPINE SUGAR Provided: That fifty (P0.50) centavos per picul of the amount levied on planters,
COMMISSION, TO THE SUGAR PRODUCERS, PLANTERS AND MILLERS, WHO ARE THE millers and traders under Section 4(c) of this Decree will be used for the payment of
TRUE BENEFICIAL OWNERS OF THE 761,416 COMMON SHARES VALUED AT
salaries and wages of personnel, fringe benefits and allowances of officers and convenience and necessity and that they are the true and beneficial owners
employees for the purpose of accomplishing the efficient performance of the duties thereof.
of the Commission,
In point of fact, we cannot see our way clear to upholding petitioners' position that
Provided, further: That said amount shall constitute a lien on the sugar quedan the investment of the proceeds from the stabilization fund in subscriptions to the
and/or warehouse receipts and shall be paid immediately by the planters and mill capital stock of the Bank were being made for and on their behalf. That could have
companies, sugar centrals and refineries to the Commission." (paragraphing and been clarified by the Trust Agreement, dated May 28, 1986, entered into between
bold supplied). PHILSUCOM, as "Trustor" acting through Mr. Fred J. Elizalde as Officer-in-Charge,
and respondent RPB-Trust Department" as "Trustee", acknowledging that
Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be PHILSUCOM "holds said shares for and in behalf of the sugar producers", the latter
administered in trust by the Commission". However, while the element of an intent "being the true and beneficial owners thereof". The Agreement, however, did not
to create a trust is present, a resulting trust in favor of the sugar producers, millers get off the ground because it failed to receive the approval of the PHILSUCOM
and planters cannot be said to have ensued because the presumptive intention of Board of Commissioners as required in the Agreement itself.
the parties is not reasonably ascertainable from the language of the statute itself.
The SRA, which succeeded PHILSUCOM, neither approved the Agreement because
"The doctrine of resulting trusts is founded on the presumed intention of the of the adverse opinion of the SRA Resident Auditor, dated June 25, 1986, which was
parties; and as a general rule, it arises where, and only where such may be affirmed by the Chairman of the Commission on Audit, on January 26, 1987.
reasonably presumed to be the intention of the parties, as determined from the
facts and circumstances existing at the time of the transaction out of which it is On February 19, 1987, the SRA resolved to revoke the Trust Agreement "in the light
sought to be established (89 C.J.S. 947)." of the ruling of the Commission on Audit that the aforementioned Agreement is of
doubtful validity".
No implied trust in favor of the sugar producers either can be deduced from the
From the legal standpoint, we find basis for the opinion of the Commission on Audit
imposition of the levy. "The essential idea of an implied trust involves a certain
reading:
antagonism between the cestui que trust and the trustee even when the trust has
not arisen out of fraud nor out of any transaction of a fraudulent or immoral
"That the government, PHILSUCOM or its successor-in-interest, Sugar Regulatory
character (65 CJ 222). It is not clearly shown from the statute itself that the
Administration, in particular, owns the stocks. While it is true that the collected
PHILSUCOM imposed on itself the obligation of holding the stabilization fund for
stabilization fees were set aside by PHILSUCOM to pay its subscription to RPB, it did
the benefit of the sugar producers. It must be categorically demonstrated that the
not collect said fees for the account of the sugar producers. That stabilization fees
very administrative agency which is the source of such regulation would place a
are charges/levies on sugar produced and milled which accrued to PHILSUCOM
burden on itself (Batchelder v. Central Bank of the Philippines, L-25071, July 29,
under PD 338, as amended. x x x "
1972, 46 SCRA 102, citing People v. Que Po Lay, 94 Phil. 640 [1954]).
Neither can petitioners place reliance on the history of respondent Bank. They The stabilization fees collected are in the nature of a tax, which is within the power
recite that at the beginning, the Bank was owned by the Roman-Rojas Group. of the State to impose for the promotion of the sugar industry (Lutz vs. Araneta, 98
Because it underwent difficulties early in the year 1978, Mr. Roberto S. Benedicto, Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made
then Chairman of the PHILSUCOM, submitted a proposal to the Central Bank for the accrue to a "Special Fund", a "Development and Stabilization Fund", almost
rehabilitation of the Bank. The Central Bank acted favorably on the proposal at the identical to the "Sugar Adjustment and Stabilization Fund" created under Section 6
meeting of the Monetary Board on March 31, 1978 subject to the infusion of fresh of Commonwealth Act 567.[1] The tax collected is not in a pure exercise of the taxing
capital by the Benedicto Group. Petitioners maintain that this infusion of fresh power. It is levied with a regulatory purpose, to provide means for the stabilization
capital was accomplished, not by any capital investment by Mr. Benedicto, but by of the sugar industry. The levy is primarily in the exercise of the police power of the
PHILSUCOM, which set aside the proceeds of the P1.00 per picul stabilization fund State (Lutz vs. Araneta, supra).
to pay for its subscription in shares of stock of respondent Bank. It is petitioners'
submission that all shares were placed in PHILSUCOM's name only out of
"The protection of a large industry constituting one of the great sources of the the entire sugar industry, "and all its components, stabilization of the domestic
state's wealth and therefore directly or indirectly affecting the welfare of so great a market including the foreign market", the industry being of vital importance to the
portion of the population of the State is affected to such an extent by public country's economy and to national interest.
interests as to be within the police power of the sovereign." (Johnson vs. State ex
rel. Marey, 128 So. 857, cited in Lutz vs. Araneta, supra). WHEREFORE, the Writ of Mandamus is denied and the Petition hereby dismissed.
No costs.
The stabilization fees in question are levied by the State upon sugar millers, planters
and producers for a special purpose - that of "financing the growth and This Decision is immediately executory.
development of the sugar industry and all its components, stabilization of the
domestic market including the foreign market". The fact that the State has taken SO ORDERED.
possession of moneys pursuant to law is sufficient to constitute them state funds,
even though they are held for a special purpose (Lawrence vs. American Surety Teehankee, C.J., Yap, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco,
Co., 263 Mich 586, 249 ALR 535, cited in 42 Am. Jur. Sec. 2, p. 718). Having been Padilla, Bidin, Sarmiento, Cortes, and Griño-Aquino, JJ., concur.
levied for a special purpose, the revenues collected are to be treated as a special Fernan, J., no part, formerly the Counsel for the Bogo-Medellin Planters Association.
fund, to be, in the language of the statute, "administered in trust" for the purpose
intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is
to be transferred to the general funds of the Government. That is the essence of
[1]
the trust intended (See 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935 "Sec. 6. All collections made under this Act shall accrue to a special fund in the
Constitution, Article VI, Sec. 23[1]).[2] 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
The character of the Stabilization Fund as a special fund is emphasized by the fact all of the following objectives, as may be provided by law.
that the funds are deposited in the Philippine National Bank and not in the
Philippine Treasury, moneys from which may be paid out only in pursuance of an
appropriation made by law (1987 Constitution, Article VI, Sec. 29[1], 1973 xxx "
Constitution, Article VIII, Sec. 18[1]).
[2]
"(5) All money collected on any tax levied for a special purpose shall be treated as
That the fees were collected from sugar producers, planters and millers, and that a special fund and paid out for such purpose only. If the purpose for which a special
the funds were channeled to the purchase of shares of stock in respondent Bank do fund was created has been fulfilled or abandoned, the balance, if any, shall be
not convert the funds into a trust fund for their benefit nor make them the transferred to the general funds of the Government". (1987 Constitution, Art. VI,
beneficial owners of the shares so purchased. It is but rational that the fees be Sec. 29[3]).
collected from them since it is also they who are to be benefited from the
expenditure of the funds derived from it. The investment in shares of respondent
Bank is not alien to the purpose intended because of the Bank's character as a
commodity bank for sugar conceived for the industry's growth and development.
Furthermore, of note is the fact that one-half, (1/2) or P0.50 per picul, of the
amount levied under P.D. No. 388 is to be utilized for the "payment of salaries and
wages of personnel, fringe benefits and allowances of officers and employees of
PHILSUCOM" thereby immediately negating the claim that the entire amount levied
is in trust for sugar, producers, planters and millers.
To rule in petitioners' favor would contravene the general principle that revenues
derived from taxes cannot be used for purely private purposes or for the exclusive
benefit of private persons. The Stabilization Fund is to be utilized for the benefit of
Republic of the Philippines Petitioner PPI and private respondent Fertiphil are private corporations
Supreme Court incorporated under Philippine laws.[3] They are both engaged in the importation and
Manila distribution of fertilizers, pesticides and agricultural chemicals.
THIRD DIVISION On June 3, 1985, then President Ferdinand Marcos, exercising his legislative
powers, issued LOI No. 1465 which provided, among others, for the imposition of a
capital recovery component (CRC) on the domestic sale of all grades of fertilizers in
PLANTERS PRODUCTS, INC., G.R. No. 166006 the Philippines.[4] The LOI provides:
Petitioner,
Present: 3. The Administrator of the Fertilizer Pesticide Authority to include
YNARES-SANTIAGO, J., in its fertilizer pricing formula a capital contribution
Chai component of not less than P10 per bag. This capital
rperson, contribution shall be collected until adequate capital is raised
AUSTRIA-MARTINEZ, to make PPI viable. Such capital contribution shall be applied
- versus - CHICO-NAZARIO, by FPA to all domestic sales of fertilizers in
NACHURA, and the Philippines.[5] (Underscoring supplied)
REYES, JJ.
Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the
domestic market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted
Promulgated: the amount collected to the Far East Bank and Trust Company, the depositary bank
FERTIPHIL CORPORATION, of PPI. Fertiphil paid P6,689,144 to FPA from July 8, 1985 to January 24, 1986.[6]
Respondent. March 14, 2008
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of
x--------------------------------------------------x the P10 levy. With the return of democracy, Fertiphil demanded from PPI a refund of
the amounts it paid under LOI No. 1465, but PPI refused to accede to the demand. [7]
DECISION
Fertiphil filed a complaint for collection and damages[8] against FPA and PPI
with the RTC in Makati. It questioned the constitutionality of LOI No. 1465 for being
REYES, R.T., J.: unjust, unreasonable, oppressive, invalid and an unlawful imposition that amounted
to a denial of due process of law.[9] Fertiphil alleged that the LOI solely favored PPI, a
privately owned corporation, which used the proceeds to maintain its monopoly of
THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the the fertilizer industry.
constitutionality of statutes, executive orders, presidential decrees and other
issuances. The Constitution vests that power not only in the Supreme Court but in all In its Answer,[10] FPA, through the Solicitor General, countered that the
Regional Trial Courts. issuance of LOI No. 1465 was a valid exercise of the police power of the State in
ensuring the stability of the fertilizer industry in the country. It also averred that
The principle is relevant in this petition for review on certiorari of the Fertiphil did not sustain any damage from the LOI because the burden imposed by
Decision[1] of the Court of Appeals (CA) affirming with modification that of the levy fell on the ultimate consumer, not the seller.
the RTC in Makati City,[2] finding petitioner Planters Products, Inc. (PPI) liable to
private respondent Fertiphil Corporation (Fertiphil) for the levies it paid under Letter RTC Disposition
of Instruction (LOI) No. 1465.
On November 20, 1991, the RTC rendered judgment in favor of Fertiphil, disposing as
The Facts follows:
WHEREFORE, in view of the foregoing, the Court hereby authority to destroy the economy of the
renders judgment in favor of the plaintiff and against the defendant people. A tax, however, is not held void on the
Planters Product, Inc., ordering the latter to pay the former: ground of want of public interest unless the want
of such interest is clear. (71 Am. Jur. pp. 371-372)
1) the sum of P6,698,144.00 with interest at 12%
from the time of judicial demand; In the case at bar, the plaintiff paid the amount of P6,698,144.00
2) the sum of P100,000 as attorneys fees; to the Fertilizer and Pesticide Authority pursuant to the P10 per bag
3) the cost of suit. of fertilizer sold imposition under LOI 1465 which, in turn, remitted
the amount to the defendant Planters Products, Inc. thru the
SO ORDERED.[11] latters depository bank, Far East Bank and Trust Co. Thus, by virtue
of LOI 1465 the plaintiff, Fertiphil Corporation, which is a private
Ruling that the imposition of the P10 CRC was an exercise of the States inherent domestic corporation, became poorer by the amount
power of taxation, the RTC invalidated the levy for violating the basic principle that of P6,698,144.00 and the defendant, Planters Product, Inc.,
taxes can only be levied for public purpose, viz.: another private domestic corporation, became richer by the
amount of P6,698,144.00.
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 Tested by the standards of constitutionality as set forth in the
power of taxation. It is a settled principle that the power of taxation afore-quoted jurisprudence, it is quite evident that LOI 1465 insofar
by the state is plenary. Comprehensive and supreme, the principal as it imposes the amount of P10 per fertilizer bag sold in the
check upon its abuse resting in the responsibility of the members country and orders that the said amount should go to the
of the legislature to their constituents. However, there are two defendant Planters Product, Inc. is unlawful because it violates the
kinds of limitations on the power of taxation: the inherent mandate that a tax can be levied only for a public purpose and not
limitations and the constitutional limitations. to benefit, aid and promote a private enterprise such as Planters
Product, Inc.[12]
One of the inherent limitations is that a tax may be levied only for
public purposes: 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
The power to tax can be resorted to only for a separate but related proceeding, this Court[14] allowed the appeal of PPI and
constitutionally valid public purpose. By the remanded the case to the CA for proper disposition.
same token, taxes may not be levied for purely
private purposes, for building up of private CA Decision
fortunes, or for the redress of private
wrongs. They cannot be levied for the On November 28, 2003, the CA handed down its decision affirming with modification
improvement of private property, or for the that of the RTC, with the following fallo:
benefit, and promotion of private enterprises,
except where the aid is incident to the public IN VIEW OF ALL THE FOREGOING, the decision appealed
benefit. It is well-settled principle of from is hereby AFFIRMED, subject to the MODIFICATIONthat the
constitutional law that no general tax can be award of attorneys fees is herebyDELETED.[15]
levied except for the purpose of raising money
which is to be expended for public use. Funds In affirming the RTC decision, the CA ruled that the lis mota of the complaint for
cannot be exacted under the guise of taxation to collection was the constitutionality of LOI No. 1465, thus:
promote a purpose that is not of public
interest. Without such limitation, the power to
tax could be exercised or employed as an
The question then is whether it was proper for the trial court to On the other hand, appellant submits that the subject statutes
exercise its power to judicially determine the constitutionality of passage was a valid exercise of police power. In addition, it disputes
the subject statute in the instant case. the court a quos findings arguing that the collections under LOI
1465 was for the benefit of Planters Foundation, Incorporated
As a rule, where the controversy can be settled on other grounds, (PFI), a foundation created by law to hold in trust for millions of
the courts will not resolve the constitutionality of a law (Lim v. farmers, the stock ownership of PPI.
Pacquing, 240 SCRA 649 [1995]). The policy of the courts is to avoid
ruling on constitutional questions and to presume that the acts of Of the three fundamental powers of the State, the exercise of
political departments are valid, absent a clear and unmistakable police power has been characterized as the most essential,
showing to the contrary. 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
However, the courts are not precluded from exercising such power or the property sought to be regulated has some relevance to
when the following requisites are obtaining in a controversy before public welfare (Constitutional Law, by Isagani A. Cruz, p. 38, 1995
it: First, there must be before the court an actual case calling for Edition).
the exercise of judicial review. Second, the question must be ripe
for adjudication. Third, the person challenging the validity of the Vast as the power is, however, it must be exercised within the limits
act must have standing to challenge. Fourth, the question of set by the Constitution, which requires the concurrence of a lawful
constitutionality must have been raised at the earliest opportunity; subject and a lawful method.Thus, our courts have laid down the
and lastly, the issue of constitutionality must be the very lis motaof test to determine the validity of a police measure as follows: (1) the
the case (Integrated Bar of the Philippines v. Zamora, 338 SCRA 81 interests of the public generally, as distinguished from those of a
[2000]). particular class, requires its exercise; and (2) the means employed
are reasonably necessary for the accomplishment of the purpose
Indisputably, the present case was primarily instituted for and not unduly oppressive upon individuals (National Development
collection and damages.However, a perusal of the complaint also Company v. Philippine Veterans Bank, 192 SCRA 257 [1990]).
reveals
that the instant action is founded on the claim that the levy It is upon applying this established tests that We sustain the trial
imposed was an unlawful and unconstitutional special courts holding LOI 1465 unconstitutional. To be sure, ensuring the
assessment.Consequently, the requisite that the constitutionality continued supply and distribution of fertilizer in the country is an
of the law in question be the very lis mota of the case is present, undertaking imbued with public interest. However, the method by
making it proper for the trial court to rule on the constitutionality which LOI 1465 sought to achieve this is by no means a measure
of LOI 1465.[16] that will promote the public welfare. The governments
commitment to support the successful rehabilitation and
The CA held that even on the assumption that LOI No. 1465 was issued under the continued viability of PPI, a private corporation, is an unmistakable
police power of the state, it is still unconstitutional because it did not promote public attempt to mask the subject statutes impartiality. There is no way
welfare. The CA explained: to treat the self-interest of a favored entity,
like PPI, as identical with the general interest of the countrys
In declaring LOI 1465 unconstitutional, the trial court held farmers or even the Filipino people in general. Well to stress,
that the levy imposed under the said law was an invalid exercise of substantive due process exacts fairness and equal protection
the States power of taxation inasmuch as it violated the inherent disallows distinction where none is needed. When a statutes public
and constitutional prescription that taxes be levied only for public purpose is spoiled by private interest, the use of police power
purposes. It reasoned out that the amount collected under the levy becomes a travesty which must be struck down for being an
was remitted to the depository bank of PPI, which the latter used arbitrary exercise of government power. To rule in favor of
to advance its private interest. appellant would contravene the general principle that revenues
derived from taxes cannot be used for purely private purposes or the proceeds of the capital recovery component
for the exclusive benefit of private individuals.[17] in the special trust account designated in the
notice dated April 2, 1985, addressed by counsel
The CA did not accept PPIs claim that the levy imposed under LOI No. 1465 was for for the Creditors to Planters Foundation. Such
the benefit of Planters Foundation, Inc., a foundation created to hold in trust the proceeds shall be deposited by FPA on or before
stock ownership of PPI. The CA stated: the 15th day of each month.
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 capital recovery component shall continue to
the stock ownership of PFI on the strength of Letter of Undertaking be charged and collected until payment in full of
(LOU) issued by then Prime Minister Cesar Virata on April 18, (a) the Unpaid Capital and/or (b) any shortfall in
1985 and affirmed by the Secretary of Justice in an Opinion the payment of the Subsidy Receivables, (c) any
dated October 12, 1987, to wit: carrying cost accruing from the date hereof on
the amounts which may be outstanding from
2. Upon the effective date of this Letter of time to time of the Unpaid Capital and/or the
Undertaking, the Republic shall cause FPA to Subsidy Receivables and (d) the capital increases
include in its fertilizer pricing formula a capital contemplated in paragraph 2 hereof.For the
recovery component, the proceeds of which will purpose of the foregoing clause (c), the carrying
be used initially for the purpose of funding the cost shall be at such rate as will represent the full
unpaid portion of the outstanding capital stock of and reasonable cost to Planters of servicing its
Planters presently held in trust by Planters debts, taking into account both its peso and
Foundation, Inc. (Planters Foundation), which foreign currency-denominated obligations.
unpaid capital is estimated at (Records, pp. 42-43)
approximately P206 million (subject to validation
by Planters and Planters Foundation) (such Appellants proposition is open to question, to say the least. The
unpaid portion of the outstanding capital stock of LOU issued by then Prime Minister Virata taken together with the
Planters being hereafter referred to as the Justice Secretarys Opinion does not preponderantly demonstrate
Unpaid Capital), and subsequently for such that the collections made were held in trust in favor of millions of
capital increases as may be required for the farmers. Unfortunately for appellant, in the absence of sufficient
continuing viability of Planters. 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
The capital recovery component shall be in the in imposing the levy is to support the successful rehabilitation and
minimum amount of P10 per bag, which will be continued viability of PPI.[18]
added to the price of all domestic sales of
fertilizer in the Philippines by any importer PPI moved for reconsideration but its motion was denied.[19] It then filed the
and/or fertilizer mother company. In this present petition with this Court.
connection, the Republic hereby acknowledges
that the advances by Planters to Planters Issues
Foundation which were applied to the payment
of the Planters shares now held in trust by Petitioner PPI raises four issues for Our consideration, viz.:
Planters Foundation, have been assigned to,
among others, the Creditors. Accordingly, the I
Republic, through FPA, hereby agrees to deposit
THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY Fertiphil did not suffer any damage from the CRC imposition because incidence of the
ATTACKED ANDBE DECREED VIA A DEFAULT JUDGMENT IN A CASE levy fell on the ultimate consumer or the farmers themselves, not on the seller
FILED FOR COLLECTION ANDDAMAGES WHERE THE ISSUE OF fertilizer company.[22]
CONSTITUTIONALITY IS NOT THE VERY LIS MOTA OF THE
CASE. NEITHER CAN LOI 1465 BE CHALLENGED BY ANY PERSON OR We cannot agree. The doctrine of locus standior the right of appearance in
ENTITY WHICH HAS NO STANDING TO DO SO. 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
II outcome of a case. In private suits, locus standi requires a litigant to be a real party
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF in interest, which is defined as the
ASSURING THE FERTILIZER SUPPLY AND DISTRIBUTION IN THE party who stands to be benefited or injured by the judgment in the suit or the party
COUNTRY, AND FOR BENEFITING A FOUNDATION CREATED BY LAW entitled to the avails of the suit.[23]
TO HOLD IN TRUST FOR MILLIONS OF FARMERS THEIR STOCK
OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATION PURSUANT In public suits, this Court recognizes the difficulty of applying the doctrine
TO THE EXERCISE OF TAXATION AND POLICE POWER FOR PUBLIC especially when plaintiff asserts a public right on behalf of the general public because
PURPOSES. of conflicting public policy issues. [24] On one end, there is the right of the ordinary
citizen to petition the courts to be freed from unlawful government intrusion and
III illegal official action. At the other end, there is the public policy precluding excessive
THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY judicial interference in official acts, which may unnecessarily hinder the delivery of
COMPONENT WAS REMITTED TO THE basic public services.
GOVERNMENT, ANDBECAME GOVERNMENT FUNDS PURSUANT TO
AN EFFECTIVE AND VALIDLY ENACTED LAW WHICH IMPOSED In this jurisdiction, We have adopted the direct injury test to
DUTIES ANDCONFERRED RIGHTS BY VIRTUE OF THE PRINCIPLE OF determine locus standi in public suits. In People v. Vera,[25] it was held that a person
OPERATIVE FACT PRIOR TO ANY DECLARATION OF who impugns the validity of a statute must have a personal and substantial interest
UNCONSTITUTIONALITY OF LOI 1465. 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
IV suits under Section 2, Rule 3 of the 1997 Rules of Civil Procedure.[26]
THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT)
FINDS NO APPLICATION IN THE INSTANT CASE.[20](Underscoring Recognizing that a strict application of the direct injury test may hamper
supplied) public interest, this Court relaxed the requirement in cases of transcendental
importance or with far reaching implications. Being a mere procedural technicality, it
Our Ruling has also been held that locus standi may be waived in the public interest.[27]
We shall first tackle the procedural issues of locus standi and the jurisdiction of
the RTC to resolve constitutional issues.
Fertiphil has locus standi Whether or not the complaint for collection is characterized as a private or
because it suffered direct public suit, Fertiphil has locus standi to file it. Fertiphil suffered a direct injury from
injury; doctrine of standing is a the enforcement of LOI No. 1465. It was required, and it did pay, the P10 levy
mere procedural technicality imposed for every bag of fertilizer sold on the domestic market. It may be true that
which may be waived. 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
PPI argues that Fertiphil has no locus standi to question the constitutionality refund. As seller, it bore the ultimate burden of paying the levy. It faced the
of LOI No. 1465 because it does not have a personal and substantial interest in the possibility of severe sanctions for failure to pay the levy. The fact of payment is
case or will sustain direct injury as a result of its enforcement. [21] It asserts that sufficient injury to Fertiphil.
It is settled that the RTC has jurisdiction to resolve the constitutionality of a
Moreover, Fertiphil suffered harm from the enforcement of the LOI because statute, presidential decree or an executive order. This is clear from Section 5, Article
it was compelled to factor in its product the levy. The levy certainly rendered the VIII of the 1987 Constitution, which provides:
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 SECTION 5. The Supreme Court shall have the following
of Fertiphil is sufficient injury for purposes of locus standi. powers:
Even assuming arguendo that there is no direct injury, We find that the xxxx
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 (2) Review, revise, reverse, modify, or affirm on appeal
constitutionality of a tax law but, more importantly, the use of taxes for public or certiorari, as the law or the Rules of Court may provide, final
purpose. Former President Marcos issued LOI No. 1465 with the intention of judgments and orders of lower courts in:
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 (a) All cases in which
made dependent and conditional upon PPI becoming financially viable. The LOI the constitutionality or validity of anytreaty,
provided that the capital contribution shall be collected until adequate capital is international or executive agreement, law,
raised to make PPI viable. presidential decree, proclamation, order,
instruction, ordinance, or regulation is in
The constitutionality of the levy is already in doubt on a plain reading of the statute. It question. (Underscoring supplied)
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 In Mirasol v. Court of Appeals,[31] this Court recognized the power of
technicality, should be waived, if at all, to adequately thresh out an important the RTC to resolve constitutional issues, thus:
constitutional issue.
On the first issue. It is settled that Regional Trial Courts
RTC may resolve have the authority and jurisdiction to consider the constitutionality
constitutional issues; the of a statute, presidential decree, or executive order. The
constitutional issue was Constitution vests the power of judicial review or the power to
adequately raised in the declare a law, treaty, international or executive agreement,
complaint; it is the lis mota of presidential decree, order, instruction, ordinance, or regulation not
the case. only in this Court, but in all Regional Trial Courts.[32]
PPI insists that the RTC and the CA erred in ruling on the constitutionality of In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign
the LOI. It asserts that the constitutionality of the LOI cannot be collaterally attacked Affairs,[33] this Court reiterated:
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] There is no denying that regular courts have jurisdiction
over cases involving the validity or constitutionality of a rule or
Fertiphil counters that the constitutionality of the LOI was adequately regulation issued by administrative agencies.Such jurisdiction,
pleaded in its complaint. It claims that the constitutionality of LOI No. 1465 is the however, is not limited to the Court of Appeals or to this Court
very lis mota of the case because the trial court cannot determine its claim without alone for even the regional trial courts can take cognizance of
resolving the issue.[30] 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 amounting to a denial of due process since the persons of entities
or executive agreement, presidential decree, order, instruction, which had to bear the burden of paying the CRC derived no benefit
ordinance, or regulation in the courts, including the regional trial therefrom; that on the contrary it was used by PPI in trying to
courts.[34] regain its former despicable monopoly of the fertilizer industry to
the detriment of other distributors and importers.[38](Underscoring
Judicial review of official acts on the ground of unconstitutionality may be supplied)
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, The constitutionality of LOI No. 1465 is also the very lis mota of the
as in People v. Ferrer[35]involving the constitutionality of the now defunct Anti- complaint for collection. Fertiphil filed the complaint to compel PPI to refund the
Subversion law, or in ordinary actions, as in Krivenko v. Register of Deeds[36]involving levies paid under the statute on the ground that the law imposing the levy is
the constitutionality of laws prohibiting aliens from acquiring public lands. The unconstitutional. The thesis is that an unconstitutional law is void. It has no legal
constitutional issue, however, (a) must be properly raised and presented in the effect. Being void, Fertiphil had no legal obligation to pay the levy. Necessarily, all
case, and (b) its resolution is necessary to a determination of the case, i.e., the issue levies duly paid pursuant to an unconstitutional law should be refunded under the
of constitutionality must be the very lis mota presented.[37] 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
Contrary to PPIs claim, the constitutionality of LOI No. 1465 was properly Fertiphil if it does not declare the LOI unconstitutional. It is the unconstitutionality of
and adequately raised in the complaint for collection filed with the RTC. The the LOI which triggers the refund. The issue of constitutionality is the very lis mota of
pertinent portions of the complaint allege: the complaint with the RTC.
6. The CRC of P10 per bag levied under LOI 1465 on The P10 levy under LOI No.
domestic sales of all grades of fertilizer in the Philippines, 1465 is an exercise of the
is unlawful, unjust, uncalled for, unreasonable, inequitable and power of taxation.
oppressive because:
xxxx At any rate, the Court holds that the RTC and the CA did not err in ruling against the
constitutionality of the LOI.
(c) It favors only one private domestic
corporation, i.e., defendant PPPI, and imposed at PPI insists that LOI No. 1465 is a valid exercise either of the police power or
the expense and disadvantage of the other the power of taxation. It claims that the LOI was implemented for the purpose of
fertilizer importers/distributors who were assuring the fertilizer supply and distribution in the country and for benefiting a
themselves in tight business situation and were foundation created by law to hold in trust for millions of farmers their stock
then exerting all efforts and maximizing ownership in PPI.
management and marketing skills to remain
viable; 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
xxxx 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
(e) It was a glaring example of crony or public interest.
capitalism, a forced program through which the
PPI, having been presumptuously masqueraded Police power and the power of taxation are inherent powers of the
as the fertilizer industry itself, was the sole and State. These powers are distinct and have different tests for validity. Police power is
anointed beneficiary; 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
7. The CRC was an unlawful; and unconstitutional special the power to levy taxes to be used for public purpose. The main purpose of police
assessment and its imposition is tantamount to illegal exaction 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 The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory
other hand, is circumscribed by inherent and constitutional limitations. 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
We agree with the RTC that the imposition of the levy was an exercise by plain reading of the LOI also supports the conclusion that the levy was for revenue
the State of its taxation power. While it is true that the power of taxation can be used generation. The LOI expressly provided that the levy was imposed until adequate
as an implement of police power,[41] the primary purpose of the levy is revenue capital is raised to make PPI viable.
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] Taxes are exacted only for a
public purpose. The P10 levy is
In Philippine Airlines, Inc. v. Edu,[43] it was held that the imposition of a unconstitutional because it
vehicle registration fee is not an exercise by the State of its police power, but of its was not for a public purpose.
taxation power, thus: The levy was imposed to give
undue benefit to PPI.
It is clear from the provisions of Section 73 of
Commonwealth Act 123 and Section 61 of the Land Transportation An inherent limitation on the power of taxation is public purpose. Taxes are
and Traffic Code that the legislative intent and purpose behind the exacted only for a public purpose. They cannot be used for purely private purposes
law requiring owners of vehicles to pay for their registration or for the exclusive benefit of private persons.[46] The reason for this is simple. The
is mainly to raise funds for the construction and maintenance of power to tax exists for the general welfare; hence, implicit in its power is the
highways and to a much lesser degree, pay for the operating limitation that it should be used only for a public purpose. It would be a robbery for
expenses of the administering agency. x x x Fees may be properly the State to tax its citizens and use the funds generated for a private purpose. As an
regarded as taxes even though they also serve as an instrument of old United States case bluntly put it: To lay with one hand, the power of the
regulation. 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
Taxation may be made the implement of the state's police nonetheless a robbery because it is done under the forms of law and is called
power (Lutz v. Araneta, 98 Phil. 148). If the purpose is primarily taxation.[47]
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 The term public purpose is not defined. It is an elastic concept that can be
of motor vehicle registration fees. The same provision appears as hammered to fit modern standards. Jurisprudence states that public purpose should
Section 59(b) in the Land Transportation Code. It is patent be given a broad interpretation. It does not only pertain to those purposes which are
therefrom that the legislators had in mind a regulatory tax as the traditionally viewed as essentially government functions, such as building roads and
law refers to the imposition on the registration, operation or delivery of basic services, but also includes those purposes designed to promote
ownership of a motor vehicle as a tax or fee.x x x Simply put, if the social justice. Thus, public money may now be used for the relocation of illegal
exaction under Rep. Act 4136 were merely a regulatory fee, the settlers, low-cost housing and urban or agrarian reform.
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 While the categories of what may constitute a public purpose are
certain types of motor vehicles (Sec. 10) and additional fees for continually expanding in light of the expansion of government functions, the inherent
change of registration (Sec. 11). These are not to be understood as requirement that taxes can only be exacted for a public purpose still stands. Public
taxes because such fees are very minimal to be revenue- purpose is the heart of a tax law. When a tax law is only a mask to exact funds from
raising. Thus, they are not mentioned by Sec. 59(b) of the Code as the public when its true intent is to give undue benefit and advantage to a private
taxes like the motor vehicle registration fee and chauffeurs license enterprise, that law will not satisfy the requirement of public purpose.
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 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 Republic of the Philippines
under LOI No. 1465 was not for a public purpose. Office of the Prime Minister
Manila
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: LETTER OF UNDERTAKING
Gentlemen:
It is a basic rule of statutory construction that the text of a statute should be This has reference to Planters which is the principal importer and
given a literal meaning. In this case, the text of the LOI is plain that the levy was distributor of fertilizer, pesticides and agricultural chemicals in the
imposed in order to raise capital for PPI. The framers of the LOI did not even hide the Philippines. As regards Planters, the Philippine Government
insidious purpose of the law. They were cavalier enough to name PPI as the ultimate confirms its awareness of the following: (1) that Planters has
beneficiary of the taxes levied under the LOI. We find it utterly repulsive that a tax outstanding obligations in foreign currency and/or pesos, to the
law would expressly name a private company as the ultimate beneficiary of the taxes Creditors, (2) that Planters is currently experiencing financial
to be levied from the public. This is a clear case of crony capitalism. difficulties, and (3) that there are presently pending with the
Securities and Exchange Commission of the Philippines a petition
Second, the LOI provides that the imposition of the P10 levy was conditional filed at Planters own behest for the suspension of payment of all its
and dependent upon PPI becoming financially viable. This suggests that the levy was obligations, and a separate petition filed by Manufacturers
actually imposed to benefit PPI. The LOI notably does not fix a maximum amount Hanover Trust Company, Manila Offshore Branch for the
when PPI is deemed financially viable. Worse, the liability of Fertiphil and other appointment of a rehabilitation receiver for Planters.
domestic sellers of fertilizer to pay the levy is made indefinite. They are required to
continuously pay the levy until adequate capital is raised for PPI. In connection with the foregoing, the Republic of the Philippines
(the Republic) confirms that it considers and continues to consider
Third, the RTC and the CA held that the levies paid under the LOI were Planters as a major fertilizer distributor. Accordingly, for and in
directly remitted and deposited by FPA to Far East Bank and Trust Company, the consideration of your expressed willingness to consider and
depositary bank of PPI.[49] This proves that PPI benefited from the LOI. It is also proves participate in the effort to rehabilitate Planters, the Republic
that the main purpose of the law was to give undue benefit and advantage to PPI. hereby manifests its full and unqualified support of the successful
rehabilitation and continuing viability of Planters, and to that end,
Fourth, the levy was used to pay the corporate debts of PPI. A reading of the hereby binds and obligates itself to the creditors and Planters, as
Letter of Understanding[50] dated May 18, 1985 signed by then Prime Minister Cesar follows:
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 xxxx
Securities and Exchange Commission. The government guaranteed payment of PPIs
debts to its foreign creditors. To fund the payment, President Marcos issued LOI No. 2. Upon the effective date of this Letter of Undertaking,
1465. The pertinent portions of the letter of understanding read: the Republic shall cause FPA to include in its fertilizer pricing
formula a capital recovery component, the proceeds of which will police power; it did not
be used initially for the purpose of funding the unpaid portion of promote public interest.
the outstanding capital stock of Planters presently held in trust by
Planters Foundation, Inc. (Planters Foundation), which unpaid Even if We consider LOI No. 1695 enacted under the police power of the State, it
capital is estimated at approximately P206 million (subject to would still be invalid for failing to comply with the test of lawful subjects and lawful
validation by Planters and Planters Foundation) such unpaid means. Jurisprudence states the test as follows: (1) the interest of the public
portion of the outstanding capital stock of Planters being hereafter generally, as distinguished from those of particular class, requires its exercise; and
referred to as the Unpaid Capital), and subsequently for such (2) the means employed are reasonably necessary for the accomplishment of the
capital increases as may be required for the continuing viability of purpose and not unduly oppressive upon individuals.[52]
Planters. For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote
public interest. The law was enacted to give undue advantage to a private
xxxx corporation. We quote with approval the CA ratiocination on this point, thus:
The capital recovery component shall continue to be It is upon applying this established tests that We sustain
charged and collected until payment in full of (a) the Unpaid Capital the trial courts holding LOI 1465 unconstitutional. To be sure,
and/or (b) any shortfall in the payment of the Subsidy Receivables, ensuring the continued supply and distribution of fertilizer in the
(c) any carrying cost accruing from the date hereof on the amounts country is an undertaking imbued with public interest. However,
which may be outstanding from time to time of the Unpaid Capital the method by which LOI 1465 sought to achieve this is by no
and/or the Subsidy Receivables, and (d) the capital increases means a measure that will promote the public welfare. The
contemplated in paragraph 2 hereof. For the purpose of the governments commitment to support the successful rehabilitation
foregoing clause (c), the carrying cost shall be at such rate as will and continued viability of PPI, a private corporation, is an
represent the full and reasonable cost to Planters of servicing its unmistakable attempt to mask the subject statutes
debts, taking into account both its peso and foreign currency- impartiality. There is no way to treat the self-interest of a favored
denominated obligations. entity, like PPI, as identical with the general interest of the countrys
farmers or even the Filipino people in general. Well to stress,
REPUBLIC OF THE PHILIPPINES substantive due process exacts fairness and equal protection
By: disallows distinction where none is needed.When a statutes public
(signed) purpose is spoiled by private interest, the use of police power
CESAR E. A. VIRATA becomes a travesty which must be struck down for being an
Prime Minister and Minister of Finance[51] arbitrary exercise of government power. To rule in favor of
appellant would contravene the general principle that revenues
It is clear from the Letter of Understanding that the levy was imposed derived from taxes cannot be used for purely private purposes or
precisely to pay the corporate debts of PPI. We cannot agree with PPI that the levy for the exclusive benefit of private individuals. (Underscoring
was imposed to ensure the stability of the fertilizer industry in the country. The letter supplied)
of understanding and the plain text of the LOI clearly indicate that the levy was
exacted for the benefit of a private corporation. The general rule is that an
unconstitutional law is void;
All told, the RTC and the CA did not err in holding that the levy imposed the doctrine of operative fact
under LOI No. 1465 was not for a public purpose. LOI No. 1465 failed to comply with is inapplicable.
the public purpose requirement for tax laws.
PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is
The LOI is still unconstitutional declared unconstitutional. It banks on the doctrine of operative fact, which provides
even if enacted under the that an unconstitutional law has an effect before being declared unconstitutional. PPI
wants to retain the levies paid under LOI No. 1465 even if it is subsequently declared latter without just or legal ground shall return the same to him. We cannot allow PPI
to be unconstitutional. to profit from an unconstitutional law. Justice and equity dictate that PPI must refund
the amounts paid by Fertiphil.
We cannot agree. It is settled that no question, issue or argument will be
entertained on appeal, unless it has been raised in the court a quo.[53]PPI did not raise WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated November
the applicability of the doctrine of operative fact with the RTC and the CA. It cannot 28, 2003 is AFFIRMED.
belatedly raise the issue with Us in order to extricate itself from the dire effects of an
unconstitutional law. SO ORDERED.
At any rate, We find the doctrine inapplicable. The general rule is that an
unconstitutional law is void. It produces no rights, imposes no duties and affords no
protection. It has no legal effect. It is, in legal contemplation, inoperative as if it has RUBEN T. REYES
not been passed.[54] Being void, Fertiphil is not required to pay the levy. All levies paid Associate Justice
should be refunded in accordance with the general civil code principle against unjust
enrichment. The general rule is supported by Article 7 of the Civil Code, which
provides:
WE CONCUR:
ART. 7. Laws are repealed only by subsequent ones, and
their violation or non-observance shall not be excused by disuse or
custom or practice to the contrary.
When the courts declare a law to be inconsistent with the CONSUELO YNARES-SANTIAGO
Constitution, the former shall be void and the latter shall govern. Associate Justice
Chairperson
The doctrine of operative fact, as an exception to the general rule, only
applies as a matter of equity and fair play.[55] It nullifies the effects of an
unconstitutional law by recognizing that the existence of a statute prior to a
determination of unconstitutionality is an operative fact and may have consequences
which cannot always be ignored. The past cannot always be erased by a new judicial MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO
declaration.[56] Associate Justice Associate Justice
For real property taxes, the incidental generation of income is permissible because In 1998, St. Luke’s had total revenues of P1,730,367,965 from services to paying
the test of exemption is the use of the property. The test of exemption is not strictly patients. It cannot be disputed that a hospital which receives approximately P1.73
a requirement on the intrinsic nature or character of the institution. The test billion from paying patients is not an institution “operated exclusively” for
requires that the institution use the property in a certain way, i.e. for a charitable charitable purposes. Clearly, revenues from paying patients are income received
purpose. Thus, the Court held that the Lung Center of the Philippines did not lose its from “activities conducted for profit.” Indeed, St. Luke’s admits that it derived
charitable character when it used a portion of its lot for commercial purposes. The profits from its paying patients. St. Luke’s declared P1,730,367,965 as “Revenues
effect of failing to meet the use requirement is simply to remove from the tax from Services to Patients” in contrast to its “Free Services” expenditure of
exemption that portion of the property not devoted to charity. P218,187,498.
In the NIRC, Congress decided to extend the exemption to income taxes. However, Services to paying patients are activities conducted for profit. They cannot be
the way Congress crafted Section 30(E) of the NIRC is materially different from considered any other way. There is a “purpose to make profit over and above the
Section 28(3), Article VI of the Constitution. Section 30(E) of the NIRC defines the cost” of services. The P1.73 billion total revenues from paying patients is not even
corporation or association that is exempt from income tax. On the other hand, incidental to St. Luke’s charity expenditure of P218,187,498 for non-paying patients.
Section 28(3), Article VI of the Constitution does not define a charitable institution,
but requires that the institution “actually, directly and exclusively” use the property The Court finds that St. Luke’s is a corporation that is not “operated exclusively” for
for a charitable purpose. charitable or social welfare purposes insofar as its revenues from paying patients
are concerned. This ruling is based not only on a strict interpretation of a provision
Section 30(E) of the NIRC provides that a charitable institution must be: granting tax exemption, but also on the clear and plain text of Section 30(E) and (G).
A non-stock corporation or association; Section 30(E) and (G) of the NIRC requires that an institution be “operated
Organized exclusively for charitable purposes; exclusively” for charitable or social welfare purposes to be completely exempt from
Operated exclusively for charitable purposes; income tax.
No part of its net income or asset shall belong to or inure to the benefit of any
member, organizer, officer or any specific person.
Thus, both the organization and operations of the charitable institution must be
devoted “exclusively” for charitable purposes. The organization of the institution
refers to its corporate form, as shown by its articles of incorporation, by-laws and
other constitutive documents.
Section 30(E) of the NIRC specifically requires that the corporation or association
be non-stock, which is defined by the Corporation Code as “one where no part of its
income is distributable as dividends to its members, trustees, or officers” and that
any profit “obtained as an incident to its operations shall, whenever necessary or
proper, be used for the furtherance of the purpose or purposes for which the
corporation was organized.”