Planters Products Inc - v - Fertiphil Corporation

Facts:  
1.       PPI and Fertiphil are private corporations incorporated under Philippine laws.They are both engaged in the importation and distribution of fertilizers, pesticides and agricultural chemicals.
2.       Pres. Marcos, exercising his legislative powers, issued LOI No. 1465 which provided, among others, for the imposition of a capital recovery component (CRC)[1] on the domestic sale of all grades of fertilizers in the Philippines.
3.       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).
4.       FPA then remitted the amount collected to the Far East Bank and Trust Company, the depositary bank of PPI. (P6k)
5.       After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. With the return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI No. 1465, but PPI refused to accede to the demand.
6.       Fertiphil filed a complaint for collection and damages against FPA and PPI in RTC Makati. It questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable, oppressive, invalid and an unlawful imposition that amounted to a denial of due process of law. Fertiphil alleged that the LOI solely favored PPI, a privately owned corporation, which used the proceeds to maintain its monopoly of the fertilizer industry.
7.       Solicitor General, countered that the issuance of LOI No. 1465 was a valid exercise of the police power of the State in ensuring the stability of the fertilizer industry in the country. It also averred that Fertiphil did not sustain any damage from the LOI because the burden imposed by the levy fell on the ultimate consumer, not the seller.
8.       RTC – In favor of Fertiphil, CA – Affirms.
Issue: WON LOI No 1465 is unconstitutional. SC affirms CA, RTC decision.

Held:
-          Procedural: 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.
PPI
Fertiphil
LOI No. 1465 is a valid exercise either of the police power or the power of taxation; 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
unconstitutional because it was enacted to give benefit to a private company; 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
Power to Tax
power of the State to enact legislation that may interfere with personal liberty or property in order to promote the general welfare;
main purpose: regulation of a behavior or conduct;
as to validity: lawful subjects and lawful means tests
power to levy taxes to be used for public purpose;



main purpose: revenue generation;
as to validity: circumscribed by inherent and constitutional limitations

-          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, 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.
-          The P10 levy is unconstitutional because it was not for a public purpose. The levy was imposed to give undue benefit to PPI.
-          Taxes are exacted only for a public purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons. 
-          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.
-          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.
1.       The capital contribution shall be collected until adequate capital is raised to make PPI viable.
2.       They are required to continuously pay the levy until adequate capital is raised for PPI.
3.       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.
4.       The levy was used to pay the corporate debts of PPI.
-          The LOI is still unconstitutional even if enacted under the police power; it did not promote public interest. Invalid for failing to comply with the test of lawful subjects and lawful means.
-          The general rule is that an unconstitutional law is void; the doctrine of operative fact is inapplicable. The doctrine of operative fact only applies as a matter of equity and fair play.

 Note: I made this case digest when I was still a law student. The ones posted on my blog were not due for submission as part of any academic requirement. I want to remind you that there is no substitute to reading the full text of the case! Use at your own risk.

[1] 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.