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Case Digest: PPI vs. Fertiphil

Planters Products, Inc. vs. Fertiphil Corporation
G.R. No. 166006 • March 14, 2008
Reyes, R. T., J.

Facts

  1. PPI and Fertiphil are private corporations in the fertilizer and pesticide business.
  2. Former President Ferdinand Marcos issued Letter of Instruction No. 1465 in 1985, instructing the Fertilizer and Pesticide Authority to impose a 10-peso capital contribution component for every bag of fertilizer sold domestically to “make PPI viable.”
  3. Fertiphil obliged to the LOI, amounting to ₱6,689,144 of capital contributions from July 8, 1985 to January 24, 1986. FPA directly remitted those contributions to PPI’s deposit bank, Far East Bank and Trust Company.
  4. After the 1986 EDSA Revolution, the FPA stopped collecting the levy. Fertiphil demanded to return the amounts paid to PPI, but the latter refused.
  5. Fertiphil filed a complaint against FPA and PPI with the RTC in Makati, questioning the constitutionality of LOI No. 1465. Fertiphil alleged that the LOI favored the monopoly of PPI, a privately-owned organization.
  6. The FPA, through the Solicitor-General, and PPI answered that the LOI was a valid exercise of police power of the state to ensure the stability of the fertilizer industry and for the benefit of Planters Foundation, Inc., a foundation created by law and a stock ownership of PPI.
  7. In 1991, the RTC ruled in favor of Fertiphil, ruling that the 10-peso levy was an exercise of the power of taxation and is invalid as one of the limitations of the said inherent power is that taxes must be used only for public purposes. The RTC ordered PPI to return the levy with 12% interest and pay attorney's fees and other costs.
  8. In 2003, the CA affirmed the RTC decision, only removing the award of attorney’s fees. The CA also insisted that even if the imposition of the levy was an exercise of police power, it is still unconstitutional because it did not promote public welfare but private interest.

Issue/s

  1. Whether LOI No. 1465 is a valid legislation exercising the inherent powers of taxation and police power for public purposes.

Ruling/Held

The petition of PPI was DENIED. The 2003 CA decision is AFFIRMED.

Ratio

  1. LOI No. 1465 is an exercise of the power of taxation, not of police power. – While taxation can be used to regulate human behavior or conduct, the primary purpose of the 10-peso levy is to generate revenue. The LOI explicitly stated that the levy was imposed to make PPI financially viable.
  2. The 10-peso levy was imposed to give undue benefit to PPI. – The LOI explicitly stated that the levy shall be imposed to raise capital to PPI, a privately-owned company, in order to pay its corporate debts. Taxations are exacted for the general welfare of the state. The Court stated that taxation for private welfare is a “robbery” and a clear case of crony capitalism.
  3. The LOI is still unconstitutional even if enacted under police power. – The LOI did not promote public interest, failing the “lawful subject, lawful means” test. The Court also stated that when the use of police power is tainted by private interest, it becomes a “travesty which must be struck down for being an arbitrary exercise of government power.”

Read the entirety of the Supreme Court decision here: https://lawphil.net/judjuris/juri2008/mar2008/gr_166006_2008.html

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