MATALIN COCONUT CO., INC., PETITIONER-APPELLEE, VS. THE MUNICIPAL COUNCIL OF MALABANG, LANAO DEL SUR, AMIR M. BALINDONG AND HADJI PANGILAMUN MANALOCON, MUNICIPAL MAYOR AND MUNIC…

Matalin Coconut versus the Municipal Council of Malabang

The Case

This is a petition for declaratory relief brought by Matalin Coconut, Incorporated against the Municipal Council of Malabang, Lanao del Sur, its Municipal Mayor, and its Municipal Treasurer, challenging the validity of a municipal ordinance that imposed a so-called police inspection fee of thirty centavos on every sack of cassava starch or flour shipped out of the municipality. The case matters because it fixes the limits of municipal taxing power under the Local Autonomy Act: a local government may levy a fixed tax on goods shipped out, but that tax must be for a public purpose, and it must be just and uniform. It also teaches a procedural lesson on how far a court may go in a declaratory relief action.

Procedural History

Matalin Coconut filed its petition for declaratory relief with the then Court of First Instance of Lanao del Sur. The trial court denied the application for a preliminary injunction, but ordered the Municipal Treasurer to accept payment under protest. The Purakan Plantation Company, claiming it was also adversely affected, was allowed to intervene. After trial, the trial court rendered judgment declaring the ordinance null and void, ordering the refund of twenty five thousand five hundred pesos paid from September 1966 to May 1967 and of all payments made thereafter, and enjoining collection against the intervenor. The trial court later issued a writ of preliminary mandatory injunction requiring the deposit of amounts paid, which it modified on motion for reconsideration. The respondents appealed directly to the Supreme Court. The Supreme Court denied the petitioner's motion to dismiss the appeal, and later denied the respondents' motion to dissolve the writ.

Facts

On August 24, 1966, the Municipal Council of Malabang, invoking Section 2 of Republic Act Number 2264, the Local Autonomy Act, enacted Municipal Ordinance Number 45-66. The ordinance made it unlawful to ship cassava starch or flour out of the municipality without paying the corresponding fee to the Municipal Treasurer, fixed the fee at thirty centavos per sack, and imposed penalties for violation.

Matalin Coconut challenged the ordinance as ultra vires, unreasonable, oppressive, and confiscatory, and prayed for a declaration of nullity, a refund, and an injunction. The Purakan Plantation Company intervened, alleging that although its factory stood in the neighboring municipality of Balabagan, it had to transport its products through Malabang to reach the seashore, and that the ordinance forced it to stop using that route.

At trial, the evidence showed that the only service rendered was for a policeman at a checkpoint to count the bags loaded on the trucks, based on trip tickets, in order to compute the tax. The municipality claimed the police also inspected the starch for fitness for human consumption and escorted the trucks for protection, but the trial court rejected both claims. The evidence further showed that Matalin earned a marginal average profit of only forty centavos per bag.

Issues

• Whether or not the trial court, in an action for declaratory relief, could order the refund of amounts paid under the ordinance.
• Whether or not Ordinance Number 45-66 of the Municipal Council of Malabang is valid.

Applicable Provisions

Section 2 of the Local Autonomy Act grants municipal taxing power subject to stated limits, and provides:

For public purposes, just and uniform.

This is the standard against which the ordinance is measured, and the Court strikes the ordinance down for failing it.

The same Section 2 also contains a prohibition on certain taxes, and provides:

Any percentage tax on sales or other taxes in any form based thereon.

The Court cites this to show that the prohibition does not apply, because the fee is a fixed amount per bag and not based on sales.

Section 6 of Rule 64 on declaratory relief provides:

A breach or violation of an ordinance should take place.

The Court uses this to explain when a declaratory relief action may be converted into an ordinary action, and why no conversion was needed here.

Ruling

On the first issue, the Court held that the trial court acted correctly. No breach or violation of the ordinance took place, because the petitioner chose to pay under protest, and the declaratory relief action remained proper since the applicability of the ordinance to future transactions still had to be resolved. The petition itself alleged the payments under protest and prayed for a refund; the respondents did not object in their answer, and evidence of the payments was introduced at trial, so they were fully aware of the claim. To require a separate suit, the Court said, would encourage a multiplicity of suits, which is clearly uncalled for and unnecessary.

On the second issue, the Court agreed that the amount collected partakes of the nature of a tax despite being called a police inspection fee, since its undeniable purpose is to raise revenue. But it rejected the trial court's view that the tax was a percentage tax on sales, because it is a fixed tax of thirty centavos per bag shipped out and is not based on sales. The Court nevertheless struck the ordinance down on another ground: the tax was not just and uniform. The only service rendered was counting bags at a checkpoint to compute the tax; the police were not competent to judge fitness for human consumption; and no protection had ever been requested or needed. The fee was therefore unjust and unreasonable, and, at thirty centavos against a profit of forty centavos per bag, excessive and confiscatory, contrary to the economic policy of the government.

Doctrine

A municipal ordinance enacted under the Local Autonomy Act enjoys a liberal construction of the taxing power, which is plenary and covers everything except what the law expressly withholds. The limits are that the tax must be for a public purpose, and it must be just and uniform. A charge is tested by its substance, not its label: a so-called inspection fee whose real purpose is to raise revenue is a tax. A fixed tax per bag shipped out is not a percentage tax on sales. And in a declaratory relief action, where the parties litigate a refund claim without objection, the court may grant it, because multiplicity of suits is not favored.

Disposition

The petition was dismissed and the decision of the trial court was affirmed, so Matalin Coconut won: the ordinance was declared null and void, the refund was ordered, and collection against the intervenor was enjoined.

Remember This

Memorize the line that a tax must be for a public purpose, just and uniform, and that substance prevails over the label of police inspection fee. Examiners use this case on the limits of municipal taxing power and on the scope of declaratory relief.