MORCOIN CO., LTD., AND SUTER, INC., PLAINTIFFS AND APPELLEES, VS. THE CITY OF MANILA, ET AL., DEFENDANTS AND APPELLANTS.

Morcoin versus City of Manila

The Case

This is a direct appeal from a decision of the Court of First Instance of Manila, Branch Four, declaring Ordinance Number 3628 of the City of Manila null and void. The plaintiffs and appellees, Morcoin Company, Limited, and Suter, Incorporated, are owners and operators of automatic phonograph machines, more popularly known as juke boxes, in the City of Manila. They sued the City of Manila, its Mayor, its Treasurer, and its Chief of Police, assailing the validity of the ordinance on the ground that the license fee of 300 pesos imposed upon juke box machines is exorbitant, excessive, confiscatory, and substantially disproportionate to the reasonable expenses of issuing the license for and regulating the machines. The case matters because it draws the classic line between the police power to regulate and the power to tax, and it teaches that a municipal license fee must be approximately commensurate with the necessary expenses of licensing, inspection, and supervision.

Procedural History

The validity of the same ordinance had earlier been contested by a group of owners and operators of pinball machines calling themselves the Recreation and Amusement Association of the Philippines, before the Court of First Instance of Manila, but that court dismissed the action, being of the opinion that the ordinance was valid. That dismissal was upheld by the Supreme Court in the earlier case of Recreation and Amusement Association of the Philippines versus City of Manila.

On September 24, 1957, Morcoin and Suter brought their own action in the Court of First Instance of Manila against the Mayor, the Treasurer, and the Chief of Police, assailing Ordinance Number 3628. The defendants, through the City Fiscal, answered, denying the material allegations and interposing a counterclaim for the plaintiffs' failure to pay their outstanding obligations arising under the ordinance. By way of special defenses, the defendants alleged that the complaint states no cause of action, because the validity of the ordinance had already been upheld in the earlier case, and that the operation of automatic phonograph machines is a non-useful business upon which a large license fee may be imposed.

After trial, the lower court rendered judgment declaring Ordinance Number 3628 null and void and enjoining its enforcement in connection with the plaintiffs' business. The case then went directly to the Supreme Court by direct appeal, since the decision was one declaring an ordinance invalid.

Facts

Morcoin and Suter owned and operated juke box machines in the City of Manila. As such owners and operators, they paid an annual permit fee of five pesos for each machine, and a similar amount whenever a juke box was transferred to a different location. In compliance with Sections 773 and 774 of Ordinance Number 3347, they also paid an additional sum of 50 pesos per annum as license fee for the installation and use of each juke box machine.

On February 2, 1954, the Mayor of the City of Manila, in order to curb the use of pinball machines which, he said, have conduced to promote idleness among an increasing number of city residents, recommended to the Municipal Board the further amendment of Sections 773 and 774 of Ordinance Number 1600, by restricting the operation or maintenance of those machines within a specified radius from certain designated places and by making the rate of license fees more prohibitive. Emphasizing that pinball machines contribute to moral delinquency, the City Mayor sent a first tracer on February 19, 1954, urging prompt enactment. Five days later, the Board's Committee on Laws, sharing the same views about the deleterious effects of pinball machines, recommended approval of the proposed amendment. On March 19, 1954, the Municipal Board enacted Ordinance Number 3628, containing the proposed amendment, and the City Mayor approved it the following day.

The amended sections fixed an annual license fee of 300 pesos for every license granted for the installation and use of the covered apparatus, payable in advance, with a proviso that person-coin operated weighing or scale machines shall pay only an annual fee of 12 pesos payable in advance. The ordinance also barred the operation or maintenance of pinball machines, not otherwise falling under the category of a gambling device, within a radius of 200 meters from any church, hospital, institution of learning, public market, plaza, and government buildings. It was this 300 peso fee, applied to juke boxes, that the plaintiffs challenged.

Issues

• Whether or not the Municipal Board of the City of Manila, in fixing the license fee of 300 pesos under Ordinance Number 3628, acted within a purely regulatory power for police purposes, rather than exercising a power to tax for revenue.
• Whether or not the amount of 300 pesos as license fee for the installation and use of juke box machines is unreasonable, excessive, and confiscatory, being substantially in excess of the expenses of issuing the license and of regulating the operation of the machines.
• Whether or not the operation of juke box machines is a non-useful occupation upon which a large license fee may lawfully be imposed.
• Whether or not the earlier ruling upholding Ordinance Number 3628 in the Recreation and Amusement Association case bars the present action.

Applicable Provisions

Section 773 of Ordinance Number 1600, as amended by Ordinance Number 3628, provides:

Section 773. Licenses. No person, entity or corporation shall install or cause to be installed for the use of the public for compensation any mechanical contrivance or automatic apparatus which functions through the introduction of money not otherwise prohibited by the law of weights and measures and not a gambling device, for purposes of amusement or of confronting the weight of persons or things, or printing letters or numbers, or displaying features inside the apparatus or reproducing recorded music, including other kinds of machines or apparatus without having first obtained a license therefor from the City Treasurer. Such license must be posted on the apparatus concerned, Provided, that the operation or maintenance of pinball machines, not otherwise falling under the category of a gambling device, shall not be allowed within a radius of two hundred (200) meters from any church, hospital, institution of learning, public market, plaza, and government buildings.

This is the licensing provision whose coverage of juke boxes is not disputed, and whose police character frames the whole dispute.

Section 774 of the same ordinance, as amended, provides:

Section 774. Fees. There shall be paid for every license granted for the installation and use of an apparatus provided in this chapter, an annual fee of P300.00 which is payable in advance: Provided, that person-coin operated weighing or scale machines shall pay only an annual fee of P12.00 payable in advance.

This is the challenged fee provision, and its 300 peso rate is the very amount the Court measures against the cost of licensing and supervision.

Section 18 of the Revised Charter of the City of Manila, Republic Act Number 409 as amended, provides that the Municipal Board has the legislative power:

to regulate and fix the license fees for slot machines.

This is the source of the power invoked, and the Court reads it as purely regulatory because the power to tax was withheld.

Ruling

On the first issue, the Court held that the ordinance was enacted pursuant to Section 18 of the Revised Charter, but that the power to regulate and impose license fees for the operation of slot machines, which include juke box machines, pinball machines, and other coin-operated contrivances, should not be construed as including the power to impose license taxes for revenue purposes. A cursory reading of the legislative powers of the Municipal Board shows that the power to tax is given where it was intended to be exercised and is not given where it was not so designed. As the authority was withheld, the power granted is purely regulatory for police purposes. Such being the case, the amount of license fees imposed upon juke box machines and other coin-operated contrivances cannot be prohibitive, extortionate, confiscatory, or in unlawful restraint of trade, but should be approximately commensurate with and sufficient to cover all the necessary or probable expenses of issuing the license and of such inspection, regulation, and supervision as may be lawful. Any ordinance which imposes a license fee substantially in excess of the reasonable expense of issuing the license and regulating the occupation is invalid.

On the second issue, the Court agreed with the trial court that the amount of 300 pesos is unreasonable and far exceeds the expenses of issuing the license and of regulating the operation of the machines. The ordinance does not even provide for inspection and supervision of each machine installed. The Committees on Laws and Finance of the Municipal Board themselves, after a public hearing, found that juke box operators would not make any profit by paying the license fee of 300 pesos, and that the amount is prohibitory and suppressive. The record showed that two of the plaintiffs' juke box machines, after deducting depreciation and operating expenses but before the payment of permit and license fees, had an annual income of only about 211 pesos. The presumption in favor of the validity or reasonableness of an ordinance must be set aside when the invalidity or unreasonableness appears on the face of the ordinance itself or is established by proper evidence.

On the third issue, the Court rejected the argument that the operation of juke box machines is a non-useful occupation upon which a very large license fee may be imposed. The Committees on Laws and Finance of the Municipal Board themselves, in their joint report after public hearing, stated that the operation of juke boxes is a legitimate, harmless, and of some cultural value occupation. It is gratuitous and unfair to brand juke boxes as not contributing to the economic or moral wealth of the individual or of the nation simply because the contrivance may be found in nightclubs and bars where dancing is indulged in.

On the fourth issue, the Court held that the earlier Recreation and Amusement Association case did not control. The main issue there was the legal capacity of the plaintiff to sue, which was not registered in accordance with law. Besides, that case involved the restriction of the use of pinball machines, which admittedly produce deleterious effects among city residents and have been declared by the Court to be gambling devices which may be suppressed by ordinance. The Court likewise distinguished the Universal Picture Corporation versus Romualdez case, where the ordinance provided for police and fire protection as well as inspection and supervision of wires in electrical installations, and the license fees fixed were charged only with a view of covering the expenses therefor.

Doctrine

A municipal license fee enacted under a charter provision that grants only the power to regulate and fix license fees for slot machines is a police measure, not a tax. The power to tax is given where it was intended to be exercised and is not given where it was not so designed; where the authority to tax is withheld, the power granted is purely regulatory for police purposes.

Because the power is regulatory, the license fee cannot be prohibitive, extortionate, confiscatory, or in unlawful restraint of trade. It must be approximately commensurate with and sufficient to cover all the necessary or probable expenses of issuing the license and of such inspection, regulation, and supervision as may be lawful. Any ordinance imposing a license fee substantially in excess of the reasonable expense of issuing the license and regulating the occupation is invalid.

The presumption of validity and reasonableness of an ordinance yields when the invalidity or unreasonableness appears on the face of the ordinance itself or is established by proper evidence. And a business is not to be branded non-useful merely because of the places where its machines are found; the operation of juke boxes is a legitimate, harmless, and of some cultural value occupation.

Disposition

The Supreme Court affirmed the decision appealed from, declaring Ordinance Number 3628 of the City of Manila invalid, with costs against the appellants.

Remember This

Memorize the line that a license fee under a purely regulatory power must be approximately commensurate with the necessary expenses of licensing, inspection, and supervision, and is invalid when substantially in excess of them. Examiners use this case to test the distinction between the police power to regulate and the power to tax, and to test the reasonableness of municipal license fees on coin-operated machines.