G.R. No. L-28138 - Matalin Coconut Co., Inc. vs. Municipal Council of Malabang, Lanao del Sur

Case Summary (G.R. No. L-28138)

Factual Background

On August 24, 1966, the Municipal Council of Malabang enacted Municipal Ordinance No. 45-66, which made it unlawful to ship cassava starch or flour out of Malabang without paying a police inspection fee of P.30 per sack to the Municipal Treasurer before shipment. The ordinance prescribed penalties of not less than P100.00 nor more than P1,000.00, plus P1.00 for every sack illegally shipped, or imprisonment of 20 days, or both. The ordinance required municipal agents, specifically policemen, to verify shipments at a police checkpoint and to escort trucks to the beach where cargoes were loaded for sea transport.

Trial Court Proceedings

Matalin Coconut Co., Inc. filed a petition for declaratory relief in the Court of First Instance of Lanao del Sur, challenging the ordinance as ultra vires under Republic Act No. 2264 and as unreasonable, oppressive and confiscatory, and praying for a declaration of nullity ab initio and for refund of amounts paid under protest. The trial court denied a preliminary injunction but ordered payments under protest. After trial, the court declared the ordinance null and void, ordered the Municipal Treasurer to refund P25,500.00 paid by petitioner from September 27, 1966 to May 2, 1967 and all payments made thereafter, and enjoined respondents from collecting the P.30 per bag tax on cassava produced in Balabagan but shipped through Malabang.

Intervention and Interim Relief

Purakan Plantation Company was granted leave to intervene, alleging adverse effect because its cassava products, milled in Balabagan, were shipped through Malabang and were thus subject to the fee. After promulgation of the judgment, the trial court issued a writ of preliminary mandatory injunction requiring the Municipal Treasurer to deposit with the Philippine National Bank, Iligan Branch, whatever amounts petitioner had paid or would pay pursuant to the ordinance until final termination of the case. On motion the writ was modified July 20, 1967 to require deposit only of amounts paid from the writ's effectivity until final termination.

Procedural History on Appeal

Respondents appealed to this Court. A motion to dismiss the appeal filed by petitioner-appellee was denied by resolution dated October 31, 1967. Respondents moved to dissolve the writ of preliminary mandatory injunction; that motion was denied January 10, 1968. The respondents-appellants advanced several assignments of error, of which the Supreme Court addressed two: whether the trial court erred in adjudicating the money claim in a declaratory relief action, and whether the trial court erred in declaring the municipal ordinance void.

Parties' Contentions

Respondents-appellants contended that the trial court exceeded its power by adjudicating and ordering refunds in an action for declaratory relief, arguing that under Rule 64 the court could only construe the ordinance and declare rights, and that petitioner should have instituted a separate ordinary action to recover taxes paid. They asserted that conversion to an ordinary action was the proper procedure under Rule 64 when a violation had occurred. Petitioner-appellee asserted that it had pleaded payment under protest and specifically prayed for refund in the declaratory relief petition, that respondents did not object to that pleading, and that evidence of payments had been introduced at trial; petitioner thus urged that multiplicity of suits should be avoided.

The Court's Analysis on the Money Claim in Declaratory Relief

The Court held that the trial court acted within its discretion in adjudicating the money claim in the declaratory relief action. The Court observed that Section 6 of Rule 64 permitted conversion into an ordinary action only if, before final termination, "a breach or violation of an . . . ordinance, should take place." No such breach or violation occurred because petitioner elected to pay the fees under protest. Petitioner had expressly alleged payment under protest and had prayed for refund in its petition, a claim that respondents did not deny in their answer and to which they were thus fully aware. Evidence of payments was admitted at trial. The Court concluded that requiring a separate suit for recovery would encourage multiplicity of suits and was unnecessary under the circumstances, citing Shell Co. of the Philippines, Ltd. v. Municipality of Sipocot insofar as declaratory relief remained a proper remedy.

The Court's Analysis on the Validity of the Ordinance

The Court first recognized the municipal taxing power under Section 2 of Republic Act No. 2264, noting precedent that construed that grant liberally as plenary save for those expressly excepted, and subject to the limitation that any tax must be "for public purposes, just and uniform" (citing Nin Bay Mining Company v. Municipality of Roxas and C.N. Hodges v. Municipal Board, Iloilo City). The Court agreed with the trial court that the P.30 charge partook of the nature of a tax despite being labeled a police inspection fee because its dominant purpose was revenue raising. The Court rejected appellants' contention that the ordinance imposed a prohibited percentage tax on sales, finding instead that the levy was a fixed P.30 per bag and not based on sales.

The Court's Conclusion on Unreasonableness and Confiscation

The Court affirmed the trial court's factual findings that the only municipal service shown was counting sacks at a police checkpoint to compute the fee, that policemen lacked competence to inspect the flour for human consumption, and that no evidence supported a need for police escort for protection of cargoes. The Court accepted the trial court's conclusion that the fee was unjust and unreasonable and found it excessive and confiscatory. The trial court had found that petitioner realized

Case Syllabus (G.R. No. L-28138)

Parties and Posture

Matalin Coconut Co., Inc. was the Petitioner-Appellee who filed a petition for declaratory relief in the Court of First Instance of Lanao del Sur.
The Municipal Council of Malabang, Lanao del Sur, Amir M. Balindong, and Hadji Pangilamun Manalocon were the Respondents-Appellants who enacted and enforced the ordinance and appealed the trial court judgment.
Purakan Plantation Company intervened as Intervenor-Appellee alleging adverse effect on its shipments passing through Malabang.
The trial court declared the ordinance void, ordered refunds, and issued a writ of preliminary mandatory injunction with deposit directions, and the respondents appealed to this Court.
This Court denied a motion to dismiss the appeal on October 31, 1967, and denied a motion to dissolve the writ of preliminary mandatory injunction on January 10, 1968.

Key Facts

On August 24, 1966, the Municipal Council enacted Municipal Ordinance No. 45-66 imposing a "police inspection fee" of P.30 per sack of cassava starch or flour shipped out of Malabang.
The ordinance required payment by the shipper before transportation and prescribed penalties including fines of not less than P100 and not more than P1,000, an additional P1.00 per illegally shipped sack, or imprisonment of 20 days, or both.
Petitioner paid fees under protest and sought a refund in its petition for declaratory relief; the payments evidenced were introduced in trial.
Intervenor alleged its cassava products manufactured in Balabagan were forced to avoid shipping via Malabang, thereby suffering injury.
The trial court found the municipality's inspection consisted principally of police counting of bags at a checkpoint and occasional escorting, with no competent food inspection function demonstrated.

Ordinance Provisions

Municipal Ordinance No. 45-66 made it unlawful to ship cassava starch or flour out of Malabang without paying a police inspection fee of P.30 per sack.
The ordinance mandated pre-shipment payment to the Municipal Treasurer or authorized representatives.
The ordinance prescribed criminal and monetary penalties for violations, including fines, per-bag penalties, and possible imprisonment.

Relief and Trial Ruling

Petitioner sought declaratory relief to annul the ordinance, a refund of amounts paid under protest, and a preliminary injunction against enforcement.
The trial court denied a preliminary injunction but ordered payment under protest to be accepted; after trial it declared the ordinance null and void.
The trial court ordered refund to Petitioner of amounts paid from September 27, 1966 to May 2, 1967 totaling P25,500.00, plus subsequent payments, and enjoined collection of P.30 per bag on intervenor's shipments.
The trial court issued a writ of preliminary mandatory injunction requiring deposit of amounts paid with the Philippine National Bank, Iligan Branch, which was later limited by modification to deposits from the writ's effectivity until final termination.

Issues on Appeal

Whether the trial court erred in adjudicating a money claim for refund in an action for declaratory relief.
Whether the trial court erred in declaring Municipal Ordinance No. 45-66 null and void.

Contentions of the Parties

Respondents-Appellants contended that a declaratory relief action coul