First Philippine Holdings Corporation vs. Securities and Exchange Commission

An administrative agency authorized by law to prescribe rates for fees must ensure that the rate prescribed is reasonable, just, and proportionate to the service for which the fee is collected; a cap-less fee formula that bears no reasonable relation to the probable expenses of regulation is invalid and unreasonable. The SEC possesses the authority to promulgate rules prescribing rates for incorporation and other fees, but the exercise of that authority is always bounded by the due process requirement of reasonableness.

First Philippine Holdings Corporation is a domestic stock corporation registered with the SEC on June 30, 1961, with SEC Registration Number 19073 and an authorized capital stock of P12,100,000,000.00. Its original corporate term was set to expire on June 30, 2011. The dispute arises from the SEC's Company Registration and Monitoring Department's assessment of a filing fee under SEC Memorandum Circular No. 9, Series of 2004, which prescribed the fee for amending articles of incorporation to extend a corporation's term at 1/5 of 1% of the authorized capital stock, without any maximum ceiling. This Circular superseded earlier circulars—SEC M.C. No. 2, S. 1994 (declared invalid in SEC vs. GMA Network, Inc. for non-compliance with publication requirements) and SEC M.C. No. 1, S. 1986 (which prescribed a fee cap of P100,000.00). The statutory framework governing the SEC's fee-setting authority spans R.A. 944 (1953), R.A. 3531 (1963), P.D. 902-A (1976), and the Corporation Code (B.P. 68, 1980), with the latter's Section 139 using the disjunctive "or" to authorize the SEC to collect fees "as authorized by law or by rules and regulations promulgated by the Commission."

First Philippine Holdings Corporation is a domestic stock corporation registered with the SEC on June 30, 1961, with SEC Registration Number 19073. Its corporate term was set to expire on June 30, 2011. On March 1, 2007, its Board of Directors approved, by majority vote, amendments to its Amended Articles of Incorporation (AOI), which were ratified on May 21, 2007 by stockholders owning or representing at least two-thirds of the outstanding capital stock. The amendments covered Articles II (Primary Purpose), IV (Extension of Corporate Term), and VI (Number of Directors). The amendment to Article IV extended the corporation's term by fifty more years from and after the expiration of the original term, i.e., fifty years from and after June 30, 2011.

Upon filing the amended AOI, petitioner was assessed a filing fee for the extension of its corporate existence based on paragraph 11 of SEC M.C. No. 9, S. 2004, which prescribed the fee at 1/5 of 1% of the authorized capital stock, but not less than P2,000.00. Given petitioner's authorized capital stock of P12,100,000,000.00, it was assessed P24,200,000.00 on June 21, 2007. Petitioner paid the amount on the same day but simultaneously filed a letter expressing "surprise and dismay," recalling that ten years prior, under SEC M.C. No. 2, S. 1994, the examining and filing fee for amended articles of incorporation was only P200.00. Petitioner paid under protest, "without prejudice to filing the appropriate position paper, among other things."

On October 17, 2007, petitioner filed its Position Paper dated October 2, 2007, claiming that SEC M.C. No. 9, S. 2004 was not a valid exercise of the SEC's authority for not being reasonably necessary, and prayed that the P24 million be reduced to P200.00 per SEC M.C. No. 2, S. 1994 and that the excess be refunded. In November 2007, after its application for extension was granted, petitioner filed an application to increase its authorized capital stock to P32,100,000,000.00, for which it was assessed and paid P40,000,000.00 as filing fee under paragraph 14 of the same Circular.

On January 7, 2009, the Commission Secretary treated petitioner's October 2, 2007 Position Paper as an Appeal from the CRMD's assessment and required petitioner to pay a docket fee of P2,020.00. The CRMD filed a Reply Memorandum on February 26, 2009, defending the validity of the fee. Petitioner filed its Reply on March 31, 2009, reiterating the contents of its Position Paper. The SEC en banc, in its October 13, 2011 Decision, upheld the validity of the filing fee, reasoning that the fee covered not merely the processing of the application but the renewal of the SEC's regulatory functions for the next fifty years, and that petitioner, as a grantee of a mere privilege, should contribute to the expenses of its regulation. The SEC further held that R.A. 3531 authorized the SEC to collect the same fees for extension of corporate term as for the filing of articles of incorporation. Petitioner elevated the matter to the CA via a petition for review under Rule 43, but the CA dismissed the petition on September 28, 2012 and denied reconsideration on March 25, 2013, prompting the instant Rule 45 petition.

• Lack of Statutory Basis: Petitioner argued that the SEC has no basis to impose the subject "filing fee" for the examination and amendment of its articles of incorporation, considering that none of the authorities cited by the SEC justify the imposition of P24,000,000.00.
• No Power to Fix Rates: Petitioner maintained that the SEC does not have the power and discretion to independently fix and prescribe a legislative determination of the amount of fees it can collect.
• Fee as Tax: Petitioner argued that the filing fee is in the nature of a tax which the SEC has no power to impose.
• Unreasonableness: Petitioner claimed that the filing fee is not reasonably necessary and is, in fact, patently oppressive, confiscatory, and contrary to law, jurisprudence, and the Constitution.

• Statutory Authority: Respondent countered that the SEC is authorized by law to impose filing fees for applications for amendment of articles of incorporation such as the case at bar.
• Collateral Attack: Respondent argued that the constitutionality of a law cannot be collaterally attacked.
• Fee Not a Tax: Respondent maintained that the assessed filing fee is not a tax and is reasonably necessary for regulation, which is the main task of the SEC.

• SEC's Rate-Setting Authority: Whether the SEC is authorized to prescribe the rates for incorporation and other fees.
• Reasonableness of the Fee: Whether the fee for the extension of a corporation's term in the amount of P24,000,000.00 is unreasonable, patently oppressive, and confiscatory.

• SEC's Rate-Setting Authority: Yes. The SEC was authorized to promulgate rules and regulations prescribing the rates for incorporation and other fees under Section 139 in relation to Section 143 of the Corporation Code, which impliedly repealed the specific fee schedules under R.A. 944 and R.A. 3531 by delegating rate-setting power to the SEC.
• Reasonableness of the Fee: Yes. The rate prescribed for extending a corporation's term under SEC M.C. No. 9, S. 2004 was declared invalid and unreasonable, being exorbitant and confiscatory for the mere examination and verification of a single paragraph of the articles of incorporation, and bearing no reasonable relation to the probable expenses of regulation.

• SEC's Rate-Setting Authority: The Court traced the legislative history of the SEC's fee-setting authority from R.A. 944 (1953), which prescribed specific rates of 1/10 of 1% of authorized capital stock with a cap of P1,000.00, through R.A. 3531 (1963), which pegged the fee for extension of corporate term to the same schedule, and P.D. 902-A (1976), which authorized the SEC to recommend fee revisions to the President. The pivotal provision was Section 139 of the Corporation Code (B.P. 68, 1980), which authorized the SEC to "collect and receive fees as authorized by law or by rules and regulations promulgated by the Commission." The Court held that the use of the disjunctive "or" signaled Congress's intent to authorize the SEC to choose between collecting fees already authorized by law or promulgating its own rules prescribing different rates. This construction was found more consistent with the declared intent to infuse the SEC with the power to determine and promulgate rules reasonably necessary for the performance of its duties, as provided in Section 143. Applying the doctrine of implied repeal as articulated in Bank of Commerce vs. Planters Development Bank, the Court found that the first instance of implied repeal—where provisions on the same subject matter are irreconcilably contradictory—was present, because the specific rates under R.A. 944 and R.A. 3531 were inconsistent with the open-ended delegation under Section 139. Any other construction would render the phrase "authorized by rules and regulations promulgated by the Commission" superfluous.

• Reasonableness of the Fee: While the SEC possessed rate-setting authority, the Court found that such authority must always be exercised within the bounds of reasonableness, as required by due process. Citing SEC vs. GMA Network, Inc., the Court applied the standard that the rate prescribed must be reasonable, just, and proportionate to the service for which the fee is collected. In that earlier case, a filing fee of P1,212,200.00 for extending GMA's corporate term was already found unreasonable—a far cry from the P24,000,000.00 imposed on petitioner. The Court found the amount exorbitant and confiscatory for the mere filing, processing, examination, and verification of a single paragraph of the articles of incorporation. Even assuming the fee was a "license fee" rather than a mere processing fee, the Court applied the due process standards from Progressive Development Corp. vs. Quezon City and Morcoin Co., Ltd. vs. City of Manila, which require that a license fee bear a reasonable relation to the probable expenses of regulation and be approximately commensurate with the cost of inspection and supervision. The SEC itself admitted that the fee was not based on the probable expense of regulation but was made directly related to a corporation's capacity to pay. Unlike prior laws and circulars (R.A. 944, SEC M.C. No. 1, S. 1986) which contained fee caps or ceilings preventing the fee from ballooning past the probable expenses of regulation, SEC M.C. No. 9, S. 2004 altogether abandoned any ceiling. The Court found no justification for how additional regulatory effort could reasonably amount to P24,000,000.00, or 12,000 times more than the minimum P2,000.00. The arbitrariness was further illustrated by the fact that the fee was imposed on authorized capital stock regardless of whether the corporation was a public company subject to additional reportorial requirements. Moreover, the SEC had already charged significant fees for previous corporate acts, so the incremental work in extending petitioner's corporate life could not justifiably amount to P24,000,000.00. The unreasonableness was bolstered by R.A. 11232 (Revised Corporation Code), which now grants all corporations perpetual existence, eliminating any basis for a "license fee" for the purported grant of a fresh fifty-year period. The Court declared the rate invalid and unreasonable and, since both SEC M.C. No. 9, S. 2004 and SEC M.C. No. 2, S. 1994 were invalid, applied SEC M.C. No. 1, S. 1986, which prescribed a maximum fee of P100,000.00. The SEC was ordered to refund the excess of P24,100,000.00.

• Implied Repeal — An implied repeal transpires when a substantial conflict exists between the new and prior laws. There are two instances: (1) when provisions in the two acts on the same subject matter are irreconcilably contradictory, in which case the later act, to the extent of the conflict, constitutes an implied repeal of the earlier one; and (2) when the later act covers the whole subject of the earlier one and is clearly intended as a substitute. Repeal by implication is not favored unless manifestly intended or unless the laws are clearly repugnant and patently inconsistent so that they cannot co-exist. The Court applied this doctrine to hold that Section 139 of the Corporation Code impliedly repealed the specific fee schedules under R.A. 944 and R.A. 3531 by delegating to the SEC the power to promulgate rules prescribing different rates.

• Reasonableness of Administrative Rules — To be valid, implementing rules and regulations must be reasonable. Administrative authorities should not act arbitrarily and capriciously in the issuance of their IRRs, but must ensure that their IRRs are reasonable and fairly adapted to secure the end in view. If the IRRs bear no reasonable relation to the purposes for which they were authorized to be issued, they must be held invalid and struck down. The presumption of validity of administrative rules may be set aside when the invalidity or unreasonableness appears on the face of the rule itself or is established by proper evidence.

• License Fee vs. Tax — A license fee is imposed in the exercise of police power primarily for purposes of regulation, while a tax is imposed under the taxing power primarily for purposes of raising revenue. If the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that revenue is also incidentally obtained does not make the imposition a tax. A license fee must bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its incidental consequences. A charge which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of police power.

• Rate-Fixing Power of Administrative Agencies — The only applicable standard to gauge the validity of rates prescribed by administrative agencies is that the rate prescribed be reasonable, just, and proportionate to the service for which the fee is being collected. Rate-fixing is a legislative function which may be delegated to administrative agencies, but the due process clause permits the courts to determine whether the regulation is reasonable and within the bounds of the agency's rate-fixing authority, and to strike it down when it arbitrarily infringes on a person's right to property.

• "The use of the term 'or' is significant. In statutory construction, the term 'or' 'is a disjunctive [conjunction] indicating an alternative. It often connects a series of words or propositions indicating a choice of either.'" — This passage establishes the textual basis for the Court's holding that Section 139 of the Corporation Code impliedly repealed the specific fee schedules under R.A. 944 and R.A. 3531 by authorizing the SEC to choose between fees "authorized by law" or fees prescribed by its own "rules and regulations."

• "To be valid, implementing rules and regulations (IRRs) must be reasonable. Administrative authorities should not act arbitrarily and capriciously in the issuance of their IRRs, but must ensure that their IRRs are reasonable and fairly adapted to secure the end in view. If the IRRs are shown to bear no reasonable relation to the purposes for which they were authorized to be issued, they must be held to be invalid and should be struck down." — This articulates the controlling standard for evaluating the validity of administrative regulations, which the Court applied to strike down the cap-less fee formula under SEC M.C. No. 9, S. 2004.

• "To satisfy the due process requirement, official action, to paraphrase Cardozo, must not outrun the bounds of reason and result in sheer oppression. Due process is thus hostile to any official action marred by lack of reasonableness. Correctly it has been identified as freedom from arbitrariness." — This opening quotation frames the entire decision's analytical posture: that the SEC's rate-setting power, however broad, is always constrained by the due process requirement of reasonableness.

• SEC vs. GMA Network, Inc., G.R. No. 164026, December 23, 2008, 575 SCRA 113 — Controlling precedent on the unreasonableness of SEC filing fees for extension of corporate term. The Court found a fee of P1,212,200.00 already unreasonable and applied the standard that the fee must be just, fair, and proportionate to the service. The Court also noted that SEC M.C. No. 2, S. 1994 was declared invalid in this case for non-compliance with publication requirements under Tañada vs. Tuvera, making SEC M.C. No. 1, S. 1986 the applicable circular.

• Bank of Commerce vs. Planters Development Bank, G.R. Nos. 154470-71 & 154589-90, September 24, 2012, 681 SCRA 521 — Cited for the doctrine on implied repeal, specifically the two instances where implied repeal occurs: irreconcilable contradiction on the same subject matter, and a later act covering the whole subject of an earlier one as a substitute.

• Progressive Development Corp. vs. Quezon City, G.R. No. L-36081, April 24, 1989, 172 SCRA 729 — Cited for the due process standards applicable to license fees, requiring that the imposition bear a reasonable relation to the probable expenses of regulation, and for the distinction between license fees and taxes.

• Morcoin Co., Ltd. vs. City of Manila, No. L-15351, January 28, 1961, 1 SCRA 310 — Followed for the principle that license fees should be approximately commensurate with and sufficient to cover the necessary or probable expenses of issuing the license and of inspection, regulation, and supervision, and that any license fee substantially in excess of the reasonable expense of regulation is invalid.

• Ermita-Malate Hotel and Motel Operators Association, Inc. vs. City Mayor of Manila, No. L-24693, July 31, 1967, 20 SCRA 849 — Cited for the principle that due process requires official action to not outrun the bounds of reason and result in sheer oppression, and that due process is freedom from arbitrariness.

• Tañada vs. Tuvera, 220 Phil. 422 (1985) — Cited for the publication and filing requirements for administrative rules, the non-compliance with which led to the invalidation of SEC M.C. No. 2, S. 1994 in SEC vs. GMA Network, Inc.

• Section 139, Corporation Code (B.P. 68) — Authorized the SEC to "collect and receive fees as authorized by law or by rules and regulations promulgated by the Commission." The Court construed the disjunctive "or" as authorizing the SEC to either collect fees under existing law or promulgate its own rules prescribing different rates, thereby impliedly repealing the specific fee schedules under R.A. 944 and R.A. 3531. This section was subsequently repealed by R.A. 11232 (Revised Corporation Code).

• Section 143, Corporation Code (B.P. 68) — Granted the SEC the power and authority to implement the provisions of the Code and to promulgate rules and regulations reasonably necessary to enable it to perform its duties, particularly in the prevention of fraud and abuses. Read in relation to Section 139, this provision supported the delegation of rate-setting authority to the SEC.

• Section 146, Corporation Code (B.P. 68) — The repealing clause stating that all laws or parts thereof inconsistent with any provision of the Code shall be deemed repealed, except as expressly provided. The Court relied on this clause in determining the implied repeal of the specific fee schedules under R.A. 944 and R.A. 3531.

• R.A. 944 (1953) — Authorized the SEC to collect fees for examining and filing articles of incorporation at 1/10 of 1% of authorized capital stock, with a minimum of P25.00 and a maximum of P1,000.00. The fee cap was a critical feature that the Court contrasted with the cap-less formula under SEC M.C. No. 9, S. 2004.

• R.A. 3531 (1963) — Authorized the SEC to collect the same fees for an amendment extending the term of corporate existence as the fees collectible under existing law for the filing of articles of incorporation, i.e., the rates prescribed under R.A. 944.

• P.D. 902-A (1976) — Reorganized the SEC and authorized it to recommend to the President the revision and adjustment of the charges and fees it was authorized by law to collect.

• Section 11, R.A. 11232 (Revised Corporation Code of the Philippines) — Grants all corporations perpetual existence unless the articles of incorporation provide otherwise. The Court cited this provision to bolster its finding that there is no more basis to impose a "license fee" for the purported grant of a fresh fifty-year period of corporate existence.

• SEC Memorandum Circular No. 9, Series of 2004 — Prescribed the filing fee for amended articles of incorporation where the amendment consists of extending the term of corporate existence at 1/5 of 1% of the authorized capital stock, but not less than P2,000.00, without any maximum ceiling. The Court declared this rate invalid and unreasonable.

• SEC Memorandum Circular No. 1, Series of 1986 — Prescribed the filing fee for extending corporate term at 1/10 of 1% of authorized capital stock, with a minimum of P300.00 and a maximum of P100,000.00 for stock corporations. The Court applied this Circular as the valid and applicable fee schedule, since both SEC M.C. No. 9, S. 2004 and SEC M.C. No. 2, S. 1994 were declared invalid.

Peralta, C.J. (Chairperson), Reyes, Jr., Lazaro-Javier, and Lopez, JJ., concurred.