Letter of Instruction (LOI) No. 1465, which imposed a capital recovery component on the sale of fertilizers to benefit Planters Products, Inc. (PPI), is unconstitutional because it violates the public purpose requirement inherent in the power of taxation, as the levy was designed to aid a private enterprise rather than serve a public interest.

The case arose from the issuance of LOI No. 1465 by then-President Ferdinand Marcos, which mandated the Fertilizer and Pesticide Authority (FPA) to include a P10 capital recovery component (CRC) per bag in its fertilizer pricing formula. This CRC was to be collected until adequate capital was raised to make Planters Products, Inc. (PPI), a private corporation, financially viable. Fertiphil Corporation, another private entity engaged in the fertilizer business, paid these levies and, after the 1986 EDSA Revolution, sought a refund from PPI, contending the LOI was unconstitutional.

• Petitioner Planters Products, Inc. (PPI) and respondent Fertiphil Corporation are private corporations engaged in the importation and distribution of fertilizers.
• On June 3, 1985, President Ferdinand Marcos issued Letter of Instruction (LOI) No. 1465, mandating the Fertilizer Pesticide Authority (FPA) to include a capital recovery component (CRC) of not less than P10 per bag in its fertilizer pricing formula, to be collected until adequate capital was raised to make PPI viable.
• Pursuant to LOI No. 1465, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic market to the FPA.
• FPA remitted the amounts collected to Far East Bank and Trust Company, the depositary bank of PPI.
• Fertiphil paid a total of P6,689,144 to FPA from July 8, 1985, to January 24, 1986.
• After the 1986 EDSA Revolution, FPA voluntarily stopped the imposition of the P10 levy.
• Fertiphil demanded a refund from PPI of the amounts it paid under LOI No. 1465, but PPI refused.
• A Letter of Undertaking dated May 18, 1985, signed by then Prime Minister Cesar Virata, revealed that PPI was in deep financial trouble and the levy was intended to fund the payment of PPI's corporate debts and ensure its rehabilitation.

• Fertiphil has no locus standi to question the constitutionality of LOI No. 1465 as it did not suffer direct injury, the burden of the levy having been passed to the ultimate consumer.
• The constitutionality of LOI No. 1465 cannot be collaterally attacked in a case for collection and damages, and the issue of constitutionality is not the very lis mota of the case.
• LOI No. 1465 is a valid exercise of the State's power of taxation and police power, implemented to assure fertilizer supply and distribution and to benefit a foundation holding PPI stock in trust for farmers.
• The amounts collected under the CRC were remitted to the government and became government funds pursuant to a validly enacted law, and the principle of "operative fact" applies prior to any declaration of unconstitutionality.
• The principle of unjust enrichment does not apply in this case.

• Fertiphil has locus standi as it suffered direct injury by being compelled to pay the levy.
• The constitutionality of LOI No. 1465 was adequately pleaded and is the very lis mota of the case, as a refund depends on the LOI's unconstitutionality.
• LOI No. 1465 is unconstitutional because it was enacted to benefit a private company (PPI) by paying its corporate debts, not for a public purpose.
• The levy was an unlawful and unconstitutional special assessment amounting to illegal exaction and denial of due process.
• Even if considered an exercise of police power, LOI No. 1465 is unconstitutional as it did not promote public welfare but solely favored PPI.
• The doctrine of operative fact is inapplicable, and an unconstitutional law is void, thus requiring a refund of payments made under it based on the principle against unjust enrichment.

• Whether Fertiphil has locus standi to question the constitutionality of LOI No. 1465.
• Whether the Regional Trial Court (RTC) has jurisdiction to resolve the constitutionality of LOI No. 1465 and whether its constitutionality is the lis mota of the case.
• Whether LOI No. 1465 is a valid exercise of the police power or the power of taxation.
• Assuming LOI No. 1465 is unconstitutional, whether Fertiphil is entitled to a refund from PPI, or if the doctrine of operative fact applies.

• Yes, Fertiphil has locus standi. It suffered direct injury by being required to pay the P10 levy for every bag of fertilizer sold. The fact of payment is sufficient injury, regardless of whether the cost was passed to consumers. The issues are also of paramount public importance.
• Yes, the RTC has jurisdiction to resolve constitutional issues, and the constitutionality of LOI No. 1465 is the lis mota. The complaint for collection is founded on the claim that the levy was unconstitutional, and a refund is a direct consequence of such a declaration.
• LOI No. 1465 is an exercise of the power of taxation, not police power, as its primary purpose was revenue generation to make PPI viable. It is unconstitutional because the levy was imposed for the benefit of a private corporation (PPI) and not for a public purpose. The LOI explicitly named PPI as the beneficiary, the levy was conditional upon PPI's financial viability, proceeds were remitted to PPI's bank, and were used to pay PPI's corporate debts.
• Yes, Fertiphil is entitled to a refund. The general rule is that an unconstitutional law is void and produces no rights. The doctrine of operative fact is inapplicable as ordering PPI to refund the amounts it unduly benefited from is not iniquitous; rather, not ordering a refund would unjustly enrich PPI at Fertiphil's expense, contrary to Article 22 of the Civil Code.

• Locus Standi (Standing) — The right of a party to appear and be heard before a court of justice. For private suits, it requires the litigant to be a "real party in interest"; for public suits, the "direct injury test" is applied, requiring a personal and substantial interest such that the party has sustained or will sustain direct injury. The Court found Fertiphil suffered direct injury by paying the levy, thus having locus standi. The Court also noted its liberal policy on standing for issues of transcendental importance.
• Judicial Review — The power of the courts to test the validity of executive and legislative acts in light of their conformity with the Constitution. The Court affirmed that Regional Trial Courts have the authority and jurisdiction to consider the constitutionality of statutes, presidential decrees, orders, or instructions.
• Lis Mota — The rule that courts will not pass upon a constitutional question although properly presented by the record if the case can be disposed of on some other ground. The constitutional question must be the very core or essence of the controversy. The Court held that the constitutionality of LOI No. 1465 was the lis mota because Fertiphil's claim for refund hinged on its unconstitutionality.
• Power of Taxation — An inherent power of the State to levy taxes to be used for public purpose. The Court determined that the P10 levy under LOI No. 1465 was an exercise of the power of taxation because its primary purpose was revenue generation for PPI, not mere regulation.
• Public Purpose in Taxation — An inherent limitation on the power of taxation, requiring that taxes be exacted only for a public purpose and not for purely private purposes or the exclusive benefit of private persons. The Court found LOI No. 1465 unconstitutional because the levy was explicitly for the benefit of PPI, a private corporation, to ensure its financial viability and pay its debts, which is not a public purpose.
• Police Power — The power of the State to enact legislation that may interfere with personal liberty or property in order to promote the general welfare. It is tested by "lawful subject" (interest of the public generally) and "lawful means" (means employed are reasonably necessary and not unduly oppressive). The Court held that even if LOI No. 1465 were considered under police power, it would still be invalid as it did not promote public interest but gave undue advantage to a private corporation.
• Doctrine of Operative Fact — An exception to the general rule that an unconstitutional law is void, which recognizes that the existence of a statute prior to its declaration of unconstitutionality is an operative fact that may have consequences which cannot always be ignored, applied as a matter of equity and fair play. The Court found this doctrine inapplicable because ordering PPI to refund amounts it unduly benefited from was not iniquitous; rather, not ordering a refund would unjustly enrich PPI.
• Unjust Enrichment (Article 22, Civil Code) — The principle that every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. The Court applied this principle to require PPI to refund the levies paid by Fertiphil under the unconstitutional LOI No. 1465.

• "The power to tax can be resorted to only for a constitutionally valid public purpose. By the same token, taxes may not be levied for purely private purposes, for building up of private fortunes, or for the redress of private wrongs."
• "When a statute's public purpose is spoiled by private interest, the use of police power becomes a travesty which must be struck down for being an arbitrary exercise of government power."
• "We find it utterly repulsive that a tax law would expressly name a private company as the ultimate beneficiary of the taxes to be levied from the public. This is a clear case of crony capitalism."
• "The general rule is that an unconstitutional law is void. It produces no rights, imposes no duties and affords no protection. It has no legal effect. It is, in legal contemplation, inoperative as if it has not been passed."

• Lim v. Pacquing — Cited for the general rule that courts will avoid ruling on constitutional questions if the controversy can be settled on other grounds. Distinguished because the constitutionality of LOI 1465 was deemed the lis mota.
• Integrated Bar of the Philippines v. Zamora — Cited for the requisites for the exercise of judicial review, including that the issue of constitutionality must be the very lis mota of the case. Applied to affirm that the constitutionality of LOI 1465 was indeed the lis mota.
• People v. Vera — Cited for the "direct injury test" for locus standi in public suits, requiring a personal and substantial interest and sustained or potential direct injury. Applied to find Fertiphil had standing.
• Mirasol v. Court of Appeals — Cited to affirm that Regional Trial Courts have the authority and jurisdiction to consider the constitutionality of a statute, presidential decree, or executive order.
• Equi-Asia Placement, Inc. v. Department of Foreign Affairs — Reiteration of the RTC's power of judicial review over laws and administrative issuances.
• Krivenko v. Register of Deeds — Cited as an example where a constitutional issue was resolved in an ordinary action.
• Philippine Airlines, Inc. v. Edu — Cited to distinguish between police power and taxation, and to establish that if the purpose is primarily revenue, the exaction is a tax. Applied to classify the P10 levy as a tax.
• Lutz v. Araneta — Cited for the principle that taxation may be made an implement of the state's police power. The Court found the levy in question was primarily for revenue, thus a tax.
• Republic v. Court of Appeals — Cited for the application of the doctrine of operative fact as a matter of equity and fair play. Distinguished and found inapplicable in the current case.
• Peralta v. Civil Service Commission — Cited in relation to the doctrine of operative fact, explaining that the past cannot always be erased by a new judicial declaration.
• Tan v. Barrios — Cited as an instance where the doctrine of operative fact was applied (e.g., to avoid double jeopardy or to validate acts of a municipality under a law later declared unconstitutional). Distinguished from the present case.
• Municipality of Malabang v. Benito — Cited within Tan v. Barrios regarding the application of the operative fact doctrine to acts done by a municipality under a law creating it, later declared unconstitutional.

• Constitution, Article VIII, Section 5(2)(a) — Vests in the Supreme Court the power to review final judgments of lower courts in cases where the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question. This provision implicitly recognizes the power of lower courts, like RTCs, to initially decide such constitutional questions.
• Rules of Civil Procedure (1997), Rule 3, Section 2 — Defines a "real party-in-interest" as the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. Applied to determine Fertiphil's locus standi.
• Civil Code, Article 7 — States that when courts declare a law inconsistent with the Constitution, the former shall be void and the latter shall govern. This supports the general rule that an unconstitutional law is void.
• Civil Code, Article 22 — Provides that "every person who, through an act of performance by another comes into possession of something at the expense of the latter without just or legal ground shall return the same to him." This principle of unjust enrichment was the basis for ordering PPI to refund the levies paid by Fertiphil.
• Letter of Instruction (LOI) No. 1465, Clause 3 — The specific provision of the LOI imposing the P10 capital recovery component per bag of fertilizer, to be collected until PPI becomes viable. This was the subject of the constitutional challenge.