Valley Trading Co., Inc. vs. Court of First Instance of Isabela, Branch II

A hearing is not mandatory before a court may deny an application for a writ of preliminary injunction where, from a consideration of the pleadings alone, it can readily be ascertained that the movant is not entitled to the writ. The issuance of a writ of preliminary injunction is addressed to the sound discretion of the court, conditioned on the existence of a clear and positive right of the movant which should be protected, and courts should avoid issuing a writ which would, in effect, dispose of the main case without trial.

Petitioner Valley Trading Co., Inc. was a domestic corporation doing business in Cauayan, Isabela, subject to the local tax ordinance enacted by the Sangguniang Bayan of that municipality. The respondents were the municipal officials charged with implementing the ordinance, namely the Mayor and Municipal Treasurer of Cauayan, Isabela, and the Sangguniang Bayan itself. The dispute arose under the Local Tax Code (P.D. 231, as amended by P.D. 426), which governed the taxing powers of municipalities, including the prohibition against imposing percentage taxes on sales and the authority to impose annual fixed business taxes.

Petitioner Valley Trading Co., Inc. filed a complaint in the Court of First Instance of Isabela, Branch II, seeking a declaration of the supposed nullity of Section 2B.02, Sub-paragraph 1, Letter (A), Paragraph 2 of Ordinance No. T-1, Revenue Code of Cauayan, Isabela, which imposed a graduated tax on retailers, independent wholesalers, and distributors. Petitioner also sought the refund of P23,202.12, plus interest of 14% per annum thereon, which it had paid pursuant to said ordinance, and prayed for the issuance of a writ of preliminary prohibitory injunction to enjoin the collection of said tax. The defendants were Dr. Carlos A. Uy and Moises Balmaceda, sued in their capacity as Mayor and Municipal Treasurer of Cauayan, Isabela, respectively, together with the Sangguniang Bayan of the same town.

Petitioner took the position that the ordinance imposed a "graduated fixed tax based on Sales" that "in effect imposes a sales tax in contravention of Sec. 5, Charter I, par. (L) of P.D. 231 amended by P.D. 426 otherwise known as the Local Tax Code," which prohibits a municipality from imposing a percentage tax on sales. Respondents, on the other hand, claimed in their answer that the tax is an annual fixed business tax, not a percentage tax on sales, imposable by a municipality under Section 19(A-1) of the Local Tax Code. They cited the ruling of the Acting Secretary of Finance, in his letter of April 14, 1977, upholding the validity of said tax on the ground that the same is an annual graduated fixed tax imposed on the privilege to engage in business, and not a percentage tax on sales which consists of a fixed percentage of the proceeds realized out of every sale transaction of taxable items sold by the taxpayer.

After a reply to the answer had been filed, the trial court set the case for a pre-trial conference. However, on October 13, 1978, the court issued an order terminating the pre-trial and reset the hearing on the merits for failure of the parties to arrive at an amicable settlement. In the same order, the trial court also denied the prayer for a writ of preliminary injunction on the ground that "the collection of taxes cannot be enjoined." Petitioner moved for reconsideration, contending that a hearing is mandatory before action may be taken on the motion for the issuance of a writ of preliminary injunction, but the court below denied said motion and reiterated its previous order. Petitioner then filed the instant petition for certiorari with the Supreme Court.

• Mandatory Hearing: Petitioner argued that a hearing on the merits is necessary before a motion for a writ of preliminary injunction may be denied, invoking Section 7, Rule 58 of the Rules of Court which provides that "(a)fter hearing on the merits the court may grant or refuse, continue, modify or dissolve the injunction as justice may require."
• Scope of Section 6, Rule 58: Petitioner maintained that Section 6 of Rule 58, relied upon by respondents, refers to the objections that might be interposed to the issuance of the writ or the justification for the dissolution of an injunction previously issued ex parte, but that nowhere is it mentioned that a hearing is not necessary.
• Invalidity of the Ordinance: Petitioner argued that the ordinance imposes a "graduated fixed tax based on Sales" that "in effect imposes a sales tax in contravention of Sec. 5, Charter I, par. (L) of P.D. 231 amended by P.D. 426 otherwise known as the Local Tax Code," which prohibits a municipality from imposing a percentage tax on sales.

• Nature of the Tax: Respondents claimed in their answer that the tax is an annual fixed business tax, not a percentage tax on sales, imposable by a municipality under Section 19(A-1) of the Local Tax Code.
• Secretary of Finance Ruling: Respondents cited the ruling of the Acting Secretary of Finance, in his letter of April 14, 1977, upholding the validity of said tax on the ground that the same is an annual graduated fixed tax imposed on the privilege to engage in business, and not a percentage tax on sales which consists of a fixed percentage of the proceeds realized out of every sale transaction of taxable items sold by the taxpayer.

• Mandatory Hearing: Whether a hearing is mandatory before a court may deny a motion for a writ of preliminary injunction.
• Propriety of the Injunction: Whether the trial court correctly denied the prayer for a writ of preliminary injunction to enjoin the collection of the local tax.

• Mandatory Hearing: No. A hearing is not mandatory before a court may deny an application for a writ of preliminary injunction. Section 7, Rule 58 merely specifies the actions that the court may take on the application for the writ if there is a hearing on the merits; it does not declare that such hearing is mandatory or a prerequisite therefor.
• Propriety of the Injunction: No. The trial court correctly denied the prayer for a writ of preliminary injunction. The circumstances required for the writ to issue do not obtain in the case at bar, as the damage that may be caused to the petitioner would not be irreparable, and the issuance of the writ would, in effect, dispose of the main case without trial.

• Mandatory Hearing: The Court found the weakness of petitioner's position easily discernible. While petitioner correctly pointed out that Section 6 of Rule 58 provides for the grounds for objection to an injunction, petitioner ignored the circumstances under which these objections may be appreciated by the trial court. If the ground is the insufficiency of the complaint, the same is apparent from the complaint itself and preliminary injunction may be refused outright, with or without notice to the adverse party. Under said section, the court may also refuse an injunction on other grounds on the basis of affidavits which may have been submitted by the parties in connection with such application. In the foregoing instances, a hearing is not necessary. The reliance of the petitioner on Section 7 of Rule 58 is misplaced, as this section merely specifies the actions that the court may take on the application for the writ if there is a hearing on the merits; it does not declare that such hearing is mandatory or a prerequisite therefor. Otherwise, courts would be forced to conduct a hearing even if from a consideration of the pleadings alone it can readily be ascertained that the movant is not entitled to the writ, entailing a useless exercise and unnecessary waste of judicial time. It would be different if there is a prima facie showing on the face of the motion and/or pleadings that the grant of preliminary injunction may be proper, in which case notice to the opposing party would be necessary since the grant of such writ on an ex parte proceeding is now proscribed. A hearing should be conducted since, under such circumstances, only in case of extreme urgency will the writ issue prior to a final hearing. It does not follow, however, that such a hearing is indispensable where right at the outset the court is reasonably convinced that the writ will not lie. What was then discouraged, and is now specifically prohibited, is the issuance of the writ without notice and hearing.

• Propriety of the Injunction: The Court noted that while an opinion has been expressed that injunction is available as an ancillary remedy in actions to determine the construction or validity of a local tax ordinance, and unlike the National Internal Revenue Code, the Local Tax Code does not contain any specific provision prohibiting courts from enjoining the collection of local taxes, such statutory lapse or intent cannot negate the procedural rules and requirements under Rule 58. The issuance of a writ of preliminary injunction is addressed to the sound discretion of the court, conditioned on the existence of a clear and positive right of the movant which should be protected. It is an extraordinary peremptory remedy available only on the grounds expressly provided by law, specifically Section 3 of Rule 58 of the Rules of Court. The circumstances required for the writ to issue do not obtain in the case at bar. The damage that may be caused to the petitioner will not be irreparable; where so indicated by subsequent events favorable to it, whatever it shall have paid is easily refundable. Besides, the damage to its property rights must perforce take a back seat to the paramount need of the State for funds to sustain governmental functions. The policy of the law is to discountenance any delay in the collection of taxes because taxes are the lifeblood of the Government and their prompt and certain availability is an imperious need. Equally pertinent is the rule that courts should avoid issuing a writ of preliminary injunction which, in effect, would dispose of the main case without trial. In the present case, it is evident that the only ground relied upon for injunction relief is the alleged patent nullity of the ordinance. If the court should issue the desired writ, premised on that sole justification, it would be a virtual acceptance of petitioner's claim that the imposition is patently invalid or, at the very least, that the ordinance is of doubtful validity. There would, in effect, be a prejudgment of the main case and a reversal of the rule on the burden of proof since it would assume the proposition which the petitioner is inceptively duty bound to prove. Furthermore, such action will run counter to the well settled rule that laws are presumed to be valid unless and until the courts declare the contrary in clear and unequivocal terms. A court should issue a writ of preliminary injunction only when the petitioner assailing a statute has made out a case of unconstitutionality or invalidity strong enough to overcome, in the mind of the judge, the presumption of validity, aside from a showing of a clear legal right to the remedy sought. The case before the Court presented no features sufficient to overcome such presumption, as must have been evident to the trial court from the answer of the respondents and the well reasoned ruling of the Acting Secretary of Finance. The mere fact that a statute is alleged to be unconstitutional or invalid will not entitle a party to have its enforcement enjoined.

• Hearing on Preliminary Injunction Not Mandatory for Denial — A hearing on an application for a writ of preliminary injunction is not mandatory where the court can readily ascertain from the pleadings alone that the movant is not entitled to the writ. Section 7, Rule 58 merely specifies the actions the court may take if there is a hearing; it does not make such hearing a prerequisite. A hearing is required only where there is a prima facie showing on the face of the motion and/or pleadings that the grant of preliminary injunction may be proper, since the grant of such writ on an ex parte proceeding is proscribed.

• Discretionary Nature of Preliminary Injunction — The issuance of a writ of preliminary injunction is addressed to the sound discretion of the court, conditioned on the existence of a clear and positive right of the movant which should be protected. It is an extraordinary peremptory remedy available only on the grounds expressly provided by law, specifically Section 3 of Rule 58 of the Rules of Court.

• Taxes as Lifeblood of Government — The policy of the law is to discountenance any delay in the collection of taxes because taxes are the lifeblood of the Government and their prompt and certain availability is an imperious need. Damage to property rights must take a back seat to the paramount need of the State for funds to sustain governmental functions.

• Presumption of Validity of Laws — Laws are presumed to be valid unless and until the courts declare the contrary in clear and unequivocal terms. A court should issue a writ of preliminary injunction only when the petitioner assailing a statute has made out a case of unconstitutionality or invalidity strong enough to overcome, in the mind of the judge, the presumption of validity, aside from a showing of a clear legal right to the remedy sought. The mere fact that a statute is alleged to be unconstitutional or invalid will not entitle a party to have its enforcement enjoined.

• Injunction Should Not Dispose of Main Case — Courts should avoid issuing a writ of preliminary injunction which, in effect, would dispose of the main case without trial. Issuing the writ premised solely on the alleged patent nullity of an ordinance would be a virtual acceptance of the claim of invalidity, constituting a prejudgment of the main case and a reversal of the rule on the burden of proof.

• "This section merely specifies the actions that the court may take on the application for the writ if there is a hearing on the merits; it does not declare that such hearing is mandatory or a prerequisite therefor." — This passage articulates the Court's interpretation of Section 7, Rule 58, establishing that a hearing on a preliminary injunction application is not a mandatory prerequisite for denial, and is the core ratio decidendi on the first issue.

• "The policy of the law is to discountenance any delay in the collection of taxes because of the oft-repeated but unassailable consideration that taxes are the lifeblood of the Government and their prompt and certain availability is an imperious need." — This passage states the canonical "lifeblood" doctrine as applied to the denial of injunctions against tax collection, and is frequently cited in subsequent tax jurisprudence.

• "A court should issue a writ of preliminary injunction only when the petitioner assailing a statute has made out a case of unconstitutionality or invalidity strong enough to overcome, in the mind of the judge, the presumption of validity, aside from a showing of a clear legal right to the remedy sought." — This passage defines the standard for issuing a preliminary injunction against the enforcement of a statute or ordinance, requiring a showing strong enough to overcome the presumption of validity.

• Alvaro vs. Zapanta, 118 SCRA 722 (1982) — Cited for the proposition that only in cases of extreme urgency will the writ of preliminary injunction issue prior to a final hearing, supporting the requirement of notice and hearing before the grant of the writ.
• Ramos vs. Court of Appeals, et al., 95 SCRA 359 (1980) — Cited for the proposition that the requirement for prior notice and hearing underscores the necessity that a writ of preliminary injunction is to be dispensed with circumspection and both sides should be heard whenever possible.
• Ortigas & Co. vs. Court of Appeals, et al., G.R. No. L-79128, June 16, 1988 — Cited for the rule that courts should avoid issuing a writ of preliminary injunction which, in effect, would dispose of the main case without trial.
• Obias, et al. vs. Borja, et al., 136 SCRA 687 (1985) — Cited in support of the rule that courts should avoid issuing a writ of preliminary injunction which would dispose of the main case without trial.
• Tablarin vs. Gutierrez, 152 SCRA 731, 737 (1987) — Cited for the proposition that a court should issue a writ of preliminary injunction only when the petitioner assailing a statute has made out a case of unconstitutionality or invalidity strong enough to overcome the presumption of validity.
• Co Chiong vs. Dinglasan, 79 Phil. 122 (1947) — Cited for the rule that the mere fact that a statute is alleged to be unconstitutional or invalid will not entitle a party to have its enforcement enjoined.
• J.M. Tuazon & Co., Inc., et al. vs. Court of Appeals, et al., 113 Phil. 673, 681 (1961) — Cited in support of the rule that the mere allegation of unconstitutionality or invalidity of a statute will not entitle a party to have its enforcement enjoined.
• Sto. Domingo vs. De los Angeles, 96 SCRA 139, 147 (1980) — Cited in support of the rule that the mere allegation of unconstitutionality or invalidity of a statute will not entitle a party to have its enforcement enjoined.

• Section 3, Rule 58, Rules of Court — Identified as the specific provision providing the grounds on which a writ of preliminary injunction may be issued. The Court held that the writ is an extraordinary peremptory remedy available only on the grounds expressly provided by this section, and that the circumstances required for the writ to issue did not obtain in the case at bar.
• Section 5, Rule 58, Rules of Court, as amended by B.P. 224 — Cited in connection with the proscription against the grant of a writ of preliminary injunction on an ex parte proceeding, requiring notice to the opposing party where there is a prima facie showing that the grant may be proper.
• Section 6, Rule 58, Rules of Court — Interpreted as providing for the grounds for objection to an injunction, which may be appreciated by the trial court on the basis of the complaint itself or affidavits submitted by the parties, without the necessity of a hearing.
• Section 7, Rule 58, Rules of Court — Interpreted as merely specifying the actions that the court may take on the application for the writ if there is a hearing on the merits, and not declaring that such hearing is mandatory or a prerequisite therefor.
• Section 5, Charter I, par. (L), P.D. 231, as amended by P.D. 426 (Local Tax Code) — Cited by petitioner as the provision prohibiting a municipality from imposing a percentage tax on sales, which petitioner alleged the ordinance contravened.
• Section 19(A-1), Local Tax Code — Cited by respondents as the provision authorizing a municipality to impose an annual fixed business tax, which they claimed the ordinance validly imposed.

Melencio-Herrera, Paras, Padilla, and Sarmiento, JJ., concurred.