Marc Donnelly and Associates, Inc. vs. Agregado

The power to prohibit the exportation of an article necessarily includes the lesser power to allow its exportation subject to conditions such as the payment of royalties, and such an exaction is not a tax but a valid incident of regulatory authority. The Constitution expressly permits Congress to delegate tariff-setting authority to the President, and acts of the Cabinet are presumptively acts of the President. An exporter who voluntarily pays a fee as a condition for a government privilege is estopped from later claiming a refund.

Following the Second World War, the Philippine Congress sought to control the outflow of strategic materials. On July 2, 1946, Congress enacted Commonwealth Act No. 728, declaring it unlawful to export agricultural or industrial products, merchandise, articles, materials, or supplies without a presidential permit. The Act authorized the President to “regulate, curtail, control, and prohibit” exports and to issue implementing rules. On July 10, 1946, the President issued Executive Order No. 3, banning the exportation of certain enumerated materials but permitting the exportation of others, including scrap metals, upon obtaining an export license from the Philippine Sugar Administration. To rationalize the licensing scheme, the Chief of the Executive Office, by authority of the President, later authorized the exportation of scrap metals upon payment of a fee of P10 per ton. On October 24, 1947, upon recommendation of the National Development Company, the Cabinet approved a resolution establishing a schedule of royalty rates on various metal exports. The petitioner, an exporter of scrap iron, brass, copper, and aluminum, paid the prescribed royalties for shipments made from December 1947 to September 1948 and subsequently sought a refund, arguing the Cabinet resolution was an unconstitutional exercise of the taxing power.

• Statutory Framework: Commonwealth Act No. 728 (July 2, 1946) prohibited the exportation of agricultural or industrial products without a presidential permit and authorized the President to regulate, curtail, control, or prohibit exports and to issue implementing rules and regulations.
• Executive Implementation: Pursuant to that Act, the President promulgated Executive Order No. 3 on July 10, 1946, banning certain exports outright but allowing the exportation of other merchandise, such as scrap metals, subject to obtaining an export license from the Philippine Sugar Administration.
• Initial Fee Authorization: On April 24, 1947, the Chief of the Executive Office, acting by authority of the President, authorized the Philippine Sugar Administration to permit the exportation of scrap brass and scrap metals “upon payment by the applicants concerned of a fee of P10 per ton.”
• Cabinet Resolution: On October 24, 1947, upon recommendation of the General Manager of the National Development Company, the Cabinet approved a schedule of royalty rates on metal exports, including rates for scrap copper (P50/MT), scrap brass (P50/MT), scrap aluminum (P20/MT), scrap lead (P40/MT), scrap cast iron (P5/MT), scrap steel (P2/MT), and burnt scrap wire (P5/MT).
• Petitioner’s Exports and Payments: Marc Donnelly and Associates, Inc., a domestic corporation, exported substantial quantities of scrap iron, brass, copper, and aluminum between December 1947 and September 1948. It paid royalty fees to the Sugar Quota Office totaling P54,862.84 under the rates fixed by the Cabinet resolution.
• Claim for Refund: Petitioner later filed a claim with the Auditor General for the full refund of the amount paid, asserting that the Cabinet resolution was void and the payments were made under protest and duress because the issuance of export permits was conditioned on payment.
• Auditor General’s Denial: The Auditor General denied the claim, stating that his office had no power to pass upon the constitutionality or validity of the Cabinet resolution, which was presumed constitutional unless declared otherwise by a competent court.

• Undue Delegation of Legislative Power: Petitioner argued that the Cabinet resolution of October 24, 1947, fixing royalty rates on metal exports, created and imposed an ad valorem tax, an act that constitutes an undue delegation of legislative power because only Congress can levy taxes.
• Nature of the Exaction: Petitioner maintained that the royalty rates were not regulatory fees but taxes, as they were imposed for revenue purposes and not merely to defray the cost of regulation. Authority to regulate exports does not include the power to tax.
• Involuntariness of Payment: Petitioner contended that the payments were made under protest and duress because export permits could not be obtained without payment; therefore, the payments were not voluntary and could be recovered.

• Constitutional and Statutory Authorization: Respondents argued that Article VI, Section 22(2) of the 1935 Constitution expressly authorizes Congress to delegate to the President the power to fix tariff rates, import and export quotas, and tonnage and wharfage dues. Commonwealth Act No. 728 was a valid law enacted under this authority, and the Cabinet resolution was an implementing measure thereof.
• Presidential Act Through Cabinet: Respondents maintained that the Cabinet resolution fixing the royalty rates was, in legal effect, an act of the President, because the secretaries of departments are the President’s assistants and the Cabinet is always deemed presided over by the President unless shown otherwise. The resolution thus carried the President’s authority.
• Royalty as Condition, Not Tax: Respondents countered that the royalty fees were not a tax but a condition for the grant of a privilege—the exportation of goods that the President could prohibit entirely. Since the greater power to prohibit exists, the lesser power to permit under conditions, including payment of royalties, is included.
• Estoppel: Respondents contended that petitioner voluntarily paid the royalties to avail itself of the export privilege and, having benefitted from the transactions, was estopped from questioning the validity of the payments and seeking a refund.

• Delegation of Legislative Power: Whether the Cabinet resolution of October 24, 1947 fixing royalty rates on metal exports constituted an unconstitutional delegation of legislative power.
• Nature of the Exaction: Whether the royalty fees exacted under the resolution were a tax that only Congress could impose, or a valid regulatory fee authorized under the President’s delegated authority to control exports.
• Estoppel: Whether petitioner, having voluntarily paid the royalties to obtain export permits, was precluded from recovering the amount paid.

• Delegation of Legislative Power: The delegation was constitutional. Article VI, Section 22(2) of the 1935 Constitution expressly authorizes Congress to delegate to the President the power to fix tariff rates, within specified limits, and Commonwealth Act No. 728 was enacted pursuant to that provision. The Cabinet’s act in approving the royalty resolution was presumptively the act of the President, who heads the Cabinet, and thus fell within the authority delegated by Congress. The non-delegation principle yields where the Constitution itself permits the delegation.
• Nature of the Exaction: The royalty rates were not a tax but a valid condition for the grant of a privilege. Under Commonwealth Act No. 728, the President could prohibit the exportation of scrap metals altogether. Having chosen to permit exportation rather than impose a total ban, the President could lawfully attach conditions, including the payment of royalties, to the privilege. The power to impose such conditions is necessarily included in the greater power to prohibit. The royalty was consideration for the permissive use of property rights, not a tax.
• Estoppel: Petitioner was estopped from recovering the fees. Compliance with the resolution was optional; petitioner could have refrained from exporting. With full knowledge of the condition, petitioner chose to obtain permits and export the materials, presumably because the transactions remained profitable. Having voluntarily paid the consideration for the privilege, petitioner could not later challenge its validity and claim refund.

• Constitutional exception to the rule against delegation of legislative power — Article VI, Section 22(2) of the 1935 Constitution permits Congress to authorize the President, subject to specified limitations and restrictions, to fix tariff rates, import and export quotas, and tonnage and wharfage dues. A delegation made pursuant to this provision does not violate the non-delegation doctrine.
• Presumptive identity of Cabinet acts as Presidential acts — Unless disapproved or reprobated by the Chief Executive, the acts of department secretaries performed and promulgated in the regular course of business are presumptively the acts of the President. This rule applies with greater force to Cabinet resolutions, the Cabinet being presided over by the President absent evidence to the contrary.
• The greater power to prohibit includes the lesser power to permit subject to conditions — When a statute authorizes the President to prohibit a certain activity entirely, the President may, instead of imposing an absolute ban, permit the activity upon payment of fees or compliance with other conditions. Such conditions are not a tax but an incident of the regulatory power.
• Estoppel against one who voluntarily pays a privilege fee — A person who freely chooses to pay a fee as a condition for obtaining a government license or privilege, with full awareness of the condition, cannot later sue to recover the payment on the ground that the condition was invalid. The payment is deemed consideration for the privilege, and the payor is estopped.

• “…the act of the Cabinet is deemed to be, and essentially is, the act of the President. …the secretaries of departments are mere assistants of the Chief Executive and ‘the multifarious executive and administrative functions of the Chief Executive are performed by and through the executive departments, and the acts of the secretaries of such departments, performed and promulgated in the regular course of business, are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief Executive.’ (Villena vs. The Secretary of Interior, 67 Phil., 451.)”
• “If the President can prohibit altogether such exportation, a fortiori he can, as he did, impose conditions and limitations he may deem proper in granting the privilege, one of them being the payment of royalties similar to the ones subject of the present litigation.”
• “The payment of the royalty can be considered as the consideration for the exercise of the privilege and one who avails of that privilege and pays the consideration is guilty of estoppel. This is the predicament of petitioner.”

• Villena vs. The Secretary of Interior, 67 Phil. 451 — Followed as controlling authority on the principle that the acts of department secretaries in the regular course of business are presumptively the acts of the President; applied to treat the Cabinet resolution as a presidential act.
• Manila Electric Co. vs. Auditor General, 73 Phil. 128 — Cited as precedent for the Supreme Court’s exercise of appellate jurisdiction over a decision of the Auditor General under Commonwealth Act No. 327; also recognized for the distinction between fees and taxes.
• Raytheon Mfg. Co. vs. Radio Corporation of America, 190 N.E. 1, 286 Mass. 84 — Cited as authority that “royalty” includes payment for the permissive or lawful use of a property right, supporting the characterization of the exaction as a royalty rather than a tax.

• Article VI, Section 22(2), 1935 Constitution — Empowers Congress to “by law authorize the President, subject to such limitations and restrictions, as it may impose, to fix, within specified limits, tariffs rates, import or export quotas, and tonnage and wharfage dues.” Applied as the constitutional basis for the delegation of authority under Commonwealth Act No. 728.
• Commonwealth Act No. 728 (1946) — Made it unlawful to export agricultural or industrial products, materials, articles, and supplies without a presidential permit, and conferred on the President the authority to regulate, curtail, control, and prohibit exports and to issue implementing rules and regulations. Provided the statutory foundation for Executive Order No. 3 and the Cabinet resolution.
• Commonwealth Act No. 327 (1938) — Governed the settlement of accounts and claims by the Auditor General and allowed a private party aggrieved by the Auditor’s final decision to appeal to the Supreme Court. Served as the jurisdictional basis for the petition.

Paras, C.J., Montemayor, Jugo, and Labrador, JJ., concurred in the result. Justice Pablo, joined by Justice Diokno, concurred in the dismissal on the ground that the Auditor General lacked jurisdiction over claims for the refund of taxes illegally collected, which should have been brought before the Collector of Internal Revenue and the courts of first instance under Article 306 of the National Internal Revenue Code. Justice Concepcion concurred separately, agreeing with Justice Pablo that the Auditor General lacked authority to determine the validity of the royalties.

• Justice Bengzon (with Justice A. Reyes concurring) — Dissented and voted to grant the petition. Argued that the Cabinet resolution had no statutory authority because the power to regulate exports and impose fees was delegated to the President, not the Cabinet, and legislative power could not be subdelegated to the Cabinet. Contended that the exactions were an ad valorem tax, not a fee, because they were revenue-generating and not merely compensatory for regulatory services; the power to prohibit does not include the power to tax. Noted that the payments were made under duress and protest, and that the Auditor General had jurisdiction over the monetary claim, which the Court should have resolved on the merits in favor of the taxpayer.