G.R. No. L-10195 - NOVEMBER 1958 - PHILIPPINE JURISPRUDENCE CASE NUMBERCASE TITLE G.R. No. L-10195November 29, 1958 Belman Compañia Incorporada vs. Central Bank of the Philippines G.R. No. L-10679November 29, 1958 Abelardo Pages vs. Basilan Lumber Company G.R. No. L-10761November 29, 1958 In Re: Celestino Co y Quing Reyes. Celestino Co y Quing Reyes vs. Republic of the Philippines G.R. No. L-11282November 29, 1958 Manuel I. Gonzales vs. Court of Appeals, et al. G.R. No. L-11951November 29, 1958 Cenon Buencamino vs. Pastor P. Reyes, et al. G.R. Nos. L-13393-95November 29, 1958 Salani Una vs. Felisa C. Noche, et al. G.R. No. L-9055November 28, 1958 National Shipyards and Steel Corporation vs. Deogracias Almin, et al. G.R. No. L-9595November 28, 1958 Pedro Pascua, et al. vs. Mariano Copuyoc, et al. G.R. No. L-10869November 28, 1958 In Re: Marian Kathleen Black. Andrew Black, et al. vs. Republic of the Philippines G.R. No. L-11010November 28, 1958 Basilio L. Guisadio vs. Secretary of Public Works and Communications, et al. G.R. No. L-11019November 28, 1958 Que Po Lay vs. Central Bank of the Philippines, et al. G.R. No. L-11321November 28, 1958 Rio Grande Rubber Estate Company Inc. vs. Board of Liquidators, et al. G.R. No. L-11511November 28, 1958 Tan Sin vs. Deportation Board G.R. No. L-11787November 28, 1958 Sheriff of the City of Manila vs. Angel Jose Realty Corporation, Inc. G.R. No. L-11527November 25, 1958 Collector of Internal Revenue vs. Suyoc Consolidated Mining Company, et al.d G.R. No. L-11273November 21, 1958 Acoje Mines Employees, et al. vs. Acoje Labor Union (PELTA), et al. G.R. No. L-9073November 17, 1958 Traders Insurance and Surety Company vs. Dy Eng Giok, et al. The Lawphil Project - Arellano Law Foundation, Inc. Belman Compañia Incorporada vs. Central Bank of the Philippines Abelardo Pages vs. Basilan Lumber Company In Re: Celestino Co y Quing Reyes. Celestino Co y Quing Reyes vs. Republic of the Philippines Manuel I. Gonzales vs. Court of Appeals, et al. Cenon Buencamino vs. Pastor P. Reyes, et al. Salani Una vs. Felisa C. Noche, et al. National Shipyards and Steel Corporation vs. Deogracias Almin, et al. Pedro Pascua, et al. vs. Mariano Copuyoc, et al. In Re: Marian Kathleen Black. Andrew Black, et al. vs. Republic of the Philippines Basilio L. Guisadio vs. Secretary of Public Works and Communications, et al. Que Po Lay vs. Central Bank of the Philippines, et al. Rio Grande Rubber Estate Company Inc. vs. Board of Liquidators, et al. Tan Sin vs. Deportation Board Sheriff of the City of Manila vs. Angel Jose Realty Corporation, Inc. Collector of Internal Revenue vs. Suyoc Consolidated Mining Company, et al.d Acoje Mines Employees, et al. vs. Acoje Labor Union (PELTA), et al. Traders Insurance and Surety Company vs. Dy Eng Giok, et al. The Lawphil Project - Arellano Law Foundation, Inc.

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-10195           November 29, 1958

BELMAN COMPAÑIA INCORPORADA,plaintiff-appellee,
vs.
CENTRAL BANK OF THE PHILIPPINES,defendant-appellant.

Bienvenido L. Garcia and Eutiquiano Garcia for appellee.
Nat. M. Balboa and Luis M. Kasilag for appellant.

PADILLA,J.:

In a complaint filed on 18 March 1955 in the Court of First Instance of Manila the plaintiff, a corporation, alleges that having been a successful bidder to supply the Republic of the Philippines with 1,000 reams of onion skin paper, on 21 September 1950 it applied to the Philippine National Bank for a letter of credit in the sum of $4,300, United States currency, in favor of Getz Bros. & Co., San Francisco, California, U.S.A., to pay for such reams, and the Philippine National Bank approved and granted the application for the letter of credit; that the Philippine National Bank, through the Crocker First National Bank, its correspondent in the United States, paid to the payee the sum of $4,300, United States Currency; that on 26 April 1951 when the plaintiff paid its account to the Philippine National Bank in Manila, the defendant, pursuant to Republic Act No. 601, as amended, assessed and collected from it 17% special excise tax on the amount in Philippine peso of foreign exchange sold, amounting to P1,474.70 which the plaintiff paid to the defendant under protest for the reason that as the letter of credit was approved and granted on 21 September 1950, or before 28 March 1951, the date of the enactment or approval of Republic Act No. 601, as amended, the amount of foreign exchange sold by the defendant bank by the letter of credit to the plaintiff corporation was not subject to such excise tax; that on 28 December 1954 the plaintiff corporation made a demand in writing upon the defendant bank for the refund of the aforesaid sum; and that notwithstanding repeated demands the defendant bank refused to make the refund. The plaintiff corporation prays that the 17% special excise tax assessed and collected from it on the amount in Philippine peso of foreign exchange sold on 21 September 1950, be declared illegal; and that the defendant bank be ordered to refund to it the sum of P1,474.70 illegally assessed and collected (civil No. 25708).

On 25 March 1955 the defendant bank moved for the dismissal of the complaint on the ground that —

On 1 April 1955 the plaintiff corporation objected to the motion to dismiss; on 5 April the defendant bank filed a reply thereto; and on 11 April the plaintiff a "rejoinder to defendant's reply." On 19 April the Court denied the motion to dismiss.

On 28 April 1955 the defendant filed its answer reiterating that although the plaintiff corporation had applied for and been granted a commercial letter of credit on 21 September 1950, before the effectivity of Republic Act No. 601, as amended, no sale of foreign exchange took place on that date, because such sale actually took place on 26 April 1951, when the plaintiff paid to the Philippine National Bank the amount in Philippine currency of the foreign exchange sold. Hence it was subject to the 17% special excise tax.

After hearing and filing by the parties of their respective memoranda, the Court rendered judgment ordering the defendant bank to refund to the plaintiff corporation the sum of P1,474.70, with legal interest thereon from 25 April 1951 until fully paid and to pay the costs. A motion to set aside the judgment thus rendered was denied. The defendant has appealed.

Foreign exchange is the conversion of an amount of money or currency of one country into an equivalent amount of money or currency of another.¹The appellant claims that the grant or approval on an application for a letter of credit for an amount payable in foreign currency is only an executory contract, in the sense that until payment, return, or settlement of the amount paid and delivered by, or collected from, the bank in foreign currency be made by the debtor, the contract is not executed or consummated. Hence, if on the date of payment by the debtor to the bank of the amount of foreign exchange sold the law imposing the excise tax was already in force, such tax must be collected. On the other hand, the appellee contends that, upon the approval or grant of an application for a letter of credit for an amount payable in foreign currency, the contract is perfected or consummated. Hence, if on the date of such approval or grant the law imposing the excise tax was not yet in existence, such tax can not be assessed and collected. Both contentions cannot be sustained.

An irrevocable letter of credit granted by a bank, which authorizes a creditor in a foreign country to draw upon a debtor of another and to negotiate the draft through the agent or correspondent bank or any bank in the country of the creditor, is a consummated contract, when the agent or correspondent bank or any bank in the country of the creditor pays or delivers to the latter the amount in foreign currency, as authorized by the bank in the country of the debtor in compliance with the letter of credit granted by it. It is the date of the payment of the amount in foreign currency to the creditor in his country by the agent or correspondent bank of the bank in the country of the debtor that turns from executory to executed or consummated contract. It is not the date of payment by the debtor to the bank in his country of the amount of foreign exchange sold that makes the contract executed or consummated, because the bank may grant the debtor extension of time to pay such debt. The contention of the appellee that as there was a meeting of the minds and of contracting parties as to price and object of the contract²upon the approval or grant of an application for a letter of credit for an amount payable in payable in foreign currency, the contract was a valid and executed contract of sale of foreign exchange. True, there was such a contract in the sense that one party who has performed his part may compel the other to perform his.³Still until payment be made in foreign currency of the amount applied for in the letter of credit and approved and granted by the bank, the same is not an executed or consummated contract. The payment of the amount in foreign currency to the creditor by the bank or its agent or correspondent is necessary to consummate the contract. Hence the date of such payment or delivery of the amount in foreign currency to the creditor determines whether such amount of foreign currency is subject to the tax imposed by the Government of the country where such letter of credit was granted.

It appearing that the draft authorized by the letter of credit applied for by the appellee and granted by the appellant must be drawn and presented or negotiated in San Francisco, California, U.S.A., not later than 19 October 1950 (Exhibit H), it may be presumed that the payment of $4,300 in favor of Getz Bros., Inc. in San Francisco, California, U.S.A., for the account of the appellee was paid by the Crocker First National Bank, as agent or correspondent of the Philippine National Bank, on or before 19 October 1950. Such being the case, the excise tax at the rate of 17% on the amount to be paid by the appellant in Philippine currency for the foreign exchange sold is not subject to such tax, because Republic Act No. 601 imposing such tax took effect only on 28 March 1951.⁴

The judgment appealed from is affirmed, without pronouncement as to costs.⁵

Paras, C. J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J. B. L. and Endencia, JJ., concur.

Footnotes