FILIPINO PIPE & FOUNDRY CORPORATION, PLAINTIFF-APPELLEE, VS. CENTRAL BANK OF THE PHILIPPINES, DEFENDANT-APPELLANT.

This is an appeal from the decision of the Court of First
Instance of Manila ordering the appellant to pay the appellee
P40,837.59 as refund of the margin fees paid by the
latter to the former and P8,000.00 as attorney’s fees and costs.

In the Court below the parties filed a partial stipulation of
facts, as follows:

“1. That the plaintiff Filipino Pipe & Foundry
Corporation is a domestic corporation duly organized and existing under the
laws of the Republic of the Philippines;

“2. That the defendant Central Bank of the Philippines is a
body corporate created under Republic Act No. 265 and charged with the duties
of maintaining monetary stability, preserving the international value of the
Philippine peso and promoting a high level of produc­tion, employment and real income in the country;

“3. That on January 5, 1959, the Philippine National Bank, Manila,
established “L/C No. 590051” for the account of the plaintiff in the amount of $115,203.19 in favor of the United Export Clothing Co., Inc. for the
importation of Pig Iron, Foundry Coke, Firebricks, Cupola Blocks and Fireclay to be shipped from any USA or
European Ports to C & F Manila, which credit was to expire originally in
New York on June 23, 1959 (Annex “1”, Motion to Dismiss);

“4. That on January 27, 1959, L/C No. 590051 was amended to
include shipment of Centrifugal Cast
Iron Pipe Machine or their Accessories and to add “and/or
assignees” after bene­ficiary’s name (Annex “2”, Motion to
Dismiss);

“5. That on May 27, 1959,
L/C No. 590051 was amended to ‘extend expiry date to December 23’ (Annex
“3”, Motion to Dismiss);

“6. That on July 16,
1959, Republic Act No. 2609 (AN ACT TO AUTHORIZE THE CENTRAL BANK
OF THE PHILIPPINES TO ESTAB­LISH A MARGIN OVER BANKS’ SELLING RATES OF FOREIGN
EXCHANGE) was approved and became effective;

“7. That on July 17, 1959, in ac­cordance with Section 7 of
Republic Act No. 2609 which authorizes the Monetary Board of the Central Bank
to prescribe rules and regulations, necessary to carry out the provisions of
this Act, said Monetary Board
also fixed the margin at 25% on the value in Philip­pine pesos of foreign
exchange sold by Authorized Agent Banks (Annex “17”, Motion to
Dismiss);

“8. That on August 20, 1959, L/C No. 590051 was amended such that
‘payment on shipment of centrifugal cast iron pipe machine or their accessories
should be against surrender of certificates in triplicate issued by P.M. Silva representing the buyer
approving the good working condition of the machine and other component parts’
(Annex “4”, Motion to Dismiss);

“9. That on August 24,
1959, L/C No. 590051 was amended to include ‘foundry equipments’ in
the shipment (Annex “5”, Motion to Dismiss);

“10. That on December 18, 1959, L/C No. 590051 was amended to
‘extend expiry date to December thirty first for nego­tiation purposes provided
shipment made on or before December twenty-third’ (Annex “10”, Motion
to Dismiss);

“11. That on the dates indicated below, the defendant through
the Philippine National Bank, Manila, collected from the plaintiff over his
protest the following amounts in the total sum of P40,837.59 representing the 25% margin fee on costs of the shipments
authorized under L/C No. 590051, as amended, to wit:

                             
                Amount of

          Date of                           Margin Fee                                                    

         Payment                        Collected                     Shipment

        October 15, 1959                 P3,827.91                    Foundry
equipment,

                                                                                         
pig iron, fireclay, firebricks and cupola
blocks

       
December 1, 1959             
12,527.93                     Foundry Coke

       January
29, 1960                  24,481.75
                   Centrifugal cast
iron             

                                                                                        
pipe machine

          Total   –  P40,837.59

“12. That plaintiff filed thru the Philippine National Bank its ‘Application for Exemption of Payment
for Imports from the Foreign Exchange Margin Under Republic Act No. 2609’ on
the purchases of foreign exchange subject matter of this case; that the
Exemption Committee of defendant Central Bank of the Philippines informed
plaintiff that its application for exemption from the payment of the 25% margin
on the sale of foreign exchange was denied; that plaintiff requested for a
reconsideration of the denial of its application for exemption and that Atty.
Andres T. Velarde (Plain­tiff’s counsel in the
instant case), in his letter to defendant dated September 19, 1962, demanded,
in behalf of the plaintiff, the refund of the margin fees subject hereof;

“13. That on September 26, 1962, Mr. Jesus C. Razon,
the Acting Exe­cutive Officer of the Exemption Committee advised Atty. Velarde that plaintiff’s request for reconsidera­tion has
been submitted to the Exemp­tion Committee (Annex ’15’, Motion to Dismiss);

“14. That on October 17, 1962, the Exemption Committee informed
the Velarde Law Offices that after due deliberation,
the Committee denied plaintiff’s claim for lack of suf­ficient basis (Annex
’16’, Motion to Dismiss).”

Besides the amendments mentioned in the foregoing partial
stipulation of facts, the following incidents, as they appear textually in the
corresponding exhibits, took place with respect to L/C No. 590051:

(a)                 
Amendment of August 28, 1959 –
CREDIT 590051 UNITED EXPORT AND/OR ASSIGNEES PLEASE ASSIGN AND REQUEST
CONFIRMATION TO SOCIETE GENERALE DE CENTRIFUGATION 8 PLACE D’ LENA PARIS FRANCE
$48,500 COVERING SHIPMENT CENTRIFUGAL CAST IRON PIPE MACHINE OR THEIR
ACCESSORIES (Ex­hibit 1-E)

(b)                 
Amendment of September 25, 1959 –
CREDIT 590051 UNITED EXPORT AMEND TO ALLOW SHIPMENT FROM ANY AUSTRALIAN PORT
(EXHIBIT 1-F)

(c)                 
Amendment of November 5, 1959 ?
CREDIT 590051 SOCIETE GENERALE AMEND TO INCREASE AMOUNT BY $150 TO COVER
ADDITIONAL FREIGHT CHARGES (Exhibit 1-G).

(d)                
Amendment of November 12, 1959 – CREDIT 590051
UNITED EXPORT PLEASE DISREGARD OUR AMENDMENT SEPTEMBER TWENTYFIFTH (Exhibit
1-H)

On February 4, 1964 the trial court (Judge Arsenio
Solidum presiding) rendered its decision in favor of
the plaintiff and against the defendant. 
It found that the amendments effected on L/C No. 590051 did not materially
change its terms and conditions, and consequently held that the plaintiff’s
remittance of foreign exchange
under said letter of credit is
exempt from the payment of margin fee under Republic Act No. 2609 by virtue of
the provision of its Section 3, which states:

SEC. 3. The provision of this Act shall
not apply to liquidation of drafts drawn under letter of credit nor of
contractual obligations calling for the payment of foreign exchange issued,
approved and outstanding as of the date of this Act takes effect and the
extension thereof, with the same terms and conditions as the original
contractual obligations; x x x”

Not satisfied with the decision of the lower court, the defendant
brought this appeal.

In its brief appellant avers that the said Court erred:

1. In holding that plaintiff-appellee’s
remittance of foreign exchange under L/C No. 590051 is exempt from the payment of the margin fee
under Section 3 of Republic Act No. 2609, although the extension provided for
in said letter of credit after the date of the effectivity
of the Margin Law was not with the same terms
and conditions as the original letter of
credit;

2. In holding that defendant-appel­lant’s construction or
interpretation of the exemption from the payment of the margin fee under
Section 3 of Republic Act No. 2609 are (sic) narrow which is not justified by
the purpose and objective sought to be accomplished by law;

3. In ordering the defendant-appel­lant the payment (sic) to
plaintiff-appellee the sum of P8,000.00
as attorney’s fees and the costs of this suit.

Regarding the first
assignment of error, appellant’s contention, among others, is that the
amendment of August 20, 1959 materially changed the terms and conditions of the
origi­nal letter of credit because it gave new right to appellee,
namely, the right to approve the good working condition of the centrifugal cast
iron pipe machine before payment was made, which right was not included in the
original terms and conditions of the letter of credit; that the amendment of
August 24, 1959 likewise materially changed such terms and conditions because
the “foundry equipment” referred to therein was entirely distinct and
separate from the “complete set of centrifugal cast iron pipe
machine” imported under L/C No. 590051; that said “foundry equipment” was not included in the amendment
of January 27, 1959, such that without the amend­ment of August 24, 1959, the
United Export Clothing Co., Inc., was not bound to ship the same to appellee:  that the
amend­ment of August 28, 1959 changed the terms
and conditions of the original
letter of credit because without the amendment the Societe
Generale de Centrifugation of Paris could not have shipped
the centrifugal machine to the appellee, said firm being entirely different from the United Export Clothing Co., Inc., of New
York, U.S.A.; that there was therefore a change of parties to the letter
of credit insofar as the centrifugal machine was concerned; that the amendment of September 25, 1959 to
allow shipment from any Australian port also changed the terms and conditions
of the original letter of credit and the cancellation of said amendment on
November 12, 1959 did not operate to exempt appellee’s remittance from the pay­ment of the margin fee; that the amendment of November 5, 1959 increased
the amount of the letter of credit by $150.00 and, therefore, there was a
change in its terms and conditions; and that although the letter of credit
never exceeded its original
amount of $115,253.19 the $150.00 was also remitted to cover freight charges
and thus increased the disbursement.

Appellant’s contention is without
basis on all counts.  The trial
court correctly analyzed the amendments to L/C No. 590051 after July 16, 1959, the date of approval
of Republic Act No. 2609, in this wise:

“It appears that the first amendment to plaintiff’s original
letter of credit, L/C 590051 was made on August 20, 1959 (Exhibit ‘1-D’), the
pertinent portions of which read as follows:

‘CREDIT 590051 UNITED
EXPORT PAYMENT ON SHIPMENT OF CENTRI­FUGAL CAST IRON PIPE MACHINE OR THEIR ACCESSORIES
SHOULD BE AGAINST SURRENDER OF CERTIFICATE IN TRIPLICATE ISSUED BY P.M. SILVA
REPRESENTING THE BUYER AP­PROVING THE GOOD CONDITION OF THE MACHINE AND OTHER
COMPONENT PARTS.’

                      x x
x                 x x x                x x x

“ x x
x the court finds itself in favor of the
contention of the plaintiff that said first amendment dated August 20, 1959
(Exhibit ‘1-D’), to its original letter of credit did not in any way materially
change its terms and conditions but that, on the contrary, it strengthened the
impossibility of salting dollars abroad because under said amendment no
remittances of dollar could be made to plaintiff’s shipper abroad without
previous assurance that the machineries imported by the plaintiff were in ‘good
working condition: and not secondhand machineries which are useless.  The court
likewise finds that said amendment is in conformity with the objective sought
to be attained by the enactment
of said Republic Act No. 2609, as
clearly expressed in its Sec­tion 1, that –

“The Monetary Board shall fix
the margin at such rate as
it may deem necessary to
effectively curtail any excessive demand upon the international reserve.”

(Moreover, whenever a buyer purchases merchandise of any kind the
implied warranty is that the same should be in good condition and it would be
absurd to say that a sub­sequent inclusion of such warranty in express terms constitutes a material deviation from
the terms of the original purchase order) Parenthesis ours.

“x x x.  The pertinent portion of said
amendment of August 24, 1959,
reads as follows:

‘PLEASE AMEND THE
SHIPMENT OF THE ABOVE CREDIT TO INCLUDE FOUNDRY EQUIPMENTS’.

               x x x
                 x x x                  x x x

“Consequently, the conclusion of the Court is that the
importation of said foundry equipments, which are merely accessories of the
centrifugal cast iron pipe machine, was already covered by the prior amendment
of January 27, 1959, or before the effectivity of
Republic Act No. 2609, and it did not materially alter the terms and conditions
of plaintiff’s original letter of credit, aside from the fact that again said
amendment did not in any way increase the dollar allocation of the plaintiff as
specified in the same letter of credit.”

Specifically, the foundry equipment mentioned in the amendment of
August 24, 1959 consisted
of a centrifugal blower, forty feet of foundry roller chain, and foundry scale
spare parts.  Although these items were
not integral parts of the centrifugal cast iron pipe machine they were
certainly ac­cessories thereto.  As
explained by appellee’s plant operation manager, the
blower is used to accelerate the process of cool­ing the manufactured pipes;
the roller chain is part of the “pipe extracting device” of the
machine; and the scale spare parts are for the purpose of weighing the finished
pipes to determine that they conform strictly to standard specifications.  Said items are therefore in the nature of
“accessories”, authorized in the amendment of January 27, 1957, before the Margin Law became
effective.

We continue with the findings of the trial Court:

“It is likewise alleged by the defend­ant that the amendment
of August 28, 1959, also
changed the terms and conditions of plaintiff’s original letter of credit.  Said amendment reads as follows:

‘CREDIT 590051 UNITED EXPORT
AND/OR ASSIGNEES PLEASE ASSIGN AND REQUEST CON­FIRMATION TO SOCIETE GENERALE DE
CENTRIFUGATION 8 PLACE D’LENA PARIS
FRANCE $48,500
COVERING SHIPMENT CENTRIFUGAL CAST IRON PIPE MACHINE OR THEIR ACCESSORIES’.

It appears from the partial stipulation of
facts that as early as January 27, 1959, that is prior to the passage of
Republic Act No. 2609, the original letter
of credit of plaintiff, L/C 590051, was already assignable because of
the first amendment (Exhibit ‘1-B’), by add­ing the phrase ‘AND/OR ASSIGNEES’
after beneficiary’s name.  Consequently,
that portion of the amendment referring to the assignment of the sum of
$48,500.00 out of plaintiff’s original letter of credit to the Societe Generale de Cen­trifugation
does not subject said amount to any payment of margin fee for the simple reason
that said assignment was duly authorized long before the effectiv­ity of Republic Act
No. 2609.  Further­more, at no time was
the total amount of said letter of credit ever increased and the confirmation
requested in the amend­ment was necessary for the liquidation of the draft
payable to Societe Generale
de Centrifugation, under Section 3 of Republic Act No. 2609.

“As regards the other amendment which was made on September 25, 1959, to the effect that ‘CREDIT 590051
UNITED EXPORT AMEND TO ALLOW SHIPMENT FROM ANY AUSTRALIAN PORT’ (Exhibit
‘1-F’), it is admitted that said
amendment was dis­regarded because it was cancelled by the amendment of November 12, 1959.  Hence, the contention of the defendant
that such fact did not exempt the
remittances un­der the letter of credit of the plaintiff from payment of
margin fee has absolutely no
merit.

“Finally, it is argued
by the defendant that the amendment of November 5, 1959, which reads ‘CREDIT
590051 SOCIETE GENERALE AMEND TO INCREASE AMOUNT BY $150 TO COVER ADDITIONAL
FREIGHT CHARGES (Exhibit ‘1-G’), has materially changed plaintiff’s original
letter of credit because its amount was increased by $150.00.  This contention is not borne out by the
record for it is very clear that at no time was the amount of plaintiff’s
original letter of credit ever changed and much less increased.  Rather, on the contrary, it appears that the
total amount disbursed or utilized by the plaintiff under the said letter of
credit never exceeded its original amount of $115,203.19.  Moreover,
it is shown by the evidence of the plaintiff that when it requested said sum of
$150.00 from the Philippine National Bank, as per plaintiff’s letter (Exhibit
‘C-1’), plaintiff categorically requested said bank not to amend its letter of
credit but that it be granted a non-recurring dollar quota allocation for the
sum of $150.00.  However, the defendant,
thru its agent, the Philippine National Bank, informed the plaintiff that said
amount of $150.00, was purchased by the plaintiff in Manila and sent to Societe Generale de
Centrifugation under Mail Transfer, as shown by Exhibit ‘C-2’.  Hence, the amendment of November 5, 1959 (Exhibit ‘1-G’), was made not only against plaintiff’s express instruction but
through the mistake and inadvertence of the Philippine National Bank.”

It need only be added in connection with this amount of $150 to
cover additional freight charges, that appellee paid
in 25% margin fee thereon, but not as part of the letter of credit.

Under the second assignment of error appellant submits that exemption
provisions in a statute are construed strictly against the party claiming then; that the “terms and
conditions” in section 3 of Republic Act No. 2609 refer to all the terms
and conditions off the letter of credit and not only to the amount thereof; that
the amendments to L/C No. 590051
changed the terms and conditions of the original letter of credit although the
amount involved was never increased: and that to construe Section 3 liberally
would defeat the purpose of the Margin Law because it would give importers who
had out­standing contractual obligations as of the passage of the law the
liberty to change the terms and conditions thereof as long as their amounts
were not increased, thereby evading payment of the margin fee and creating an
excessive demand upon the country’s international reserve.

It is true, as a general
proposition, that exceptions from the coverage of a statute are strictly
construed.  But such construction
nevertheless must be at all times reason­able, sensible and fair.  We have sustained the findings of the lower
court that the amendments to the letter of credit, L/C No. 590051, did not
materially affect its original terms and conditions.  If anything, the amendment of August
20, 1959 in
particular” strengthened the impossibility of salting dollars abroad”
and thus promoted the objective of the law. 
Under the circumstances obtaining in this case, to construe Section 3 of
the Margin Law in the sense advocated by
appellant, which would rule out from the exemption therein pro­vided the
amendments hereinbefore set forth, although they did not materially change the
terms and conditions of the original letter of credit, would be unreasonable
and unjust, and not in accord with the declared purpose of the Margin Law, namely, to prevent “an excessive demand upon the inter
national reserve.”

However, appellant’s
third assignment of error, regarding the award of attorney’s fees, must be
upheld.  There is no finding by the lower
court that appellant acted in gross and evident bad faith in denying appellee’s claim for refund. 
In the case of Jimenez vs. Bucoy,
No. L-10221, February
28, 1958, we said:

“Under the new Civil Code, attorney’s fees and expenses of
litigation may be awarded in this case if ‘defendant acted in gross and evident
bad faith in refusing to satisfy plaintiff’s plainly valid, just and demandable
claim’ or ‘where the court deemed it just and equitable that attorney’s fees be
recovered’ (Art. 2208, Civil Code).  These are – if applicable – some of the
exceptions to the general rule that in the absence of stipulation no attorney’s
fees shall be awarded.

“The trial court did
not explain why it ordered payment of counsel fees.  Needless to say, it is desirable that the decision should
state the reason why such award is made, bearing in mind that it must
necessarily rest on an exceptional situation unless of course the text of the
decision plainly shows the case to fall into one of the ex­ceptions, for
instance ‘in actions for legal support’, ‘when exemplary damages are awarded’,
etc.  In the case at bar, defendant could
not ob­viously be held to have acted in gross and evident bad faith.  x x x”

In the case of George Edward Koster, Inc., vs. Zulueta (G.R.
No. L-92305, Sept. 25, 1956,
53 O.G. 1076), we held:

“To sentence litigant to pay his adversary’s lawyer’s fees
would be imposing a penalty on his right to litigate.  Even under the new Civil Code (Art. 2208,
par. 5) a litigant would not he entitled to recover the fees paid to his
attorney as damages where no bad faith on the part of his adversary was
shown.”

Wherefore, modified only by eliminating the award of
attorney’s fees, the decision appealed from is affirmed, with costs against
defendant-appellant.

Concepcion, C.J., Reyes, Dizon, Zaldivar, Sanchez, Ruiz
Castro and Angeles, JJ.,
concur.

Fernando, J., took no part.