VARGAS PLOW FACTORY, INC., PLAINTIFF-APPELLEE, VS. THE CENTRAL BANK OF THE PHI­LIPPINES, DEFENDANT-APPELLANT.

Appeal from the decision of the Court of First Instance of Manila
(in Civil Case No. 57582) on the legal issue of when the imposable margin levy
on foreign exchange purchased from the Central Bank is collectible.

There is no controversy as to the facts of this case.

To cover the cost of steel blades, bolts and rivets it was
importing from Germany, the Vargas Plow Factory, Inc., applied with the
Philippine National Bank for free market letters of credit, which were granted,
as follows:

L/C Number                    Date                            Face Value

613457-FM                    Sept. 22, 1961            $10,820.00

614728-FM                    Dec. 22, 1961                 3,580.00

615103-FM                    Jan. 15, 1962               10,820.00

615104-FM                    Jan. 15, 1962               10,820.00

The Philippine National Bank, on behalf
of the Vargas Plow Factory, in turn, applied with the Central Bank to purchase
the “forward exchange” necessary to cover the above-mentioned letters
of credit.  The applications having been
duly approved, the Philippine National
Bank and the Central Bank executed Forward Exchange Contracts No. 10593, on December
15, 1961; No. 11018,
on December 26, 1961; and No. 12576, on January 19, 1962.

Against the free market letters of
credit opened by the Philippine National Bank, the foreign beneficiary
(Stahlkontor Hahn Aktiengesellschaft of Dusseldorf,
Germany) drew the
following drafts:

L/C Number                           Date                               
Amount

613457-FM                            Dec. 30, 1961           $   566.78

614728-FM                            Mar. 22, 1962              3,512.80

615103-FM                            Mar. 30, 1962              3,939.14

615103 -FM                           Apr.
11, 1962              6,880.86

615104 -FM                           Mar.
30, 1962              3,971.81

Apr. 11, 1962              6,848.19,

which drafts
were accepted (by the importer) on January
30, 1962; June 4, 1962,
May 25, 1962, July 3, 1962, December 6, 1962 and December 6, 1962, respectively,

The Central Bank thereupon charged and collected from the
importer the sum of P11,642.65, as 15% margin levy on
the foreign exchange covered by the drafts. 
The importer accordingly paid, but later demanded for the refund of the
aforestated amount of P11,642.65, claiming that its
collection was not in accordance with law. 
And when it was denied, the importer raised the question of the validity
of the collection of the margin levy on the involved foreign exchange before
the Court of First Instance of Manila (Civil Case No. 57582).

On November 11, 1965,
the court rendered judgment sustaining plaintiff’s claim and ordering the
defendant, Central Bank, to pay to the former the sum of P11,642.65,
with legal interest thereon from the filing of the complaint until full payment
of the obligation, plus attorneys’ fees and costs.  Defendant Central Bank thus interposed the
present appeal.

There is here no dispute as to the legality and validity of
Central Bank Circular No. 122,^[1]
imposing 15% margin fee on all sales of foreign exchange purchased to any bank
or importer by the Central Bank.  The
controversy in this case, however, arose from the fact that, on January 21, 1962, the Central Bank
issued its Circular No. 133 suspending the collection of margin fee on foreign
exchange.  The effect is that, while the
letters of credit in question opened by the Philippine National Bank, as well
as the contracts to purchase forward exchange (between the Philippine Na­tional
Bank and the Central Bank), were issued or executed during the effectivity of
Circular No. 122, or when the margin levy is still imposable, the drafts
against said letters of credit were drawn and accepted by the importer when the
collection of the margin fee had already been suspended.  The point at issue, therefore, is whether the
imposable margin fee becomes collectible upon the execution of the contract to
purchase the foreign exchange, as claimed by appellant Central Bank, or upon
payment of the creditor by the correspondent bank, as ruled by the court below.

The lower court, relying on the ruling in Belman Cia, Inc. vs.
Central Bank, 104 Phil. 877, that there was no consummated sale of foreign
exchange until payment of the amount in foreign currency to the creditor, held
that the sales here in question occurred during the period of suspension of the
margin levy by the Central Bank, and that, therefore, no margin fee was payable
thereon.

At the time the decision of the court a quo was
rendered (on November 11, 1965),
the same was in accord with the prevailing jurisprudence.  Subsequently, however (though the court below
could not have anticipated it), this Court had occasion to re-examine the
doctrine of the Belman case and allied adjudications, and overruled the
same, on March 1, 1968, in the case of Pacific Oxygen & Acetylene Co.
vs. Central Bank, G.R. No. L-21881, 22 S.C.R.A. 917.  Therein, this Court reached the conclusion
that Republic Act No. 2609, empowering the Central Bank to collect a margin fee
“in respect of all sales of foreign exchange by the Central Bank and its
authorized agent banks” (section 1, Republic Act 2609), as well as the
Central Bank circulars implementing said law, made no distinction between
perfected and consummated, or between executory and executed, sales.  Under our Civil and Commercial Codes, a sale comes into existence upon its
perfection by mutual consent,1 even if
the subject matter or the consideration has not been delivered,2 barring law or stipulation to the contrary, that, in this case, does not exist.  Additionally, the only sales of foreign
exchange by the Central Bank, or its agent banks, are the ones made to the
appellee herein (Vargas Plow Factory, Inc.), the acceptance of the exporter’s
drafts being in the nature of a recognition of the importer’s act of assigning
to the exporter, Stahlkontor Hahn Aktiengesellschaft, which issued said drafts,
all or part of the foreign exchange previously sold to the appellant, Vargas
Plow Factory, and paid for by the latter. 
Otherwise stated, in honoring the drafts issued by the exporter, the
local bank did not sell dollars to said party, but merely caused the delivery
to it of dollars previously sold to the appellee.  The foreign exchange having been applied for
by the appellee and sold to him by the bank, as shown by the documents, the
opening of a letter of credit in favor of Stahlkontor Hahn Aktiengesellschaft
becomes ultimately but the result of a stipulation pour autrui
that is in no way incompatible with the original sale of the foreign exchange
to appellee herein.  It follows that the
true sale took place when the forward exchange contracts were executed in
December, 1961, before the margin levy was suspended.  Hence the margin fee was properly collected.

PREMISES CONSIDERED, the decision under appeal is
reversed, and the complaint ordered dismissed. 
No costs.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro,
Fernando, Capistrano, Teehankee, and
Barredo, JJ., concur.

^[1]
Issued on March 15, 1961.

1 See Articles 1315, 1316, 1475,
1458, 1461, 1462, Civil Code of the Philippines

2 Kerr & Co. vs.
Collector of Internal Revenue, 70 Phil. 36, 40.