PACIFIC OXYGEN & ACETYLENE COMPANY, PLAINTIFF-APPELLANT, VS. CENTRAL BANK OF THE PHILIPPINES, DEFENDANT-APPELLANT.

To cover shipments of various industrial machinery parts, the plaintiff,
the Pacific Oxygen and Acetylene Company, on Dec­ember 12 and 14, 1961, applied
to the Philippine Trust Company for commercial credit in favor of the
Independent Engineering Com­pany, Inc. of O’Fallen, Illinois,
USA.  On the same dates, the Philippine Trust
Company issued the letters of credit, 29092-FM for $4,615.15 (exhibit C) and
29112-FM for $8,354.30 (exhibit D), addressed to the Continental Illinois
National Bank and Trust Company of Chicago, Chicago, Illinois, USA, authorizing
the latter to negotiate drafts drawn by the Independent Engineering Company,
Inc. upon the plaintiff.  Upon the
opening of the said letters of cre­dit, the plaintiff also applied to the
Philippine Trust Company for the purchase of forward exchange in the same
amounts and for the same purpose, said purchases evidenced by forward exchange
contracts 00662 (exhibit 9) and 00678 (exhibit 10).

On December 13 and 14, 1961, the Philippine Trust Company applied
to the defendant, the Central Bank of the Philippines, for the purchase of
forward exchange to cover its US dollar commitments against letters of credit
opened under the free market rate.  The
defendant approved said applications on December 14 and 18, 1961 in forward
exchange contracts 10597 (exhibit 7) and 10671 (exhibit 8).

On January 21, 1962,
the defendant issued Circular 133 providing for the suspension of the margin
levy.

Subsequently, the Independent Engineering Company, Inc. drew the
corresponding drafts against the letters of credit in the amounts of $6,853.32,
$4,352.61 and $1,500.  The Continental
Illinois National Bank and Trust Company honored and paid the drafts on
February 23, 1962 (exhibit E), March 12, 1962 (exhibit F), and March 21, 1962
(exhibit G).

Upon receipt of the debit advice from the Continental Illinois
National Bank and Trust Company, the Philippine Trust Company sent the
plaintiff demand letters, asking the latter to remit to the former, as 15%
margin fee, the amounts of P1,981.25 (exhibit O), P3,119.53 (exhibit N), and P684.31
(exhibit P), or a total of P5,785.09.  On
August 30, 1963, the
plaintiff paid to the defendant, through the Philippine Trust Company, the
margin fee of P3,119.53, and on September
3, 1963, the margin fees of P1,981.25 and P684.31, all under
protest.

On September 30, 1963,
the plaintiff filed a complaint against the defendant with the Court of First
Instance of Manila for the refund of the amount of P5,785.09 it had previously
paid, under protest, in the concept of margin fee, and for damages in the
amount of P100,000.

In its complaint, the plaintiff contended that inasmuch as the
Continental Illinois National Bank and Trust Company honored and paid the
drafts drawn under the letters of credit to the Independent Engineering
Company, Inc. only in February and March, 1962, the sale of foreign exchange in
this case should be considered as having taken place after the suspension of
the margin fee on January 21, 1962,
pursuant to the decision of this Court in Belman Compañia Incorporada vs. Central
Bank of the Philippines^[1]
which held that

“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.”

The plaintiff prayed that the collection
of the margin fee in question by the defendant be declared illegal and invalid.

In its answer, the defendant argued that the sale of foreign
exchange in this case, under the letters of credit covered by forward exchange
contracts 10597 and 10671 between the defendant and the Philippine Trust
Company for the account of the plaintiff, should be considered to have taken
place on the dates of execution of the said forward exchange contracts –
December 14 and 18, 1961.  Said dates
falling within the period of effectivity of the 15%
margin fee, the defendant asserts that it had acted in accordance with the law
when it required the plaintiff to pay the margin fee in the amount of P5,785.09.

On June 17, 1964,
the lower court rendered judgment in favor of the plaintiff and against the
defendant.  The lower court ordered the
defendant to return to the plaintiff the amount in controversy, but without
damages, attorney’s fees, interests, and costs.

Hence, this appeal by both parties.

The plaintiff-appellant maintains that the trial court erred
“in not awarding damages, attorney’s fees, interests and costs to the
plaintiff.”

The defendant-appellant, on the other hand, maintains that the
lower court erred (1) “in holding that the sale of exchange under a letter
of credit covered by a forward exchange contract takes place on the date of the
payment or delivery of the amount in foreign currency to the creditor and not
on the date the said forward exchange contract is executed;” (2) “in
ap­plying the ruling laid down by the Supreme Court in the case of ‘Belman Cornpañia Incorporada vs. Central Bank of the Philippines, G.R. No.
L-10195, November 29, 1958′”,
and (3) “in holding that the collection by defendant-appellant of the
amount of P5,785.09 as margin fees from the plaintiff-appellant is invalid and
illegal.”

Resolution of the issue herein presented ultimately hinges on
whether or not the 15% margin fee could properly be imposed upon the sales of
foreign exchange in question.  To be more
precise, the point at issue is whether the imposable 15% margin fee became
collectible upon the execution of the contracts to purchase the foreign
exchange, or upon the payment or delivery of the amount in foreign currency to
the creditor.

No dispute arises as to the authority of the Central Bank to
impose and collect a margin fee on all sales of foreign ex­change by the
Central Bank itself or by its authorized agent banks.  The clear mandate of section 1 of Republic
Act 2609 calls for the collection of a margin fee on “all sales of foreign
exchange by the Central Bank and its authorized agent banks.”

The controversy proceeds from the fact that the Central Bank, on January 21, 1962, issued Circular 133
providing for the suspension of the margin levy.  Thus, while the letters of credit in question
opened by the Philippine Trust Company, as well as the forward exchange
contracts between the Central Bank and the Philippine Trust Company for the
account of the plaintiff, were issued or executed during the period when the
margin levy was still imposable, the drafts against the said letters of credit
were negotiated, honored and paid by the Continental Illinois National Bank and
Trust Company to the Independent Engineering Company, Inc. during the period
when collection of the margin fee was suspended.

The determinative dates are December 14 and 18, 1961 – the dates
of execution of forward exchange contracts 10597 and 10671 between the
defendant and the Philippine Trust Company for the account of the
plaintiff.  Republic Act 2609 authorizing
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,” as
well as the Central Bank circulars implementing the said law, makes 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, even if the subject-matter or the consideration has not been
delivered, barring law or stipu­lation to the contrary.  It is well settled in our law that a con­tract
of sale exists from the moment one of the contracting parties obligates himself
to transfer the ownership of and to deli­ver a determinate thing, and the other
to pay therefor a price certain in money or its
equivalent.  There is perfection of such
a contract at the moment there is a meeting of minds upon the thing which is
the object of the contract and upon the price, from which moment the parties
may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts.

In the case at bar, the contracts of sale of foreign exchange
existed and were outstanding from December 14 and 18, 1961, as revealed by the
documents, exhibits 7 and 8.  Said dates
fall within the period of the effectivity of the 15%
margin fee.  Thus, the defendant
contravened no law, and, in fact, none of its own rules and regulations, when
it collected from the plain­tiff the amount of P5,785.09 as margin fee.

Indeed, in a similar case between the same parties involving the
same issue, we held as follows:

“With the categorical finding in the decision appealed from
that the purchase of the forward ex­change by [from the Central Bank occurred
on Jan­uary 17, 1962, prior to the suspension of the mar­gin levy on January
21, 1962, it cannot be denied that deference must be paid to the legal
provision calling for a margin fee ‘in respect of all sales of foreign exchange
by the Central Bank and its autho­rized agents x x
x.’ From Lizarraga Hermanos
v. Yap Tico, this Court has steadfastly adhered to
the doctrine that its first and fundamental duty is the application of the law
according to its express terms, interpretation being called for only when such
literal application is impossible.

“As thus viewed, the fact that it was not un­til February 9
and 13, 1962, that the Continental Illinois National Bank and Trust Company
honored the above drafts cannot therefore be controlling.  The plain and explicit command of the law is
too categorical to be misinterpreted.  A
contrary impression that might be yielded by Belman Cia., Inc. v. Central Bank of the Philippines,
dealing with the seventeen (17%) percent excise tax cannot prove decisive of
this controversy, as was erroneously held by the lower court.  To the extent that there is an inconsistency
between this decision and the Belman dictum, it
cannot be considered authoritative, at least under the circumstances as herein
dis­closed.”^[2]

And in Vargas
Plow Factory, Inc. vs. The Central Bank of the Vargas Philippines,^[3]
this Court reiterated and emphasized the ruling in Pacific Oxygen vs. Central
Bank, in the following words:

“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, L-21881, 22 SCRA 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, even
if the subject matter or the consideration has not been delivered, 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.”

From what we have stated above, the conclusion becomes inevitable
that the lower court’s award of damages and attorney’s fees to the plaintiff
must be set aside.

ACCORDINGLY, the judgment appealed from is reversed
insofar as it orders the defendant to return and pay to the plaintiff the
amount of 5,785.09, and affirmed insofar as it absolves the Central Bank from
the payment of damages and attorney’s fees. 
No pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor, and Makasiar, JJ., concur.

^[1]
104 Phil. 881.

^[2]
Pacific Oxygen & Acetylene Company vs. Central Bank of the
Philippines, L-21881, March 1, 1968, 22 SCRA 917, 921-922, per Fernando, J.

^[3] L-25732,
February 27, 1969, 27 SCRA
84, 87-88, per J.B.L. Reyes, J.