Philippine National Bank v. Zulueta
REITERATIONFacts
The Antecedents: The Philippine National Bank (PNB) sued Jose Zulueta for the amount of $14,449.15 based on a letter of credit and a draft. Zulueta applied for a letter of credit on October 26, 1948, for the purchase of an elevator. The letter of credit was granted on November 6, 1948. On May 17, 1949, Otis Elevator Co. drew a 90-day sight draft for $14,449.15 under this letter of credit. Zulueta accepted the draft on July 6, 1949, which matured on October 4, 1949. PNB released the shipping documents to Zulueta upon his signing a trust receipt on June 3, 1949. PNB's New York Agency paid Otis Elevator Co. on May 17, 1949, and charged PNB's Manila office. Zulueta failed to pay the draft upon maturity. Procedural History: The Court of First Instance of Manila exempted Zulueta from the 17% excise tax imposed by Republic Act No. 601 but ordered him to pay P37,622.11 plus daily interest. PNB appealed, insisting on its right to collect the 17% excise or exchange tax. The Petition: The sole issue on appeal is PNB's right to collect the 17% excise tax on foreign exchange.
Issue(s)
Whether the 17% excise tax imposed by Republic Act No. 601 can be collected on a transaction that matured before the law's approval. Whether Zulueta is liable for the 17% excise tax on the peso equivalent of the draft.
Ruling
The Supreme Court affirmed the judgment of the lower court, exempting the defendant from the 17% excise tax. The dispositive portion states: "In view of the foregoing the judgment will be affirmed, with costs against appellant."
Ratio Decidendi
On the issue of whether the 17% excise tax can be collected on a transaction that matured before the law's approval: The Court held that Republic Act No. 601, which imposed the 17% special excise tax on foreign exchange, was approved on March 28, 1951. The defendant's obligation, evidenced by the accepted draft, matured on October 4, 1949. Since the obligation was incurred and matured prior to the enactment of Republic Act No. 601, the imposition of the 17% excise tax would constitute an impairment of an existing obligation. The law imposing the tax could not be given retroactive effect to burden obligations already existing at the time of its approval. Therefore, Zulueta should not be burdened with a tax that was not in existence when his obligation became due. On the issue of whether Zulueta is liable for the 17% excise tax on the peso equivalent of the draft: The Court clarified that Zulueta's obligation was to pay the equivalent in Philippine currency of $14,449.15, not to pay in dollars. The plaintiff bank's argument that it would have to pay the excise tax when remitting dollars to its New York agency after collecting from Zulueta was found to be based on a flawed premise. Evidence indicated that the New York agency had been reimbursed or the amount remitted by May 17, 1949, which was before the enactment of Republic Act No. 601. Since the bank did not pay the excise tax at the time of remittance, it could not validly collect it from Zulueta. The Court also noted that the defendant's application for the letter of credit stipulated payment in Philippine currency of the equivalent amount, not payment in dollars. Even if considered a loan, Republic Act No. 529 would mandate discharge in Philippine currency at the prevailing rate at the time the obligation was incurred, which was before the excise tax law.
Main Doctrine
A 17% special excise tax on foreign exchange, imposed by Republic Act No. 601, cannot be collected on a transaction (letter of credit and draft) that matured and was incurred before the enactment of the law, as such imposition would impair existing obligations. The obligation to pay the equivalent in Philippine currency should be based on the rate of exchange at the time the obligation was incurred or matured, not at the time of judgment or remittance, especially when the bank's remittance occurred prior to the tax's imposition.