Vargas Plow Factory v. Central Bank
REITERATIONFacts
The Antecedents: Vargas Plow Factory, Inc. (Vargas) applied with Philippine National Bank (PNB) for free market letters of credit to import steel blades, bolts, and rivets from Germany. PNB, on behalf of Vargas, applied with the Central Bank (CB) to purchase the necessary "forward exchange." These applications were approved, and PNB and CB executed Forward Exchange Contracts (FECs) between December 15, 1961, and January 19, 1962. The foreign beneficiary drew drafts against these letters of credit, which were accepted by Vargas between January 30, 1962, and December 6, 1962. CB charged and collected a 15% margin levy on the foreign exchange covered by these drafts. Procedural History: Vargas paid the margin levy but later demanded a refund, claiming its collection was unlawful. Upon denial, Vargas filed a case before the Court of First Instance (CFI) of Manila. The CFI ruled in favor of Vargas, ordering CB to refund the P11,642.65 with interest and attorney's fees. The Petition: The Central Bank appealed the CFI's decision to the Supreme Court.
Issue(s)
Is the imposable margin fee collectible upon the execution of the contract to purchase the foreign exchange or upon payment of the creditor by the correspondent bank?
Ruling
The Supreme Court reversed the decision of the Court of First Instance, ordering the dismissal of the complaint. The margin fee was deemed properly collected.
Ratio Decidendi
On Issue 1: The Supreme Court held that the imposable margin fee is collectible upon the execution of the contract to purchase the foreign exchange. This ruling explicitly re-examined and overruled the prior doctrine established in Belman Cia, Inc. vs. Central Bank, 104 Phil. 877, which the lower court had relied upon. The Court, citing its decision in Pacific Oxygen & Acetylene Co. vs. Central Bank, L-21881, 22 SCRA 917, emphasized that Republic Act No. 2609, which empowered the Central Bank to collect a margin fee on "all sales of foreign exchange," made no distinction between perfected and consummated sales, or between executory and executed sales. Under the Civil and Commercial Codes, a sale is perfected upon its perfection by mutual consent, even if the subject matter or consideration has not yet been delivered, unless law or stipulation provides otherwise. In this case, no such contrary law or stipulation existed. Therefore, the true sale of foreign exchange took place when the forward exchange contracts were executed in December 1961 and January 1962, which was during the effectivity of Central Bank Circular No. 122, imposing the margin levy, and before its suspension by Circular No. 133. The subsequent acceptance of the exporter's drafts was merely a recognition of the importer's assignment of the foreign exchange previously sold to them, or akin to a stipulation pour autrui, and did not constitute a new sale of dollars by the local bank to the foreign party. Hence, the margin fee was properly collected.
Main Doctrine
The sale of foreign exchange is perfected upon the execution of the forward exchange contract, and not upon the payment of the creditor by the correspondent bank. Therefore, the margin fee is collectible if the contract was executed during the effectivity of the margin levy, even if the drafts were drawn and accepted during its suspension.