Feati Bank & Trust Company v. Court of Appeals and Quality Tobacco Corporation
REITERATIONFacts
The Antecedents: U.S. Tobacco Corporation (predecessor of Quality Tobacco Corporation) opened a letter of credit (LC) No. 67-571 with Feati Bank and Trust Co. for US $120,000.00 in favor of Tatran Corporation to cover freight charges for exporting tobacco on a "C & F" basis. U.S. Tobacco paid P471,600.00 for this LC. Feati Bank remitted US $110,000.00 to Tatran Corporation, leaving US $10,000.00 unremitted. Subsequently, a different LC (No. 20678) was issued by Swiss Credit Bank in favor of U.S. Tobacco, showing the shipment on an "FOB Manila" basis, which contradicted the original "C & F" agreement. The Central Bank discovered this discrepancy and directed Feati Bank to have the US $110,000.00 remitted back to the Philippines. U.S. Tobacco repatriated the amount on April 7, 1971. Procedural History: Quality Tobacco Corporation requested Feati Bank to refund P30,312.29, representing the unremitted portion of the LC. Feati Bank refused, insisting that the US $110,000.00 be remitted directly to it. As parties could not agree, Quality Tobacco filed suit in the Court of First Instance (CFI) of Manila for the return of P30,312.29. The CFI denied Quality Tobacco's claim and ordered it to return US $110,000.00 to Feati Bank upon reimbursement of P471,600.00. On appeal, the Court of Appeals (CA) reversed the CFI decision, dismissed Feati Bank's counterclaim, and ordered Feati Bank to pay Quality Tobacco P30,312.29. Feati Bank elevated the case to the Supreme Court. The Petition: Feati Bank invoked Articles 1409, 1411, and 1412 of the Civil Code, arguing that the transaction was void due to an illegal object or purpose (illegal exportation of dollars) and that it was the innocent party entitled to recover the dollars. Quality Tobacco prayed for the payment of P30,312.29 with interest.
Issue(s)
Whether the transaction involving the purchase of dollars for the letter of credit was void ab initio due to an illegal object or purpose, and the consequences thereof. Whether Feati Bank, as the allegedly innocent party, is entitled to recover the dollars remitted, and the required restitution in case of a voidable contract.
Ruling
The Supreme Court granted the petition, reversed the judgment of the Court of Appeals, and ordered Feati Bank to return the cost of the US $120,000.00 in the amount of P471,600.00 to Quality Tobacco Corporation. Reciprocally, Quality Tobacco Corporation was ordered to restore Feati Bank's U.S. dollar account with the National Bank of North America or any other designated bank in the amount of $110,000.00. No costs were awarded.
Ratio Decidendi
On the issue of the transaction's validity and consequences: The Court held that the contract between Feati Bank and U.S. Tobacco was not illegal or void ab initio, but merely voidable due to the statement of a false cause, citing Article 1353 of the Civil Code and the case of Concepcion vs. Sta. Ana. The Central Bank's action was limited to ordering the repatriation of the dollars, not nullifying the contract itself. Therefore, the transaction did not suffer from an inherent illegality that would render it void from the beginning. On the issue of Feati Bank's entitlement to recover and the required restitution: Applying Article 1398 of the Civil Code, the Court stated that the result of a voidable contract is that the parties must be restored to their previous situations through mutual restitution. This means that both parties must return what they have received under the contract. The Court found that Feati Bank had been debited for the US $110,000.00, and U.S. Tobacco had paid the peso equivalent. Therefore, to restore them to their original positions, Feati Bank must return the peso cost, and U.S. Tobacco must return the dollar amount.
Main Doctrine
A contract with a false cause, while not void ab initio, is merely voidable, entitling the parties to mutual restitution to restore them to their previous situations.