G.R. No. L-24429 June 22, 1968
FILIPINO PIPE AND FOUNDRY CORPORATION, plaintiff-appellee, vs. CENTRAL BANK OF THE PHILIPPINES, defendant-appellant.

FACTS

The plaintiff, Filipino Pipe and Foundry Corporation, is a domestic corporation. The defendant is the Central Bank of the Philippines. On January 5, 1959, the Philippine National Bank established Letter of Credit (L/C) No. 590051 for the plaintiff’s account in the amount of $115,203.19 for the importation of various materials and equipment. The L/C was amended several times. Republic Act No. 2609 (the Margin Law) was approved and became effective on July 16, 1959. On July 17, 1959, the Monetary Board fixed the margin fee at 25%. After the law’s effectivity, the plaintiff made shipments under the L/C on October 15, 1959, December 1, 1959, and January 29, 1960. The Central Bank, through the Philippine National Bank, collected from the plaintiff the total sum of P40,837.59 as margin fees on these shipments, which payments were made under protest. The plaintiff applied for exemption from the margin fee payment under Section 3 of Republic Act No. 2609 , which exempts from the margin fee the liquidation of drafts drawn under letters of credit “issued, approved and outstanding as of the date this Act takes effect and the extension thereof, with the same terms and conditions as the original contractual obligations.” The Central Bank’s Exemption Committee denied the plaintiff’s application and subsequent request for reconsideration. The plaintiff filed suit in the Court of First Instance of Manila, which ruled in its favor, ordering the Central Bank to refund the margin fees paid and to pay attorney’s fees and costs. The Central Bank appealed.

ISSUE

Whether the plaintiff’s remittance of foreign exchange under L/C No. 590051, as amended after the effectivity of Republic Act No. 2609 , is exempt from the payment of the margin fee under Section 3 of said Act, considering the amendments made to the letter of credit.

RULING

The Supreme Court affirmed the decision of the lower court, with modification. The Court held that the amendments to L/C No. 590051 made after July 16, 1959, did not materially change its original terms and conditions. The amendments included: (1) a condition for payment against a certificate approving the good working condition of the machinery (which the trial court found strengthened the prevention of salting dollars abroad and was consistent with the law’s objective); (2) the inclusion of “foundry equipment” (which the trial court found was part of the centrifugal cast iron pipe machine set); (3) the assignment of the credit to a different beneficiary for the machinery shipment; (4) a temporary amendment to allow shipment from an Australian port (which was subsequently cancelled); and (5) an increase of $150 to cover additional freight charges (which did not cause the total credit to exceed its original amount). The Court found the Central Bank’s interpretation of Section 3 too narrow and ruled that the exemption applied. However, the Court eliminated the award of attorney’s fees, as there was no finding that the Central Bank acted in gross and evident bad faith in refusing the plaintiff’s claim. The decision was modified by deleting the award of attorney’s fees, and the Central Bank was ordered to pay the refund of P40,837.59, with costs.