[No. L-7271. August 30, 1957] collect.

collect. Both documents, he contended, had been During its special session in January, 1951, Congress
issued and had matured before the approval of passed House Bill No. 1513, now Republic Act No.
PHILIPPINE NATIONAL BANK, plaintiff and appellant, said Act, therefore the excise tax should not be 601, approved on March 28, 1951, imposing a 17%
vs. JOSE C. ZULUETA, defendant and appellee. charged. special excise tax (otherwise known as foreign
exchange tax) on the value in Philippine peso of
1.BANKS AND BANKING; OBLIGATIONS AND After trial, the court rendered judgment exempting foreign exchange sold by the Central Bank of the
CONTRACTS; EXCISE TAX, REPUBLIC ACT 601; defendant from the 17% excise tax; but ordered him Philippines or its authorized agents. Plaintiff-
OBLIGATIONS INCURRED BEFORE ITS APPROVAL.—An to deliver to plaintiff the sum of P37,622.11 plus daily appellant, as any other commercial bank in the
obligation which has been incurred before the interest of P3.9938 on P29,154.55 beginning from Philippines, is an authorized agent of the" Central
creation of the 17% tax, under Republic Act 601, January 9, 1953. The plaintiff appealed, insisting on Bank of the Philippines.
may not be validly burdened with such tax, the right to collect 17 % excise or exchange tax. This
because the law imposing it could not be deemed is the only issue between the parties now. On October 17, 1952, and January 18, 1953,
to have impaired obligations already existing at the PlaintiffAppellant sent bills or statements of
time of its approval. For a statement of the facts we may quote from collection (Exhibits "D" and "D-1") to Defendant-
plaintiff's brief. "On October 26, 1948, Defendant- Appellee but the latter failed and refused to effect
2.BILLS AND NOTES; FOREIGN BILLS OF EXCHANGE.— Appellee applied for a commercial letter of credit payment thereof. In those statements, the sum of
When a foreign bill of exchange expressed in with PlaintiffAppellant, Philippine National Bank P4,955.74 was included representing the 17% special
foreign money becomes payable here, it is payable (Manila) and was granted L/C No. 36171 (Exhibit "B") excise tax on the peso value of the draft for US
at the rate of exchange in effect on the day it on November 6, 1948, in favor of Otis Elevator Co., $14,449.15 (Exhibit "A"), * * *."
should have been paid not at the rate of exchange 260 Eleventh Avenue, New York City, U.S.A., for
prevailing when action therein is brought or when $14,449.15 for the purchase of an electric passenger Defendant's application for a letter of credit partly
judgment is rendered. elevator; on May 17, 1949, and under the said letter read as follows:
of credit (Exhibit "B"), Otis Elevator Co. drew a 90
APPEAL from a judgment of the Court of First day sight draft for $14,449.15 (Exhibit "A") which draft "Please arrange by cable for the establishment of
Instance of Manila. Pecson, J. was duly presented to and accepted by an Irrevocable Letter of Credit on New York in favor
Defendant-Appellee on July 6, 1949. Said of Otis Elevator Co., 260 Eleventh Avenue, New York
The facts are stated in the opinion of the Court. acceptance matured on October 4, 1949. Upon City for account of Hon. Jose C. Zulueta for the sum
Defendant-Appellee's signing a 90 day trust receipt of FOURTEEN THOUSAND FOUR HUNDRED FORTYNINE
Natalio M. Balboa and Ramón B. de los Reyes for (Exhibit "C") on June 3, 1949, Plaintiff-Appellant AND 15/100 ($14,449.15) DOLLARS against drawn at
appellant. released to Defendant-Appellee the covering NINETY DAYS accompanied by shipping documents
documents of the shipment. In the meantime, debit covering of ONE COMPLETE ELECTRIC PASSENGER
Lorenzo F. Miravite for appellee. advice (Exhibit "G") was received from Plaintiff- ELEVATOR * * *
Appellant's New York Agency to the effect that it
BENGZON, J.: advanced or paid the draft (Exhibit "A") to Otis Drafts must be drawn and presented or negotiated
Elevator Co. on May 17, 1949, and charged not later than May 31, 1949.
In the Manila court of first instance, the Philippine PlaintiffAppellant the sum of $14,467.21 representing
National Bank sued the defendant upon a letter of the face value of the draft (Exhibit "A") plus $18.06 IN CONSIDERATION THEREOF, I/we promise and
credit and a draft for the amount of $14,449.15. as 1/8 of 1% commission. After the maturity date agree to pay you at maturity in Philippine Currency,
Although willing to pay the equivalent in pesos of (October 4, 1949) Plaintiff-Appellant presented the the equivalent of the above amount or such portion
the draft, plus bank charges, the defendant draft to DefendantAppellee f or payment but the thereof as may be drawn or paid upon the faith of
objected to the 17% excise tax imposed by latter f ailed, neglected and refused to pay. said credit, together with your usual charges, and
Republic Act No. 601 which the Bank tried to I/we authorize you and your respective
correspondents to pay or to accept drafts under bank fees). He is under obligation to deliver such This decision however seems not to have taken into
this credit, * * *" amount in pesos as were the equivalent of account the Bills of Exchange Act above
$14,449.15. At what rate of exchange? The rate mentioned. And we have rejected its view in the
And the draft issued thereunder (Exhibit A) was prevailing on the day of issuance, day of Westminster case, supra. Furthermore it related to a
negotiable and addressed to herein defendant as acceptance, day of maturity, the day suit is filed, or bill expressly made payable in a foreign currency-
the drawee. that prevailing on the day judgment is rendered which is not the case here. And the theory would
requiring him to pay? Herein lies the center of the probably produce undesirable effects upon
From plaintiff's statement of its position it is not clear controversy. Appellant will win this appeal only if the commercial documents, for it would make the
whether recovery is demanded upon the letter of rate on the last two days above mentioned is held amount uncertain, the parties to the bill not being
credit, or upon the draft Exhibit A. Plaintiff may, to be the legal rate. able to foresee the day judgment would be
undoubtedly, proceed on either cause of action. rendered6.
(See Art. 571 Code of Commerce; Sec. 51 The document is negotiable and is governed by the
Negotiable Instruments Law.) Negotiable Instruments Law. But this statute does But, the appellant argues, the defendant had
not contain any express provision on the question. promised to pay $14,419.15 in dollars; therefore he
Had the plaintiff elected to recover on said letter of We know the draft is a foreign bill of exchange, must be ordered to pay the ,sum in dollars at
credit, then it would meet with the doctrines in because, drawn in New York, it is payable here. current rates plus 17%.
Araneta vs. Philippine National Bank, 95 Phil., 160, 50 (Sec. 129 Negotiable Instruments Law.) We also
Off. Gaz., (11) 5350), According to the majority know that although the amount payable is The argument rests on a wrong premise. Defendant
opinion in that case, plaintiff should receive the expressed in dollars-not current money here-it is still had not promised to pay in dollars. He agreed to
equivalent in pesos, on May 17, 1949, of what the negotiable, for it may be discharged with pesos of pay the equivalent of 14,419.15 dollars, in Philippine
New York Agency paid to Otis Elevator, i.e. equivalent amount3. The problem arises when we currency 7.
$14,467.21 (plus bank fees of course.) According to try to determine the "equivalent amount", because
the minority opinion, the equivalent in pesos of the the rate of exchange fluctuates from day to day. But if we admit that defendant had agreed to pay
same amount of dollars on October 4, 1949. No. in dollars, then we have to apply Republic Act No.
17% tax on both dates. In converting dollars into There are decisions in America to the effect that, 529 and say that his obligation "shall be discharged
pesos, no 17% exchange tax would be imposable, "the rate of exchange in effect at the time the bill in Philippine currency measured at the prevailing
since it was created only in March 1951. The plaintiff should have been paid" controls. (11 C.J.S. p. 264.) rates of exchange at the time the obligation was
knows the case, f or it was a party to it; and incurred."
anticipating, in this appeal, the obvious conclusions, Such decisions agree with the provisions of the Bills
it insists not so much on the letter of credit, as on the of Exchange Act of England4 and could be taken Now then, Zulueta's obligation having been
bill of exchange Exhibit A1. As stated before, such as enunciating the correct principle, inasmuch as incurred8 before the creation of the 17% tax, it may
draft was drawn by Otis Elevator Co. in New York. It our Negotiable Instruments Law, practically copied not be validly burdened with such tax, because the
was addressed to defendant as drawee, who is due the American Uniform Negotiable Instruments Law law imposing it could not be deemed to have
course accepted it. There is no question that upon which in turn was based largely on the Bills of impaired obligations already existing at the time of
accepting it, defendant became a party primarily Exchange Act of England of 1882. In fact we its approval.
liable2; and the holder (Philippine National Bank) practically followed this rule in Westminster Bank vs.
may sue him, even if there had been no K. Nassoor, 58 Phil. 855. The plaintiff's theory seems to be that in remitting
presentation for payment on the day of maturity. dollars to its New York Agency, after it collects from
(Sec. 70 Negotiable Instruments Law.) There is one decision applying the rate of exchange defendant, it has to pay for the said excise tax.9 The
at the time judgment is entered. (11 C. J. S. p. 264.) trial judge expressed the belief that such amount
Admittedly, defendant's responsibility is for 5 had been remitted before the enactment of
$14,449.15 due in Manila on October 4, 1949 (plus Republic Act 601, because considering the practice
of banks of replenishing their agencies abroad with 10% comm. on $14,449.15 ........................................... advanced by it through its New York agency to
necessary funds, he deemed it improbable that the meet a draft drawn against defendant and
Manila Office of the Bank—in two years—had not 2,911.51 accepted by the latter for a valuable
reimbursed its New York Agency for the amount consideration. Plaintiff's right to such reimbursement
advanced on account of the draft Exhibit A. This Documentary stamps .................................................. is not questioned. What is disputed is its pretended
belief most probably accorded with reality; right to add to the amount of the draft the excise
because as early as May 17, 1949 (Exhibit G) the 8.70 tax of 17% which plaintiff would have to pay to the
New York Agency had "charged" the amount of this Government if it were to remit now to New York the
draft against the account of the Manila office Air Mail ..................................................................... necessary amount of dollars that its agency there
there,—which means the Agency had reimbursed had paid on the draft.
itself the amount of the draft out of the funds of the 2.00
Manila Office then in its possession (in New York) or I cannot bring myself to believe that it is only now
coming to its possession afterwards. And it is 17% Excise Tax on P29,151.43 ..................................... that plaintiff has thought of sending dollars to New
unbelievable that in two years the Manila office York to replace the amount advanced by its
never had in New York sufficient funds to effect the 4,955.74 agency. As intimated in the majority opinion and in
reimbursement. consonance with good banking practice, the
Other charges .............................................................. necessary remittance must have been effected
In fact, the statement of account rendered by long ago, that is, long before the creation of the
plaintiff to defendant on October 17, 1952, (Exhibit ___3.00" excise tax on foreign exchange in March, 1951.
D) enumerated these charges: Plaintiff, therefore, could not have paid such tax,
From the above it may be deduced that the and not having done so it has no right to get
"To your acceptance amounting to amount of the draft had been remitted or paid to reimbursement therefor from defendant.
................................... the New York Agency in May 1949, for the reason
that Zulueta is charged with remitter's commission" I do not think that defendant could be legally
$14,449.15 and 5% interest on the amount of the draft (and made to pay more than what plaintiff had actually
such commission) beginning from May 17, 1949. This advanced for him, aside from commission and
Plus: Remitter's Commission......................................... necessarily implies that in accordance with Exhibit other charges, on the theory that the Philippine
G, the New York Agency had been reimbursed of peso has depreciated in value with respect to the
18.06 the draft's amount (or such amount was remitted) American dollar. Legally, it has not. The legal rate of
onz May 17, 1949.10 Now, in May 1949 no 17% exchange between the two currencies is still two to
$14,567.21 exchange tax was payable upon such remittance; one. What happened is that with the creation of the
and the Manila office did not pay it. Therefore excise tax in 1951, it would now be more costly to
Converted at 3/4 % ..................................................... Zulueta should not pay it too. remit dollars abroad. But why should plaintiff make
that remittance now when, as already stated, it
P29,151.43 In view of the foregoing the judgment will be must have already done so long before the
affirmed, with costs against appellant. So ordered. creation of the excise tax on foreign exchange?
5% int. 5/17/49-10/19/52-1251 da .................................
Parás, C. J., Padilla, Montemayor, and Bautista Lastly, a debtor cannot be charged with bad faith
4,995.68 Angelo, JJ., concur. for refusing to pay that which he should not pay.

P34,147.11 Plaintiff in this case seeks reimbursement in The decision rendered in this case, penned by Mr.
Philippine currency for the amount in dollars Justice César Bengzon, perfectly reflects and
delivers the opinion of the majority of this Court and In this connection, I might say that defendant's could be held liable to pay in addition thereof, the
I subscribe to each and every statement. made obligation to the plaintiff would have been settled corresponding interests for the period of default and
and argument adduced therein. This being so, it ,some years ago were it not for the fact that the nothing else. And that is precisely what defendant is
would seem that any concurring or supporting Bank insisted in collecting the special excise tax of willing to pay.
opinion is quite superfluous and I would not have 17 per cent on foreign exchange transactions
taken the task of writing further in the matter were it imposed by Republic Act No. 601 which entered From the foregoing, I hope to have made clear my
not for the fact that in the dissenting opinion it is into effect on March 28, 1951, and was not yet in stand on the matter.
stated that: force at the time the obligation of the defendant
matured on October 4, 1948. And even if we look at REYES, J. B. L., J., dissenting:
"It cannot be justly contended that if a debtor had the case as a loan and apply to the transaction the
borrowed, say $10,000, the lender should be provisions of Article 312, paragraph 1, of the Code As I view it, the question before this Court is whether
satisfied with eight or nine thousand. Yet that is what of Commerce, cited by the dissenting Justice, yet it is the lender or the defaulting borrower who
the majority's decision actually amounts to". We could not, under the facts and circumstances of should bear the added cost of the depreciation of
the case that cannot be denied, logically arrive at the peso in relation to the dollar.
The writer further says that: the same conclusion that he has come to.
When in 1949 the Philippine National Bank remitted
"the majority opinion has the merit of giving the And the reason is obvious. In the first place, We to the Otis Elevator Co. the $14,449.15 for the
bank a costly lesson on the advantages of not have to take into account that the New York account of Zulueta, the Bank, in effect, loaned to
considering political influence in the making and agency of Philippine National Bank and its central Zulueta said amount on the strength of his express
collecting- of its loans; but I am afraid the office in Manila are not separate and independent engagement to "pay at maturity in Philippine
experience will be too quickly forgotten to even entities. That is why it is the Philippine National Bank Currency, the equivalent of the above amount"
palliate the sacrifice of fundamental justice to (Manila office) and not the New York agency of which was a promise to pay such amount in
technical considerations". said Bank that is the plaintiff in this case. Philippine pesos as could be converted into
Consequently, any payment made to plaintiffs $14,449.15. There is no question that Zulueta failed
I, certainly, cannot leave these statements pass central office in Manila for obligations that any to do so, and has refused to do so up to the
unanswered. debtor may have contracted with said New York present. In the meantime, in 1951, the Legislature
agency is and has to be considered as a payment enacted Rep. Act No. 601, imposing a 17% special
To begin with, I might say that if any lesson has been or settlement of said obligations, there being no excise tax on foreign exchange transactions, so that
given by the majority of this Court to the plaintiff need to attain this result that the plaintiff would thereafter one had to pay 234 pesos for every $100,
bank, it is not in this case but in the case of Araneta adjust is accounts with its agency, or transmit to the instead of P200 as heretofore. Should Zulueta be
vs. The Philippine National Bank (G. R. No. L-4633, latter the amounts received from the debtor. required to pay for the dollars at the new rate?
May 31, 1954), cited in the majority decision, where
the latter was a party to that case and a similar In the second place, the obligation contracted by Since Zulueta's obligation is measured in terms of
doctrine was laid down. Coming now to the bone the defendant was not to pay $14,419.15 in dollars, U.S. dollars that have increased in value vis-á-vis the
of contention, I notice that the dissenting Justice but the equivalent of $14,419.15 dollars, in Philippine peso, Art. 312, par. 1, of the Code of Commerce,
views the matter involved in the controversy as a currency. So, when defendant's obligation matured which was the law then in force, must be read into
loan and submits that the question really at issue on October 4, 1949, the defendant had to pay to the contract. It provides:
can be boiled down to the proposition of "whether the Bank not the sum of $14,467.21 representing the
it is the lender or the borrower who should bear the face value of the draft Exhibit A, plus $18.06 as 1/8 "If the loan consists of money, the debtor shall pay it
added cost of the depreciation of the peso in of 1 per cent commission, but its equivalent in pesos by returning an amount equal to that received, in
relation to the dollar". at the time of ,such maturity, and had the accordance with the legal value which the money
defendant failed to satisfy then his obligation, he may have at the time of the return, unless the kind
of money in which the payment is to be made has as complete justice between the parties as is dollars unless Zulueta is required to pay the
been stipulated, in which case the change which its possible, we have come to the conclusion that the exchange tax.
value may suffer shall be to the detriment or for the true rule in such cases is to give judgment for such
benefit of the lender." (Italics supplied) an amount as will, at the time of the judgment, Of course, the majority opinion has the merit of
purchase the amount due on the note in the funds giving the Bank a costly lesson on the advantages
The majority decision, in upholding the contention or currency in which it is payable'" of not considering political influence in the making
that Zulueta is not chargeable with the 17% tax, and - collecting of its loans; but I am afraid the
virtually authorizes just the contrary; and permits the The crucial point is that the Bank's action is not for experience will be too quickly forgotten to even
defaulting borrower to repay an amount in pesos damages, but for specific performance of Zulueta's palliate the sacrifice of fundamental justice to
that, in violation of the law and his engagement, obligation. While payable in Philippine pesos, it was technical considerations.
can not be converted into the same amount of actually one to pay a definite sum in United States
dollars loaned to him. I believe it is contrary to all dollars, since he promised to pay an equivalent For the foregoing reasons, I dissent.
elemental justice and good faith to enable a amount The failure to specify any fixed number of
borrower to return to his creditor less than the pesos, and the omission of any reference to any Labrador, Concepcion and Endencia, JJ., concur.
amount borrowed, specially taking into account rate of exchange, is proof that the parties had in
that Zulueta, by his obdurate refusal to pay a just mind the restoration to the Bank of the value of the Judgment affirmed.
debt, is a debtor in bad faith who is responsible for dollars it had advanced. In other words, Zulueta
any subsequent damages suffered by his creditor, engaged to return to the Bank so many Philippine
even if due to fortuitous event. pesos as could be converted into $14,449.15; and
that is what the Bank now asks him to do. It can not
Applicable here are the considerations in Hawes vs. be justly contended that if a debtor had borrowed,
Woolcock (26 Wis. 629, 635), quoted with approval say, ten thousand dollars, the lender should be
in Engel vs. Mariano Velasco & Co., 47 Phil. 115, 143: satisfied with eight or nine thousand. Yet that is what
the majority's decision actually amounts to.
"In Hawes vs. Woolcock (26 Wis., 629, 635), the court
said: 'Perhaps a strict application of logical I see no point in determining the rate of dollar-peso
reasoning to the question would lead to the result exchange at the date of maturity or of the
that the premium should be estimated at the rate constitution of the obligation, .since Zulueta did not
when the note fell due. That was when the money engage to pay any definite amount of pesos, but so
should have been paid, and when the default in many as would be needed to make up $14,449.15.
performing the contract occurred. This conclusion And as Zulueta is being required to comply with a
would be supported by the analogy derived from specific promise, there is no relevancy in whether or
the rule of damages on contracts to deliver specific not the main office of the Bank has or has not
articles, fixing the market price at the time when remitted the dollars to its American agency; after
they ought to have been delivered as the criterion. all, the two are part of the same institution. Anyway,
This rule might sometimes be to the advantage of if the dollars have not been remitted, the amount
the holder of the note, as in the present case. In that Zulueta is now sentenced to pay will not permit
other cases, where the premium was less at the time a remittance of the same number of dollars that the
the note became due than at the time of trial, it Bank advanced for his account. If they were
would be to his detriment. And in view of these heretofore remitted, the funds of the Bank in Manila
uncertainties and fluctuations in the rate, upon have been diminished pro tanto, and they can not
grounds of policy as well as f or its tendency to do be replenished to their original level in terms of