Republic Flour Mills v. Central Bank Of The Philippines

CONCEPCION JR., J.:

Appeal from the judgment of the Court of First Instance of Manila dismissing the complaint for the recovery of certain sums of money collected by the defendant as "margin fees" under Republic Act No. 2609, on purchases of foreign exchange for the payment of machinery equipment, etc., used for the expansion of appellant's flour milling facilities. The plaintiff-appellant, Republic Flour Mills, Inc., a domestic corporation with main offices at Pioneer Street, Pasig.

Rizal, is the owner and operator of a wheat flour mill, with an annual capacity of 50,000 metric tons of flour. As a byproduct of its milling operations, the appellant produces mill offals (pollard and bran) which it sells abroad as mill feed, the proceeds of all sales being surrendered to the Central Bank as foreign exchange, received or earned by the appellant. On December 9, 1958, the appellant filed a request with the Central Bank- for authority to expand the capacity of its flour mill by 40,000 metric tons annually,1 and on February 7, 1959, it furnished the Central Bank with a detailed account of its foreign exchange requirement amounting to US$949,889.87.2 The Monetary Board, in its resolution of April 22, 1959, approved the application in principle subject to the following conditions: a) That the importation of the, additional machinery and equipment shall be made subject to the prior valuation by the Industrial Engineer of the Central Bank; b) That payment for the- full value of the- said machinery and equipment shall be drawn exclusive from the proceeds of exportation of mill feed (pollard and bran).3 On May 11, 1959, the appellant entered into a contract with the Thomas Robinson & Son Ltd. of Rochdale, in the County of Lancaster, England, for the purchase and sale and erection of a wheat flour mill costing US$ 821,735.00, including freight and interests on deferred payments at 5-1/2 per centum per annum.

The parties also stipulated therein that: 2. (a) This contract to become effective and binding upon both parties once the Central Bank of the Philippines has confirmed its approval of the extension of the flour mill of the Purchase by 40,000 tons of flour yearly and its commitment to make available foreign exchange to pay the purchase price hereunder as same is earned by the Purchasers by the export of their mill offals.4 A copy of this contract was submitted to the Central Bank on May 13, 1959.5 On June 12, 1959, the appellant entered into contracts with the Metropolitan-Vickers El. Export Co. Ltd. and the British Thomson- Houston Export Co. Ltd. for the purchase and sale of electrical equipment valued at US$ 13,668.70,6 and US$ 37,040.00,7 respectively.

The said contracts similarly provided that it shall become effective and binding upon the parties once the Central Bank has confirmed its approval to the extension of the flour mill and its commitment to make available foreign exchange to pay the purchase price.

Copies of these contracts were submitted to the Central Bank on June 22, 1959.8 On June 15, 1959, the Central Bank notified the appellant's bank that, in accordance with the valuation report of its Industrial Engineer, the amount of US$ 759,735.00 shall represent the C & F value of certain machinery and equipment enumerated therein, and that the valuation of the erection charges was withheld pending submission of the necessary papers.9 On July 3, 1959, the Central Bank authorized the appellant's bank to make available to the appellant the amount of US$22,000.00 for the payment of erection charges of the additional flour mill equipment.10 On July 10, 1959, the Central Bank notified the appellant's bank that in accordance with the valuation report of its Industrial Engineer, the amount of US$50,608.70 shall represent the full value of electrical equipment enumerated therein, and that the valuation of the rest of the machinery was withheld pending submission of the necessary invoices.11 On July 16, 1959, Republic Act No. 2609, referred to as the Margin Law, an Act authorizing the Central Bank to connect a margin fee of not more than 40% on sales of foreign exchange, was enacted by Congress.

Pursuant thereto, the Central Bank issued Circular No. 95, dated July 17, 1959, fixing the margin fee at 25%,12 and thereafter collected the sum of P341,945.37 as margin fees on the appellant's remittances of foreign exchange in payment of the machinery and equipment imported for the expansion of its mill facilities.13 On January 25, 1960, the appellant filed with the Central Bank an application for exemption from the payment of margin fees on said remittances and for the refund of the money theretofore paid,14 but the Central Bank denied the application for exemption upon the ground that on July 16, 1959, the appellant did not have any outstanding obligation to pay foreign exchange to Thomas Robinson & Sons, Ltd., for the reason that the contract entered into by them, which would be the source of the obligation, was not approved by the Monetary Board, Central Bank of the Philippines, until October 27, 1959.15 The appellant sought the reconsideration of this resolution, but the Central Bank denied the same.16 Whereupon, the appellant filed an action against the Central Bank with the Court of First Instance of Manila, docketed therein as Civil Case No. 48868, for the recovery of the amounts of money paid to the Central Bank as margin fees.

After trial, the court dismissed the complaint, saying: While the contracts, which involved payment of foreign exchange, were executed on May 13, and June 12, 1959, that is, prior to the approval of the Margin Law, it was specifically stated in each of them that's ... 2. (a) This contract to become effective and binding upon both parties once the Central Bank of the Philippines has confirmed its approval to the extension of the flour mill of the purchasers by 40,000 tons of flour yearly and its commitment to make available foreign exchange to pay the purchase price hereunder as same is earned by the purchasers by the export of their mill offals.

This paragraph was placed in each of the three contracts because the plaintiff knew that as the extension or expansion of the mill was approved by the defendant on April 22, 1959, only in principle it could not enter into any binding contract with the sellers without the defendant first confirming that approval and the 'commitment to make available foreign exchange to pay the purchase price' having been made only on July 27, 1959 (Annex 2, motion-to dismiss), that is, after the Margin Law became effective, it is very clear that the plaintiff is not entitled to the exemption from the payment of the margin fee. as provided by Republic Act No.

2609 in Section 3, and the Monetary Board acted within the law in unanimously disapproving the request of the plaintiff for such exemption and the refund of the margin fee paid by it in the sum of P 341,945.87.17 Hence, the present recourse. The appellant claims that the trial court erred in not finding that the remittance of foreign exchange to its suppliers in England, under its expansion contract was approved prior to the enactment of Republic Act No. 2609. The appellant contends that the said contracts became effective upon fulfillment of the conditions stated in the Monetary Board's resolution of April 22, 1959, and confirmed by the Central Bank on July 3, 1959, when it ordered the release of US$22,000.00 in payment of the erection charges of said machinery and equipment.

The Central Bank, upon the other hand, contends that in the said expansion contracts, the parties covenanted that the contracts shall become effective and binding once the Central Bank has confirmed its approval to the extension of the flour mill and its commitment to make available foreign exchange to pay the purchase price, and the said confirmation was made only on July 27, 1959, after the Margin Law took effect, when the terms of payment of said contracts were approved, so that the appellant is not entitled to the exemption asked for. There is merit in the appellant's contention. The records of the case indicate that there had been fulfillment of the conditions set forth in the resolution of the Monetary Board, dated April 22, 1959, and that stipulated in the contracts entered into by the appellant with ROBINSON, VICKERS and THOMSON, respectively, so that there were perfected and outstanding obligations before the Margin Law took effect.

Thus, the conditions set by the Monetary Board are as follows: a) That the importation of the additional machinery and equipment shall be made subject to the prior valuation by the Industrial Engineer of the Central Bank; and b) That payment for the full value of the said machinery and equipment shall be drawn exclusively from the proceeds of the exportation of mill feed (pollard and bran). The compliance with the first condition is evident from the letters of the Central Bank to the China Banking Corporation which reads, as follows: June 15, 1959 China Banking Corporation Manila Subject: REPUBLIC FLOUR MILLS, INC. VALUATION of Flour Mills Machinery in the amount of $759,735.00 partially covered by grant dated May 5, 1959.

(T-59-57). "Gentlemen: "Please be informed that in accordance with the valuation report of our Industrial Engineer, the amount of $759,735.00 shall represent the full value of the following: Section 1 Silos, 10,000 ton cap . .

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. ... 3,727.0.0 Section 2 Wheat Cleaning, & Finishing .

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32,692.0.0 Section 3 Screenings Grinding . . .

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.. 3,064.0.0 Section 4 Flour Mills and accessories . .

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. ... 120,288.0.0 Section 5 Motors, Starters & Drives .

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. .. 25,763.0.0 Section 6 Flour Processing & Redressing .

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. . 26,317.0.0 Section 7 Roll Grinding & Fluting Machine .

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. 26,317.0.0 Section 7 Roll Grinding & Fluting Machine . .

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. . 4,740.0.0 Section 8 Iron Works & Sleeves for Filter Dust Collectors .

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6,889.0.0 Section 9 Spare Parts . . .

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4,750.0.0 Section 10 Flour Silo Equipment . . .

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. . 15,523.0.0 Section 11 Material for Worm Conveyors .

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. . 4,053.0.0 Section 12 Entoleters .

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. . 5,529.0.0