Belman Cia Incorporada v. Central Bank of the Phils.

Facts:
Belman Cia filed a complaint against Central Bank of the Phils. for the refund of the amount it paid
to the latter “under protest” allegedly representing the special excise tax of foreign exchange sold. The
complaint alleges that:

1. Belman was a successful bidder to supply the Republic of the Philippines with 1,000 reams of onion
skin paper. It sourced the papers from Getz Bros. Company of San Francisco, California.
2. To pay for the goods received, Belman applied for and was subsequently granted, a letter of credit
by the Philippine National Bank.
3. Crocker First National Bank, as the US correspondent of PNB, paid Getz. Bros. the sum of $4, 300.
4. Belman paid PNB on April 26, 1951 for the letter of credit.
5. Subsequently, the Central Bank assessed Belman a 17% special excise tax which Belman paid
under protest. Howeever, Belman eventually asked for the refund of the amount it paid to CB but
the CB refused to do so.

Thus, Belman filed a complaint before the CFI of Manila. CB filed a motion to dismiss alleging that the
assessment was legal and non-refundable. MTD was denied. CB filed its answer reiterating its position in
its motion to dismiss but after trial, the court ordered the refund. Hence, this appeal. CB argues that the
transaction was taxable because the approval of the letter of credit was only and executory contract and
the same became consummated only when the applicant paid the issuing bank. Since in this case Belman
paid PNB only on April 26, 1951, it is then covered by R.A. 601 which took effect on March 28, 1951. On
the other hand, Belman argues that the contract was consummated when the issuing bank approves the
application for letter of credit because at that point there was already meeting of minds between the
applicant and the issuing bank.

Issue:
When is a contract for letter of credit deemed consummated?

Held:
At the time when the correspondent bank or any bank in the country of the creditor pays to the
latter the amount in foreign currency, as authorized by the bank in the country of the debtor in compliance
with the letter of credit. It is the date of the payment of the amount in foreign currency to the creditor in
his country by the agent or correspondent bank of the bank in the country of the debtor that turns from
executory to executed or consummated contract. It is not the date of payment by the debtor to the bank in
his country of the amount of foreign exchange sold that makes the contract executed or consummated,
because the bank may grant the debtor extension of time to pay such debt. Belman’s contention that as
there was a meeting of the minds and of contracting parties as to price and object of the contract upon the
approval or grant of an application for a letter of credit for an amount payable in payable in foreign
currency, the contract was a valid and executed contract of sale of foreign exchange. True, there was such
a contract in the sense that one party who has performed his part may compel the other to perform his.
Still until payment be made in foreign currency of the amount applied for in the letter of credit and
approved and granted by the bank, the same is not an executed or consummated contract. The payment
of the amount in foreign currency to the creditor by the bank or its agent or correspondent is necessary to
consummate the contract. Hence the date of such payment or delivery of the amount in foreign currency
to the creditor determines whether such amount of foreign currency is subject to the tax imposed by the
Government of the country where such letter of credit was granted.
In the case at bar (not case at bench according to some stupid ponentés), the draft must be
submitted to Crocker Bank in SFO before October 19, 1950, it is presumed that the LC was submitted on or
before that date and hence, not covered by R.A. 601. Refund is in order.