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G.R. No.


February 4, 1918

ANTONIO M.A BARRETTO, plaintiff-appellant,

JOSE SANTA MARINA and "LA INSULAR," defendants-appellees.
The material facts upon which our disposition of this appeal necessarily turns
are set out at length in our opinion in the case of Barretto vs. Santa Marina,
decided December 2, 1913 (26 Phil rep., 200). This court having ruled against
the plaintiff's contention in the former case, he now sets up a claim for interest at
the legal rate upon the amount of the purchase price of his share (participacion)
in the business from the 1st day of July, 1909, to the 22d day of November, 1910,
the day upon which it was turned over to him.
The finding of facts, and the reasoning upon which we based our rulings in the
former case, are manifestly conclusive in the present case as to the plaintiff's
claim of a right to interest from the first of July, 1909, to the third of May, 1910.
In the former case we held that the sale of plaintiff's share (participacion) in the
tobacco factory was consummated on the latter date; that the valuation set upon
his share (participacion) in business was determined as of that day by the
committee charged with the duty of ascertaining the cash value of this share
(participacion) in order to determine the exact amount which the parties had
agreed upon as the purchase price to be paid therefor; and that the committee
had included that the plaintiff's share of the profits of the business down to the
third of May, 1910, in their estimate of the value of his share (participacion) in the
business of that date.
These rulings were made after a review of the same record which is now relied
upon by the plaintiff in support of his claim of interest upon the amount fixed by
the committee as the true value of his share (participacion) in the business. We
find nothing in the record of the contention of counsel in this regard which would
justify or necessitate a modification or reversal of the conclusions reached by us
in our former opinion.

Plaintiff's share (participacion) in the business having been sold on the 3rd day
of May, 1910, for a stipulated price, that is to say, for its value on that day as fixed
by the valuation committee, it is very clear that he is not entitled to interest on the
amount fixed by the committee, prior to the date on which the sale was
consummated (3rd of may, 1910).
So also plaintiff's contention that he should be allowed interest on the amount
of the purchase price from the date of the sale, May 3, 1910, down to the day
upon which the money was actually turned over to him, November 22, 1910,
cannot be sustained. Under the express terms of the agreement for the sale on
May 3, 1910, the plaintiff agreed to accept, and the defendant to pay, the amount
which the committee should find to be the true value of plaintiff's share
(participacion) in the business as of that day. Under the agreement the defendant
neither expressly nor impliedly obligated himself to pay interest on that amount
pending the report of the committee. The only contractual obligation assumed by
him was that he would pay the amount fixed by the committee in cash
immediately upon the making of the award by the committee, and in accordance
with its terms.
The committee's report is dated November 14, 1910, and it appears that
promptly upon the submission of this report, the amount awarded the plaintiff
(P280,025.16) was paid over by the defendant to the plaintiff in cash; and the
letter of counsel for plaintiff dated November 17, 1910, tendering a formal deed
of sale of plaintiff's share (participacion) in the business and making demand for
the purchase price as fixed by the committee, read together with the formal deed
of sale executed November 22, 1910, with its acknowledgment of the receipt of
the purchase price, leaves no room for doubt that at that time the parties
understood and accepted the purchase price therein set forth as full payment of
plaintiff's share (participacion) in the business in exact conformity with the
conditions imposed in the agreement consummated to May 3, 1910.
The right to interest arises either by virtue of a contract or by way of damages
for delay or failure (demora) to pay the principal on which interest is demanded,
at the time when the debtor is obligated to make such payment. In the case at
bar where was no contract, express or implied, for the payment of interest
pending the award of the committee appointed to value the property sold on May
3, 1910, and there was no delay in the punctual compliance with defendant's
obligation to make immediate payment, in cash, of the amount of the award,
upon the filing of the report of the committee.

We conclude that the judgment entered in the court below dismissing the
complaint in this case sine die should be affirmed, with the costs of this instance
against the appellant. So ordered.

G.R. No. L-11897

October 31, 1964

FERNANDO A. FROILAN, plaintiff-appellee,

On March 7, 1947, Fernando A. Froilan purchased from the Shipping
Administration a boat described as MV/FS 197 for the sum of P200,000.00, with
a down payment of P50,000,00. To secure payment of the unpaid balance of the
purchase price, a mortgage was constituted on the vessel in favor of the
Shipping Administration in a contract which provides, among others, the
In the event that the FIRST PARTY should elect to exercise its rights to rescind
under the terms of this contract, it shall have the right to take possession of the
vessel herein sold in the condition that it is at the time of rescission but in no
case in a worse condition than when originally delivered to the second party,
ordinary wear and tear excepted and in case at the time of rescission the
condition of the vessel is not satisfactory to the FIRST PARTY, it shall have the
right to have the vessel reconditioned, repaired, dry-docked at the expense of the
SECOND PARTY. The same right is hereby granted to the FIRST PARTY in case
the SECOND PARTY should for any reason refuse or fail to comply with this
condition of sale and return the vessel herein sold in a condition not satisfactory
The right of rescission shall be considered as a cumulative remedy granted to
the FIRST PARTY and shall not in any way prejudice his right to demand
immediate and complete payment of the purchase price of the vessel under the

terms herein provided, and to demand and collect from the SECOND PARTY
such damages caused by the non-compliance with this contract.
This contract was duly approved by the President of the Philippines.
Froilan appeared to have defaulted in spite of demands, not only in the
payment of the first installment on the unpaid balance of the purchase price and
the interest thereon when they fell due, but also failed in his express undertaking
to pay the premiums on the insurance coverage of the vessel, obliging the
Shipping Administration to advance such payment to the insurance company.
Consequently, the Shipping Administration requested the Commissioner of
Customs on June 1, 1948 to refuse clearance on the vessel and the voyage
thereof was ordered suspended.
Thereafter, Froilan asked for a reconsideration of the action taken by the
Shipping Administration, claiming that his failure to pay the required installments
was due to the fact that he was awaiting the decision of the President on the
petition of the shipowners for an extension of the period of payment of the
purchased vessels, which petition was favorably acted upon.
On July 3, 1948, the Shipping Administration and Froilan entered into an
agreement whereby the latter undertook to liquidate immediately all of his
outstanding accounts, including the insurance premiums, within 30 days, and
have the vessel overhauled, and promised that in case of his default, he shall
"waive, any formal notice of demand and to redeliver the said vessel peaceably
and amicably without any other proceedings" (Exh. 39).
Again, Froilan failed to settle his accounts within the prescribed period, thus,
the Shipping Administration threatened to rescind the contract unless payment be
immediately made. On August 28, 1948, upon Froilan's request, the Shipping
Administration agreed to release the vessel on condition that the same would be
overhauled and repaired and the accrued interest on the first installment would
be paid. The Administration also allowed the mortgagor to pay his overdue
accounts, amounting now to P48,500.00 in monthly installments, with warming
that in case of further default, it would immediately repossess the vessel and
rescind the contract. Froilan failed to pay. On January 17, 1949, the Shipping
Administration required him to return the vessel or else file a bond for P25,000.00
in five days. In a letter dated January 28, 1949, Froilan requested that the period
for filing the bond be extended to February 15, 1949, upon the express condition
and understanding that:

... . If I fail to file the required bond on the said date, February 15, 1949, to the
satisfaction of the Shipping Administration, I am willing to relinquish and I do
hereby relinquish any and all rights I have or may have on the said vessel
including any payments made thereon to the Shipping Administration, without
prejudice to other rights the Shipping Administration may have against me under
the contract of sale executed in my favor.
I wish to reiterate that if I fail to file the bond within the period I have requested,
any and all rights I have on the vessel and any payments made to the Shipping
Administration shall be considered automatically forfeited in favor of the Shipping
Administration and the ownership of the said vessel will be as it is hereby
automatically transferred to the Shipping Administration which is then hereby
authorized to take immediate possession of said vessel. (Exh. 66)
This letter of Froilan was submitted by the General Manager of the Shipping
Administration to the board of directors for proper consideration. By resolution of
January 31, 1949, the petition was granted subject specifically to the conditions
set forth therein. Froilan again failed to make good his promises. Hence, on
February 18, 1949, the General Manager of the Shipping Ad-ministration wrote
the Collector of Customs of Manila, advising the latter that the Shipping
Administration, by action of its board, terminated the contract with Froilan, and
requesting the suspension of the clearance of the boat effective that date (Exh.
On February 21, 1949, the General Manager directed its officers, Capt.
Laconico and others, to take immediate possession of the vessel and to suspend
the unloading of all cargoes on the same until the owners thereof made the
corresponding arrangement with the Shipping Administration. Pursuant to these
instructions, the boat was, not only actually repossessed, but the title thereto was
registered again in the name of the Shipping Administration, thereby retransferring the ownership thereof to the government.
On February 22, 1949, Pan Oriental Shipping Co., hereinafter referred to as
Pan Oriental, offered to charter said vessel FS-197 for a monthly rent of
P3,000.00. Because the government was then spending for the guarding of the
boat and subsistence of the crew-members since repossession, the Shipping
Administration on April 1, 1949, accepted Pan Oriental's offer "in principle"
subject to the condition that the latter shall cause the repair of the vessel,
advancing the cost of labor and drydocking thereof, and the Shipping

Administration to furnish the necessary spare parts. In accordance with this

charter contract, the vessel was delivered to the possession of Pan Oriental.
In the meantime, or on February 22, 1949, Froilan tried to explain his failure to
comply with the obligations he assumed and asked that he be given another
extension up to March 15, 1949 to file the necessary bond. Then on March 8,
Froilan offered to pay all his overdue accounts. However, as he failed to fulfill
even these offers made by him in these two communications, the Shipping
Administration denied his petition for reconsideration (of the rescission of the
contract) on March 22, 1949. It should be noted that while his petition for
reconsideration was denied on March 22, it does not appear when he formally
formulated his appeal. In the meantime, as already stated, the boat has being
repossessed by the Shipping Administration and the title thereto re-registered in
the name of the government, and delivered to the Pan Oriental in virtue of the
charter agreement. On June 2, 1949, Froilan protested to the President against
the charter of the vessel.
On the same date, the Executive Office advised the Administration and the
Commissioner of Customs not to dispose of the vessel in favor of another party
pending final decision by the President on the appeal of Froilan (Exhs. 93-A and
93-D). But since the vessel was already cleared in favor of Pan Oriental prior to
the receipt of the foregoing communication, and allegedly in order to prevent its
being made answerable for damages, the General Manager of the Shipping
Administration advised the Collector of Customs not to suspend the voyage of
the vessel pending final decision on the appeal of Froilan. Similar manifestation,
to allow the Pan Oriental's operation of the vessel without prejudice to whatever
action the President may take in the case, was also made by the Administration
to the Executive Secretary.
On June 4, 1949, the Shipping Administration and the Pan Oriental formalized
the charter agreement and signed a bareboat contract with option to purchase,
containing the following pertinent provisions:
the owner a monthly charter hire of THREE THOUSAND (P3,000.00) PESOS
from date of delivery of the vessel, payable in advance on or before the 5th of
every current month until the return of the vessel to OWNER or purchase of the
vessel by CHARTERER.

XII. RIGHT OF OPTION TO PURCHASE. The right of option to purchase

the vessel at the price of P150,000.00 plus the amount expended for its present
repairs is hereby granted to the CHARTERER within 120 days from the
execution of this Contract, unless otherwise extended by the OWNER. This right
shall be deemed exercised only if, before the expiration of the said period, or its
extension by the OWNER the CHARTERER completes the payment, including
any amount paid as Charter hire, of a total sum of not less than twenty-five
percentum (25%) of said price of the vessel.
The period of option may be extended by the OWNER without in any way
affecting the other provisions, stipulations, and terms of this contract.
If, for any reason whatsoever, the CHARTERER fails to exercise its option to
purchase within the period stipulated, or within the extension thereof by the
OWNER, its right of option to purchase shall be deemed terminated, without
prejudice to the continuance of the Charter Party provisions of this contract. The
right to dispose of the vessel or terminate the Charter Party at its discretion is
reserved to the OWNER.
CHARTERER has exercised his right of option as provided in the preceding
paragraph (XII), the vessel shall be deemed conditionally sold to the purchaser,
but the ownership thereof shall not be deemed transferred unless and until all the
price of the vessel, together with the interests thereon, and any other obligation
due and payable to the OWNER under this contract, have been fully paid by the



XXI. APPROVAL OF THE PRESIDENT. This contract shall take effect only
upon approval of His Excellency, the President.
On September 6, 1949, the Cabinet revoked the cancellation of Froilan's
contract of sale and restored to him all his rights thereunder, on condition that he
would give not less than P10,000.00 to settle partially his overdue accounts and
that reimbursement of the expenses incurred for the repair and drydocking of the
vessel performed by Pan Oriental was to be made in accordance with future
adjustment between him and the Shipping Administration (Exh. I). Later, pursuant
to this reservation, Froilan's request to the Executive Secretary that the
Administration advance the payment of the expenses incurred by Pan Oriental in

the drydocking and repair of the vessel, was granted on condition that Froilan
assume to pay the same and file a bond to cover said undertaking (Exh. 111).
On September 7, 1949, the formal bareboat charter with option to purchase
filed on June 4, 1949, in favor of the Pan Oriental was returned to the General
Manager of the Shipping Administration without action (not disapproval), only
because of the Cabinet resolution of September 6, 1949 restoring Froilan to his
rights under the conditions set forth therein, namely, the payment of P10,000.00
to settle partially his overdue accounts and the filing of a bond to guarantee the
reimbursement of the expenses incurred by the Pan Oriental in the drydocking
and repair of the vessel. But Froilan again failed to comply with these conditions.
And so the Cabinet, considering Froilan's consistent failure to comply with his
obligations, including those imposed in the resolution of September 6, 1949,
resolved to reconsider said previous resolution restoring him to his previous
rights. And, in a letter dated December 3, 1949, the Executive Secretary
authorized the Administration to continue its charter contract with Pan Oriental in
respect to FS-197 and enforce whatever rights it may still have under the original
contract with Froilan (Exh. 188).
Froilan, for his part, petitioned anew for a reconsideration of this action of the
Cabinet, claiming that other ship purchasers, including the President-Treasurer of
the Pan Oriental himself, had also defaulted in payment and yet no action to
rescind their contracts had been taken against them. He also offered to make a
cash partial payment of P10,000.00 on his overdue accounts and reimburse Pan
Oriental of all its necessary expense on the vessel. Pan Oriental, however, not
only expressed its unwillingness to relinquish possession of the vessel, but also
tendered the sum of P15,000.00 which, together with its alleged expenses
already made on the vessel, cover 25% of the cost of the vessel, as provided in
the option granted in the bareboat contract (Exh. 122). This amount was
accepted by the Administration as deposit, subject to the final determination of
Froilan's appeal by the President. The Executive Secretary was also informed of
the exercise by Pan Oriental of said option to purchase.
On August 25, 1950, the Cabinet resolved once more to restore Froilan to his
rights under the original contract of sale, on condition that he shall pay the sum of
P10,000.00 upon delivery of the vessel to him, said amount to be credited to his
outstanding accounts; that he shall continue paying the remaining installments
due, and that he shall assume the expenses incurred for the repair and
drydocking of the vessel (Exh. 134). Pan Oriental protested to this restoration of

Froilan's rights under the contract of sale, for the reason that when the vessel
was delivered to it, the Shipping Administration had authority to dispose of the
said property, Froilan having already relinquished whatever rights he may have
thereon. Froilan paid the required cash of P10,000.00, and as Pan Oriental
refused to surrender possession of the vessel, he filed an action for replevin in
the Court of First Instance of Manila (Civil Case No. 13196) to recover
possession thereof and to have him declared the rightful owner of said property.
Upon plaintiff's filing a bond of P400,000.00, the court ordered the seizure of
the vessel from Pan Oriental and its delivery to the plaintiff. Pan Oriental tried to
question the validity of this order in a petition for certiorari filed in this Court (G.R.
No. L-4577), but the same was dismissed for lack of merit by resolution of
February 22, 1951. Defendant accordingly filed an answer, denying the
averments of the complaint.
The Republic of the Philippines, having been allowed to intervene in the
proceeding, also prayed for the possession of the vessel in order that the chattel
mortgage constituted thereon may be foreclosed. Defendant Pan Oriental
resisted said intervention, claiming to have a better right to the possession of the
vessel by reason of a valid and subsisting contract in its favor, and of its right of
retention, in view of the expenses it had incurred for the repair of the said vessel.
As counterclaim, defendant demanded of the intervenor to comply with the
latter's obligation to deliver the vessel pursuant to the provisions of the charter
Thereafter, and upon plaintiff's presenting proof that he had made payment to
the intervenor Republic of the Philippines, of the sum of P162,576.96, covering
the insurance premiums, unpaid balance of the purchase price of the vessel and
interest thereon, the lower court by order of February 8, 1952, dismissed the
complaint in intervention on the ground that the claim or demand therein had
already been released. Said dismissal, however, was made without prejudice to
the determination of defendant's right, and that the release and cancellation of
the chattel mortgage did not "prejudge the question involved between the plaintiff
and the defendant which is still the subject of determination in this case."
In view of the dismissal of its complaint, intervenor Republic of the Philippines
also moved for the dismissal of defendant's counterclaims against it, which was
granted by the court. On appeal by Pan Oriental to this Court (G.R. No. L-6060),
said order was reversed and the case remanded to the lower court for further

Subsequently, Compaia Maritima, as purchaser of the vessel from Froilan,

was allowed to intervene in the proceedings (in the lower court), said intervenor
taking common cause with the plaintiff Froilan. In its answer to the complaint in
intervention, defendant set up a counterclaim for damages in the sum of
P50,000.00, alleging that plaintiff secured the Cabinet resolutions and the writ of
replevin, resulting in its deprivation of possession of the, vessel, at the instigation
and inducement of Compaia Maritima. This counterclaim was denied by both
plaintiff and intervenor Maritima.
On September 28, 1956, the lower court rendered a decision upholding
Froilan's (and Compaia Maritima's) right to the ownership and possession of the
FS-197. It was ruled that Froilan's violations of the conditions of the contract of
sale in his favor did not automatically deprive him of his right of ownership of the
vessel, which passed to him upon execution of the contract, but merely gave rise
to the Shipping Administration's right either to foreclose the mortgage or rescind
the contract by court action. As the Shipping Administration failed to avail itself of
any of these remedies, Froilan's right of ownership remained unaffected. And the
subsequent resolutions of the Cabinet, restoring him to his rights under the said
contract, reaffirmed the same. The charter contract between the Shipping
Administration and defendant was declared null and void, not only because the
former could not have legally bound the vessel, but also due to the fact that said
agreement has not been perfected for lack of approval by the President of the
Philippines. And, even assuming that the said charter contract was valid, the
lower court held that, as the owner (Republic of the Philippines) under the same
agreement was given the right to terminate the charter or dispose of the vessel
anytime, the action of the Cabinet in cancelling or withdrawing the rescission of
Froilan's contract, had the effect of terminating the charter agreement with the
defendant. The court also dismissed (1) defendant's counterclaims against
plaintiff Froilan and intervenor Compaia Maritima, on the ground that it
(defendant) was a possessor in bad faith, and consequently, not entitled to
damages; (2) plaintiff's counterclaims against defendant, for the reason that the
same should have been directed against intervenor Republic of the Philippines;
and (3) defendant's counterclaims said intervenor Republic, on the ground that
the order dismissing the complaint in intervention had already become final and it
was materially impossible for the latter to secure possession of the vessel. From
this decision, Pan Oriental brought the instant appeal.
Contrary to appellant's contention, the ruling of the lower court that under the
contract of sale with mortgage, ownership of the vessel passed to Froilan, upon

delivery of the property to the latter, must be sustained. It is to be noted that

unlike in the charter contract where it was specifically prescribed that ownership
of the vessel shall be transferred to the vendee only upon full payment of the
purchase price, no similar provision appears in the contract of sale in favor of
Froilan. In the absence of stipulation to the contrary, the ownership of the thing
sold passes to the vendee upon the actual or constructive delivery thereof (Art.
1477, new Civil Code). It is for this reason that Froilan was able to constitute a
mortgage on the vessel in favor of the Administration, to secure payment of the
unpaid balance of the purchase price.
There is no gainsaying the fact that there was continuous violation by Froilan
of the terms of said contract of sale. The records conclusively show that
notwithstanding the numerous opportunities given him, Froilan had been remiss
in the fulfillment of his obligations thereunder. Nevertheless, the lower court
upheld his allegation that the Administration may not legally rescind the contract
without filing the corresponding complaint in court.
Under Article 11911 of the Civil Code, in case of reciprocal obligations, the
power to rescind the contract where a party incurs in default, is impliedly given to
the injured party. Appellee maintains however, that the law contemplates of
rescission of contract by judicial action and not a unilateral act by the injured
party; consequently, the action of the Shipping Administration contravenes said
provision of the law. This is not entirely correct, because there is also nothing in
the law that prohibits the parties from entering into agreement that violation of the
terms of the contract would cause cancellation thereof, even without court
intervention. In other words, it is not always necessary for the injured party to
resort to court for rescission of the contract. As already held2judicial action is
needed where there, is absence of special provision in the contract granting to a
party the right of rescission.
In the instant case, while it may be true that the contract of sale did not
expressly give to the mortgagee the right to cancel the agreement it was,
nevertheless, provided therein that said party may rescind the contract as it may
see fit in case of breach of the terms thereof by the mortgagor. Taking into
account the promises, waivers and representations made by Froilan, to the
extent that he agreed to the automatic transfer of ownership of the vessel to the
Administration, should he fall to fulfill what was incumbent upon him, which did
happen, the rescission of the contract without judicial action is proper.

The next question to be determined is whether there had been a valid and
enforceable charter contract in favor of appellant Pan Oriental, and what was the
effect thereon of the subsequent restoration to Froilan by the Cabinet, of his
rights under the original contract of sale with mortgage.
It is not disputed that appellant Pan Oriental took possession of the vessel in
question after it had been repossessed by the Shipping Administration and title
thereto reacquired by the government, and operated the same from June 2, 1949
after it had repaired the vessel until it was dispossessed of the property on
February 3, 1951, in virtue of a bareboat charter contract entered into between
said company and the Shipping Administration. In the same agreement, appellant
as charterer, was given the option to purchase the vessel, which may be
exercised upon payment of a certain amount within a specified period. The
President and Treasurer of the appellant company, tendered the stipulated initial
payment on January 16, 1950. Appellant now contends that having exercised the
option, the subsequent Cabinet resolutions restoring Froilan's rights on the
vessel violated its existing rights over the same property. To the contention of
plaintiff Froilan that the charter contract never became effective because it never
received presidential approval, as required therein, Pan Oriental answers that the
letter of the Executive Secretary dated December 3, 1949 (Exh. 118), authorizing
the Shipping Administration to continue its charter contract with appellant,
satisfies such requirement (of presidential approval). It is to be noted, however,
that said letter was signed by the Executive Secretary only and not under
authority of the President. The same, therefore, cannot be considered to have
attached unto the charter contract the required consent of the Chief Executive for
its validity.
Upon the other hand, the Cabinet resolutions purporting to restore Froilan to
his former rights under the deed of sale, cannot also be considered as an act of
the President which is specifically required in all contracts relating to these
vessels (Executive Order No. 31, series of 1946). Actions of the Cabinet are
merely recommendatory or advisory in character. Unless afterwards specifically
adopted by the President as his own executive act, they cannot be considered as
equivalent to the act of approval of the President expressly required in cases
involving disposition of these vessels.
In the circumstances of this case, therefore, the resulting situation is that
neither Froilan nor the Pan Oriental holds a valid contract over the vessel.
However, since the intervenor Shipping Administration, representing the

government practically ratified its proposed contract with Froilan by receiving the
full consideration of the sale to the latter, for which reason the complaint in
intervention was dismissed as to Froilan, and since Pan Oriental has no capacity
to question this actuation of the Shipping Administration because it had no valid
contract in its favor, the decision of the lower court adjudicating the vessel to
FroiIan and its successor Compaia Maritima, must be sustained. Nevertheless,
under the circumstances already adverted to, Pan Oriental cannot be considered
a possessor in bad faith until after the institution of the instant case. However,
since it is not disputed that said appellant made useful and necessary expenses
on the vessel, appellant is entitled to the refund of such expenses with the right
to retain the vessel until he has been reimbursed therefor (Art. 546, Civil Code).
As it is by the concerted acts of defendants and intervenor Republic of the
Philippines that appellant was deprived of the possession of the vessel over
which appellant had a lien for his expenses, appellees Froilan, Compaia
Maritima, and the Republic of the Philippines3are declared liable for the
reimbursement to appellant of its legitimate expenses, as allowed by law, with
legal interest from the time of disbursement.
Modified in this manner, the decision appealed from is affirmed, without costs.
Case is remanded to the lower court for further proceedings in the matter of
expenses. So ordered.

G.R. No. L-21881

March 1, 1968


In this suit for the recovery of a sum of money from defendant-appellant
Central Bank, the sole legal issue before us, as before the lower court, is the
validity "of the collection made by the defendant from the plaintiff in the amount of
P30,839.49 constituting the margin fee for its commercial credit (letter of credit)
in favor of the independent Engineering Co., Inc., O'Fallon, Illinois, U.S., in the
amount of $63,964.00 which was increased later to $67,874.00."1 The lower

court decided in favor of plaintiff. We do not see it that way and accordingly
reverse the decision.
The facts as stated by the trial court were not in dispute. Its finding,
moreover, cannot be controverted on appeal. Plaintiff Pacific Oxygen and
Acetylene Co. applied on Sept. 21, 1961 with the Philippine Trust company, an
agent of the Central Bank, for commercial credit in the amount of $63,964.00 in
favor of the Independent Engineering Co., Inc., O'Fallon, a United States
corporation located in Illinois,2 to cover the shipment of a plant. The application
was approved on October 4, 1961, with the Philippine Trust Company
establishing an irrevocable letter of credit at the free market rate of P3.01875 to
every dollar, the letter of credit,3 expiring on February 1, 1962. The plaintiff also
on September 21, 1961, applied with the Philippine Trust Company for the
purchase of forward exchange in the same amount of $63,964.00 and for the
same purpose.4 On October 5, 1961, the Philippine Trust Company applied with
the Central Bank for the purchase of forward exchange in the amount of
$63,694.00 to cover its U.S. dollar commitment against the letter of credit opened
under free market rate for the plaintiff. Then on October 6, 1961, the Central
Bank in turn executed a forward exchange contract for the sale of foreign
exchange in the said amount to be delivered on January 2, 1962.5 On November
7, 1961, upon plaintiff's application, the letter of credit was amended to increase
the amount by $3,910.00 to cover the estimated freight and ship charges,6 to be
followed as in the case of the original letter of credit with the purchase; of forward
exchange for a similar amount. On January 17, 1962, the Philippine Trust
Company applied for the purchase of forward exchange with the Central Bank in
the amount of $71,617.00 of which $67,874.00 would cover its U.S. dollar
commitments against the letter of credit opened under free market rate for the
plaintiff. Then the next day the Central Bank executed the corresponding forward
exchange contract for the same amount to be delivered on March 17, 1962.7
On January 21, 1962, the Central Bank suspended the margin levy. On
February 8, 1962, the Independent Engineering Co., Inc., O'Fallon, Illinois,
U.S.A., the beneficiary, drew two drafts against said letter of credit in the sums of
$19,277.41 (Exh. A-5) and $48,596.59 (Exh. A-6), and the Continental Illinois
National Bank and Trust Company of Chicago, Chicago, Illinois, correspondent of
the Philippine Trust Company, Manila, honored the first draft on February 9,
1962, and the second draft on February 13, 1962, as shown by the debit advices
on the same dates addressed to Philippine Trust Company.8 On February 18 and
23, 1962, the Philippine Trust Company sent to the plaintiff statements of account

on the importation in which were included the 15% margin fee.9 On March 14,
1962, the plaintiff paid under protest to the Central Bank, thru the Philippine Trust
Company, the amounts of P22,058.00 and P8,780.65, or a total of P30,839.49,
representing the 15% margin fee, the amount sought to be recovered.
The applicable law is Republic Act No. 2609, which insofar as pertinent,
empowers the Central Bank "in respect of all sales of foreign exchange by [it] and
its authorized agent banks, . . . to establish a uniform margin of not more than
40% over the bank's selling rates stipulated by the Monetary Board . . .."10 After
quoting the above legal provision referring to the corresponding Central Bank
circular that fixed the margin fee, and citing the doctrine in Belman Cia., Inc. v.
Central Bank of the Philippines,11 "that 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 tax imposed by the government"12 of the country
issuing such letter of credit, the lower court rendered judgment in favor of the
plaintiff and against the defendant ordering the refund of the above sum of
P30,839.49. A motion to set aside judgment by defendant Central Bank having
been filed and thereafter denied, this appeal was taken.
The appeal, as earlier mentioned, possesses merit. The language of the
law is clear. A margin fee may be collected from "all sales of foreign exchange by
the Central Bank and its authorized agent banks, . . . ." It was expressly found by
the lower court: "On January 17, 1962, the Philippine Trust Company applied for
the purchase of forward exchange with the Central Bank in the amount of
$71,617.02, of which $67,874.00 to cover its U.S. dollar commitments against the
letter of credit opened under free market rate for the plaintiff, and on the next day
the Central Bank executed the corresponding forward exchange contract (No.
12145) for the same amount to be delivered on March 17, 1962 . . . ."13
It is well-settled in our law that a contract of sale exists from the moment
"one of the contracting parties obligates himself to transfer the ownership of and
to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent."14 There is a perfection of such a contract "at the
moment there is a meeting of minds upon the thing which is the object of the

contract and upon the price" from which moment, "the parties may reciprocally
demand performance, subject to the provisions of the law governing the form of
contracts."15 It is a fair restatement of the prevailing principle in American law
that an agreement by one party to sell and deliver, and by the other to purchase
at a mentioned price and terms certain personal property on or before a specified
future date is a contract of sale and not an option.16
With the categorical finding in the decision appealed from that the
purchase of the forward exchange by the Central Bank occurred on January 17,
1962, prior to the suspension of the margin levy on January 21, 1962, it cannot
be denied that deference must be paid to the legal provision calling for a margin
fee "in respect of all sales of foreign exchange by the Central Bank and its
authorized agents . . . ." From Lizarraga Hermanos v. Yap Tico,17 this Court has
steadfastly adhered to the doctrine that its first and fundamental duty is the
application of the law according to its express terms, interpretation being called
for only when such literal application is impossible.18
As thus viewed, the fact that it was not until February 9 and 13, 1962,
that the Continental Illinois National Bank and Trust Company honored the above
drafts cannot therefore be controlling. The plain and explicit command of the law
is too categorical to be misinterpreted. A contrary impression that might be
yielded by Belman Cia Inc. v. Central Bank of the Philippines dealing with the
Seventeen (17%) percent excise tax cannot prove decisive of this controversy, as
was erroneously held by the lower court. To the extent that there is an
inconsistency between this decision and the Belman dictum, it cannot be
considered authoritative, at least under the circumstances as herein disclosed.
WHEREFORE, the appealed judgment is reversed. With costs against plaintiffappellee.