GR 20674; (December, 1964) (Digest)
G.R. No. L-20674 December 29, 1964
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK, plaintiff-appellee, vs. CENTRAL BANK OF THE PHILIPPINES, defendant-appellant.
FACTS
The plaintiff-appellee, The United States Life Insurance Company in the City of New York, a foreign corporation licensed to do business in the Philippines, purchased P250,000 worth of RFC 1st Series Bonds on January 8, 1949. Upon their maturity in April 1957, the redemption proceeds were not paid but were immediately reinvested by the Rehabilitation Finance Corporation (RFC) into its 4% 25th Series Bonds, which matured on December 1, 1960. The appellee applied for exemption from the foreign exchange margin fee under Republic Act No. 2609 for the remittance of the dollar value of the redemption proceeds and interest from these 25th Series Bonds. The Central Bank’s Exemption Committee disapproved the application for the principal amount, allowing exemption only for the interest. Consequently, when the appellee remitted part of the proceeds through the First National City Bank of New York, a margin fee of P33,251.54 was collected. The appellee filed a claim for refund in the Court of First Instance of Manila, which ruled in its favor. The Central Bank appealed directly to the Supreme Court.
ISSUE
Whether the RFC 4% 25th Series Bonds should be deemed to have novated the contract arising from the purchase of the 1st Series Bonds, thereby making the acquisition of the 25th Series Bonds a new purchase after June 16, 1956, and thus not exempt from the margin fee under Republic Act No. 2609 .
RULING
The Supreme Court reversed the decision of the lower court and ruled in favor of the Central Bank. The Court held that the substitution of the matured 1st Series Bonds with the 25th Series Bonds constituted a novation, resulting in a new and distinct purchase. Since the 25th Series Bonds were acquired after June 16, 1956, they were not exempt from the margin fee under the applicable Central Bank resolution (Monetary Board Resolution No. 1281), which exempted only the redemption proceeds of government bonds purchased by non-residents on or prior to June 16, 1956. The Court found that the transaction extinguished the old obligation and created a new one. It also rejected the appellee’s arguments that the margin fee breached the government’s guarantee under Republic Act No. 85 , as the fee was levied on the remittance of the proceeds abroad, not on the return of the investment itself, and that the bonds were payable in pesos. The Court further held that by accepting the new bonds, the appellee agreed to their conditions. The Central Bank was absolved from the order to refund the margin fee.