NEGOTIABLE INSTRUMENTS || Case Digests || 01.30.
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Execution of Contracts and Delivery of Tractors
#1 HSBC vs CIR On April 5, 1978, the seller-assignor issued a sales invoice for the
tractors and executed a deed of sale with chattel mortgage and
HSBC provides custodial services for both resident and non- promissory note. Simultaneously, the seller-assignor assigned its
resident clients, managing their investments in the Philippines, rights and interest under the chattel mortgage to the respondent,
particularly in shares of domestic corporations. IFC Leasing and Acceptance Corporation. The tractors were
delivered to the petitioner’s jobsite, and the seller-assignor
HSBC's investor-clients maintain accounts in Philippine pesos and stationed its mechanics to supervise the operations.
foreign currencies, and transactions are executed via electronic
messages known as SWIFT (“Society for Worldwide Interbank Breakdown of Tractors and Warranty Issues
Financial Telecommunication"). Within 14 days of delivery, the first tractor broke down, and the
second followed nine days later. The petitioner formally notified
HSBC paid DST amounting to P19,572,992.10 and P32,904,437.30, the seller-assignor of the breakdown and requested repairs under
respectively, for transactions executed on behalf of its clients. the warranty. Despite attempts to repair the tractors, they
remained unserviceable. Due to the breakdowns, the petitioner’s
BIR issued Ruling No. 132-99, stating that electronic instructions logging operations were delayed, and it informed the seller-
from abroad regarding funds in the Philippines do not incur DST if assignor that installment payments would be delayed until the
they do not involve actual fund transfers from abroad. warranty obligations were fulfilled.
The ruling clarified that DST applies only to bills of exchange or Attempt to Resolve the Issue
orders for payment drawn in a foreign country but payable in the On April 7, 1979, the petitioner requested the seller-assignor to
Philippines. pull out and recondition the tractors, with the proceeds to be
given to the respondent and the excess divided between the
With BIR's ruling, HSBC filed two administrative claims allegedly seller-assignor and the petitioner. The seller-assignor did not
representing erroneously paid DST to BIR. respond to this request, leading the petitioner to unilaterally
rescind the contract.
As BIR did not act on the refund claims, HSBC elevated the matter
before CTA, which in turn, ruled in favor of HSBC, ordering CIR to Legal Proceedings
refund or issue a tax credit in favor of HSBC as the petitioner is The respondent filed a complaint against the petitioner for the
entitled to a tax refund or tax credit because Sections 180 and 181 recovery of the principal sum of P1,093,789.71, accrued interest,
of the 1997 Tax Code do not apply to electronic message attorney’s fees, and costs of suit. The petitioner filed a
instructions transmitted by HSBC’s non-resident investor-clients. counterclaim for damages, attorney’s fees, and expenses of
litigation. The trial court ruled in favor of the respondent, ordering
However, CA reversed both decisions of the CTA and ruled that the the petitioner to pay the principal amount, accrued interest,
electronic messages of HSBC’s investor-clients are subject to DST attorney’s fees, and costs. The Intermediate Appellate Court
as they constituted orders to pay for securities purchased by affirmed the trial court’s decision, prompting the petitioner to file
HSBC's clients. Moreover, appellate court emphasized that the DST a petition for certiorari before the Supreme Court.
was levied on HSBC's acceptance and payment of these electronic
messages.
ISSUE: WON the electronic messages of HSBC's investor-clients
containing instructions to debit their local or foreign currency
accounts in the PH and pay a certain named recipient negotiable
instruments and therefore subject to DST under Sec. 181 of the
Tax Code?
RULING: NO. The Court has held that the electronic messages of
HSBC's investor-clients containing instructions to debit their local
or foreign currency accounts in the PH and pay a certain named
recipient ARE NOT negotiable instruments and therefore, not
subject to DST under Sec. 181 of the Tax Code.
#2 Consolidated Plywood vs. IPC Leasing
Background of the Case
The petitioner, Consolidated Plywood Industries, Inc., is a
corporation engaged in the logging business. In 1978, it needed
two additional tractors for its logging operations in Davao Oriental.
The seller-assignor, Industrial Products Marketing (a sister
company of Atlantic Gulf & Pacific Company of Manila), offered to
sell two used Allis Crawler Tractors (models HD-21-B and HD-16-B).
The seller-assignor assured the petitioner that the tractors were fit
for the job and provided a 90-day warranty on their performance
and availability of parts. Relying on this assurance, the petitioner
agreed to purchase the tractors on installment and paid a down
payment of P210,000.
