Batchelder vs. The Central Bank of the Philippines

A Central Bank circular or regulation, even when it has the force and effect of law, does not by itself create an obligation on the part of the Central Bank to a private party; obligations arising from law are not presumed and must be categorically shown to have been imposed by law on the agency itself. When issuing currency regulations, the Central Bank acts as a regulatory agency, not as a juridical person with power to enter into contracts.

George W. Batchelder, doing business under the name and style of Batchelder Equipment, was the plaintiff-appellant; the Central Bank of the Philippines was the defendant-appellant. The Central Bank is a regulatory agency entrusted with managing the currency, maintaining monetary stability, and preserving the international value of the peso, and it exercises quasi-legislative and quasi-judicial powers. The controversy concerned the legal effect of Central Bank circulars, resolutions, and memoranda issued in the exercise of that regulatory authority, specifically whether they could create an obligation on the Central Bank to resell foreign exchange to a private party.

George W. Batchelder, doing business under the name and style of Batchelder Equipment, sought to hold the Central Bank of the Philippines to an exchange rate of P2.00375 to US$1.00 for the resale of US$154,094.56. According to Batchelder, the Central Bank was obligated to resell that amount to him at that rate. The Central Bank denied that there was any contract creating such a duty and denied that Batchelder had complied with its rules and regulations, specifying the respects in which the deficiency was incurred. The lower court resolved the matter on the assumption that a contract existed between Batchelder and the Central Bank.

After the Supreme Court reversed that decision on March 29, 1972, Batchelder moved for reconsideration and shifted to a new theory: that the Central Bank's obligation arose from law, particularly from Central Bank circulars, resolutions, and memoranda having the force and effect of law. He also asserted compliance with the Central Bank's rules and regulations and the acquisition of a vested right. The Court found no legal provision categorically imposing on the Central Bank itself an obligation to resell the foreign exchange.

• Obligation Arising from Law: Plaintiff-appellant argued that even if there was no contract obligating the Central Bank to resell US$154,094.56 to him at P2.00375 to US$1.00, the lower court judgment could and should be sustained because such an obligation arose from law.
• Administrative Regulations as Sources of Obligations: Plaintiff-appellant maintained that laws include administrative orders and regulations not contrary to the laws or the Constitution, and that Central Bank circulars, resolutions, and memoranda issued under its authority have the force and effect of law and can therefore be sources of obligations, citing People vs. Que Po Lay.
• Compliance and Vested Right: Plaintiff-appellant also contended that there was in fact compliance with the Central Bank's rules and regulations and that he had acquired a vested right.

• Obligation Arising from Law: Whether the lower court judgment could be sustained on the ground that the Central Bank had an obligation arising from law to resell US$154,094.56 to plaintiff at P2.00375 per US$1.00 even without a contract.
• Effect of Central Bank Circulars: Whether Central Bank circulars, resolutions, or memoranda having the force and effect of law could themselves create an obligation on the part of the Central Bank to a private party.
• Compliance and Vested Right: Whether plaintiff had complied with the Central Bank's rules and regulations and acquired a vested right.

• Obligation Arising from Law: No. Obligations arising from law are not presumed; the legal provision imposing the obligation on the Central Bank must be categorically shown, and none was.
• Effect of Central Bank Circulars: No. Although a Central Bank circular may have the force and effect of law, it does not thereby impose an obligation on the Central Bank itself unless the regulation categorically places that burden on the agency.
• Compliance and Vested Right: No. Because the principal claim of a legal obligation failed, the assertions of compliance and vested right likewise fell; the Central Bank had denied compliance and no reliance could be placed on the reversed lower court decision.

• Obligation Arising from Law: Article 1157 of the Civil Code lists law, contracts, quasi-contracts, acts or omissions punished by law, and quasi-delicts as sources of obligations. While law is indeed a source, the Court stressed that the legal provision imposing the obligation must actually exist and be shown. Citing Pelayo vs. Lauron, it declared that obligations arising from law are not presumed; citing Leung Ben vs. O'Brien, it described such an obligation as a creation of positive law, ordinarily traceable to a code or statute. Batchelder's new theory therefore failed because he did not categorically demonstrate a legal provision requiring the Central Bank to resell US$154,094.56 at P2.00375 per US$1.00.
• Effect of Central Bank Circulars: The Court acknowledged, following People vs. Que Po Lay, that a Central Bank circular may have the force and effect of law, especially when issued in pursuance of its quasi-legislative power. That alone, however, did not justify the conclusion that the Central Bank had assumed an obligation. To impress such a character on the regulation, it must be categorically demonstrated that the very administrative agency that issued it would place such a burden on itself. The Court found no such self-imposed obligation. It also noted the Central Bank's statutory objectives of maintaining monetary stability and preserving the international value of the peso, and warned that upholding the lower court would set at naught fundamental concepts of administrative law, substitute judicial discretion for the agency's expert appraisal, and frustrate or nullify the law's objective.
• Compliance and Vested Right: With the principal contention rejected, the claims that Batchelder had complied with the Central Bank's rules and regulations and had acquired a vested right likewise fell. The Central Bank had consistently denied compliance and had indicated the deficiency. No reliance could be placed on the lower court decision, which the Supreme Court had reversed on the assumption of a contract, and Batchelder himself appeared to abandon that contract theory in his motion for reconsideration. Any vested right was therefore untenable.

• Obligations arising from law are not presumed — This rule, derived from Pelayo vs. Lauron and Leung Ben vs. O'Brien, requires a categorical showing that a positive law or legal provision imposes the obligation. The Court applied it to reject Batchelder's claim that the Central Bank had a legal duty to resell foreign exchange absent any contract.
• Administrative circulars with the force and effect of law — A Central Bank circular issued in pursuance of quasi-legislative power may have the force and effect of law, as recognized in People vs. Que Po Lay. However, such a circular does not automatically create an obligation on the issuing agency; it must be categorically demonstrated that the agency placed that burden on itself. The Court found no such self-imposed obligation.
• Central Bank as regulatory agency — When issuing currency regulations, the Central Bank acts not as a juridical person with power to enter into contracts but as a regulatory agency entrusted with managing the currency. It cannot be treated as a party to a juridical relation called upon to satisfy a credit.
• Sources of obligations under Article 1157 — Obligations arise from law, contracts, quasi-contracts, acts or omissions punished by law, and quasi-delicts. The Court used this enumeration to frame Batchelder's theory but held that the existence of the legal provision imposing the obligation must be shown.

• "This point, while strongly pressed in a pleading that is not without its plausibility, loses sight of the ratio decidendi of our decision of March 29, 1972 that the Central Bank acted not as a juridical person with power to enter into contracts but as a regulatory agency entrusted with the delicate function of managing the currency." — This passage states the ratio decidendi: the Central Bank's regulatory character precluded treating it as a contracting party.
• "Obligation arising from law are not presumed." — The Court cites this rule from Pelayo vs. Lauron as the core reason Batchelder's obligation-from-law theory failed.
• "To be impressed with such a character, however, it must be categorically demonstrated that the very administrative agency, which is the source of such regulation, would place such a burden on itself." — This defines the requirement for an administrative regulation to create an obligation on the issuing agency itself.
• "WHEREFORE, the motion for reconsideration is denied." — The dispositive portion denies the motion and leaves the March 29, 1972 decision standing.

• Pelayo vs. Lauron, 12 Phil. 453 (1909) — Cited as the controlling precedent for the rule that obligations arising from law are not presumed.
• Leung Ben vs. O'Brien, 38 Phil. 182 (1918) — Cited for the proposition that an obligation arising from law is a creation of positive law, ordinarily traceable to a code or statute.
• People vs. Que Po Lay, 94 Phil. 640 (1954) — Cited by plaintiff-appellant for the principle that a Central Bank circular issued to implement a law has the force and effect of law; the Court acknowledged the principle but held it did not establish a self-imposed obligation on the Central Bank.

• Article 1157, Civil Code — Enumerates the sources of obligations: law, contracts, quasi-contracts, acts or omissions punished by law, and quasi-delicts. The Court used it to frame Batchelder's argument that law was the source of the Central Bank's alleged obligation, then held that the legal provision imposing such an obligation must exist and be shown.

Chief Justice Concepcion and Justices Reyes, J.B.L., Makalintal, Zaldivar, Castro, Teehankee, Barredo, Makasiar, Antonio, and Esguerra concurred.