GEORGE W. BATCHELDER, DOING BUSINESS UNDER THE NAME AND STYLE OF BATCHELDER EQUIPMENT, PLAINTIFF AND APPELLANT VS. THE CENTRAL BANK OF THE PHILIPPINES, DEFENDANT AND APPELLANT.

Batchelder versus Central Bank of the Philippines

The Case

This is Batchelder versus the Central Bank of the Philippines, a case about whether the Central Bank can be compelled, by force of its own circulars, to sell dollars to a private businessman at a fixed exchange rate. George W. Batchelder, doing business as Batchelder Equipment, sued the Central Bank, insisting that its resolutions and memoranda created a legal obligation to resell to him a specific amount of dollars at a specific rate. The case matters because it draws a bright line between two ways an obligation can arise: from a contract, which the Central Bank may enter, and from law, which must be shown to exist and to bind the agency itself. It teaches that a regulatory agency issuing rules does not thereby become a debtor under those rules.

Procedural History

The case began in the trial court, which ruled in favor of Batchelder on the assumption that a contract existed between him and the Central Bank. The Central Bank appealed, and the Supreme Court, in a decision dated March 29, 1972, reversed the trial court, holding that the Central Bank acted not as a contracting party but as a regulatory agency managing the currency. Batchelder then filed a motion for reconsideration, abandoning his contract theory and arguing instead that the obligation arose from law. That motion is what the Court resolves here, and it denies the motion, so the March 29, 1972 decision stands.

Facts

George W. Batchelder, doing business under the name and style of Batchelder Equipment, sought to obtain dollars from the Central Bank at the exchange rate of two pesos and three hundred seventy-five thousandths of a centavo, or two pesos and three thousand seven hundred fifty ten-thousandths, to one dollar. He claimed the Central Bank was obligated to resell to him the amount of one hundred fifty-four thousand and ninety-four dollars and fifty-six cents at that rate.

In the trial court and on appeal, Batchelder argued that a contract existed between him and the Central Bank giving rise to that duty. The Supreme Court rejected this in its March 29, 1972 decision, holding that the Central Bank acted as a regulatory agency, not as a juridical person entering into contracts. Batchelder then moved for reconsideration, retreating from the contract theory and contending instead that the obligation arose from law, specifically from the Central Bank's circulars, resolutions, and memoranda, which he said had the force and effect of law.

The Central Bank had consistently denied that Batchelder complied with its rules and regulations, pointing out the deficiencies incurred. The trial court had ruled for Batchelder on the assumption of a contract, but that ruling was reversed by the Supreme Court.

Issues

• Whether or not the Central Bank's circulars, resolutions, and memoranda, having the force and effect of law, created an obligation on the part of the Central Bank to resell dollars to Batchelder at the claimed exchange rate.
• Whether or not Batchelder complied with the rules and regulations of the Central Bank.
• Whether or not Batchelder acquired a vested right that would entitle him to the claimed exchange rate.

Applicable Provisions

Article 1157 of the Civil Code provides:

Obligations arise from law, contracts, quasi-contracts, acts or omissions punished by law and quasi-delicts.

This provision is the starting point of Batchelder's argument that law is a source of obligation, but the Court holds that such an obligation must actually exist and be shown.

Ruling

On the first issue, the Court holds that while obligations may arise from law, such obligations are not presumed. As the Court declared as early as 1909 in Pelayo versus Lauron:

Obligations arising from law are not presumed.

The Court explains that an obligation arising from law is a creation of the positive law, ordinarily traceable to a code or statute. While a Central Bank circular may have the force and effect of law, especially when issued in pursuance of its quasi-legislative power, that alone does not mean the Central Bank has assumed an obligation. To be impressed with such a character, it must be categorically demonstrated that the very administrative agency that is the source of the regulation would place such a burden on itself. Here, the Court finds no such self-imposed obligation. The Central Bank acted as a regulatory agency entrusted with managing the currency, and it would set at naught fundamental concepts of administrative law to hold otherwise.

On the second issue, the Court holds that the claim of compliance with the Central Bank's rules and regulations falls to the ground, since the Central Bank had precisely denied such compliance and indicated the deficiencies incurred.

On the third issue, the Court holds that any claim of a vested right is likewise untenable, since it rested on the same assumptions the Court has rejected.

Doctrine

Obligations arising from law are not presumed; they must be categorically shown to exist and to be traceable to a code or statute. A Central Bank circular may have the force and effect of law when issued in pursuance of quasi-legislative power, but that does not by itself create an obligation on the part of the Central Bank. To bind the agency, it must be categorically demonstrated that the agency itself placed such a burden on itself. The Central Bank, when issuing such circulars, acts as a regulatory agency managing the currency, not as a juridical person entering into contracts.

Disposition

The motion for reconsideration is denied, and the decision of March 29, 1972 stands, in favor of the Central Bank.

Remember This

The single line worth memorizing is that obligations arising from law are not presumed, and a regulatory agency issuing rules does not thereby become a debtor under them. Examiners like to use this case to test the distinction between obligations arising from contract and obligations arising from law, and to test whether a student knows that a Central Bank circular, though having the force of law, does not automatically create a self-imposed obligation on the Central Bank.