CHAMBER OF AGRICULTURE AND NATURAL RESOURCES OF THE PHILIPPINES, ET AL., PETITIONERS VS. CENTRAL BANK OF THE PHILIPPINES, RESPONDENT.

Chamber of Agriculture and Natural Resources of the Philippines versus Central Bank of the Philippines

The Case

This is a case about the reach of the Central Bank's power over foreign exchange during a crisis. A group of exporters, led by the Chamber of Agriculture and Natural Resources of the Philippines, brought an original petition for a writ of prohibition against the Central Bank of the Philippines. They asked the Court to stop the Bank from enforcing its Circulars Numbered 133 and 171, which required that twenty percent of export receipts be surrendered to the Central Bank at par value, that is, two pesos to one dollar, while authorizing the sale of the other eighty percent at the prevailing free market rate. The exporters argued that the retention was illegal, confiscatory, an export tax, and an unlawful delegation of power. The case matters because it fixes the constitutional and statutory boundary between monetary policy, which the courts leave to the Monetary Board, and property rights, which the courts protect.

Procedural History

This was an original petition filed directly in the Supreme Court on July 27, 1964, seeking a writ of prohibition. There were no proceedings in a trial court or in the Court of Appeals. Before filing suit, the petitioners had asked the Central Bank to reconsider and set aside Circular 171, invoking the Court's earlier decision in the Bacolod-Murcia Milling case, and they asked that the portion of export receipts corresponding to the retention be held in trust pending a final judicial ruling. The Central Bank agreed to hold the amounts in trust, and the present action followed. The case was decided by the Supreme Court en banc.

Facts

On December 9, 1949, because of a foreign exchange crisis, the Monetary Board of the Central Bank, claiming to act under Section 71 of its Charter, Republic Act Numbered Two Hundred Sixty-Five, and with the approval of the President, issued Circular Numbered 20, entitled Restriction on Gold and Foreign Exchange Transactions. That circular restricted sales of exchange by the Central Bank, subjected all transactions in gold and foreign exchange to licensing, and required the surrender of foreign exchange acquisitions to authorized agents of the Bank.

On July 16, 1959, Republic Act Numbered Two Thousand Six Hundred Nine was enacted. It authorized the Central Bank to establish a margin of not more than forty percent over the banks' selling rates of foreign exchange, up to December 31, 1964, and it directed the monetary authorities to take steps for a four-year program of gradual decontrol. In line with this, the Central Bank adopted a Plan for Gradual Lifting of Exchange and Import Controls by Monetary Board resolution dated April 22, 1960, and then issued a series of circulars relaxing the surrender requirement: Circular 105 required seventy-five percent at the official rate and twenty-five percent at the free market rate; Circular 111 reduced this to seventy percent and thirty percent; Circular 117 to fifty percent and fifty percent; Circular 121 to twenty-five percent and seventy-five percent; and Circular 133, dated January 21, 1962, to twenty percent and eighty percent.

On April 23, 1964, the Monetary Board, claiming to act under Section 74 of its Charter and with the approval of the President, issued Circular 171, which continued Circular 133 in force. The circular recited that the gradual lifting of controls had been premised on complementary credit and fiscal measures, including an export tax, which Congress had not enacted, and that the exchange crisis continued. The exporters then brought this petition, insisting that the retention was illegal under the Bacolod-Murcia ruling, that it could not be maintained beyond December 31, 1964, that it was an unlawful delegation of power, confiscatory, a denial of due process, and in truth an export tax beyond the Central Bank's power. The Central Bank answered that the retention was an exchange restriction designed to protect the international reserve, as authorized by Section 74 of its Charter.

Issues

• Whether or not the Central Bank is authorized by law to compel the sale to it of twenty percent of exporters' foreign exchange receipts four years after the enactment of Republic Act Numbered Two Thousand Six Hundred Nine.
• Whether or not the pronouncement in the Bacolod-Murcia Milling case, that the Central Bank may not commandeer exporters' foreign exchange, is binding precedent.
• Whether or not Republic Act Numbered Two Thousand Six Hundred Nine required total decontrol after four years, so that the retention could not be maintained beyond December 31, 1964.
• Whether or not the twenty percent retention amounts to confiscation, an export tax, an unlawful delegation of power, or an invalid exercise of police power and eminent domain.

Applicable Provisions

Section 1 of Republic Act Numbered Two Thousand Six Hundred Nine provides:

SECTION 1. The provisions of any law to the contrary notwithstanding when and as long as the Central Bank of the Philippines subjects all transactions in gold and foreign exchange to licensing in accordance with the provisions of section seventy-four of Republic Act Numbered Two Hundred sixty-five, the Central Bank, in respect of all sales of foreign exchange by the Central Bank and its authorized agent banks, shall have authority to establish a uniform margin of not more than forty per cent over the banks' selling rates stipulated by the Monetary Board under section seventy-nine of Republic Act Numbered Two hundred sixty-five, which margin shall not be changed oftener than once a year except upon the recommendation of the National Economic Council and the approval of the President. The Monetary Board shall fix the margin at such rate as it may deem necessary to effectively curtail any excessive demand upon the international reserve. In implementing the provisions of this Act, along with other monetary, credit and fiscal measures to stabilize the economy, the monetary authorities shall take steps for the adoption of a four-year program of gradual decontrol.

This provision is the heart of the case, because the exporters read its four-year program as a mandate for total decontrol, while the Court reads it as a directive to take steps, not a deadline that extinguishes the Bank's power.

Section 74 of the Central Bank Charter, Republic Act Numbered Two Hundred Sixty-Five, provides:

In order to protect the international reserve of the Central Bank during an exchange crisis the Monetary Board, with the concurrence of at least five of its members and with the approval of the President of the Philippines, may temporarily suspend or restrict sales of exchange by the Central Bank, and may subject all transactions in gold and foreign exchange to license by the Central Bank.

This is the source of the authority the Court upholds, because the power to license and restrict necessarily carries with it the power to impose conditions on licensees.

Section 44 of the same Charter provides:

Revaluation profits and losses. The revaluation profits or losses made or assumed by the Central Bank in accordance with the provisions of sections 77 and 83 of this Act shall not be included in the computation of the annual profits and losses of the Central Bank. Any profits or losses arising in this manner shall be offset by any amounts which, as a consequence of such revaluations are owed by the Philippines to the International Monetary Fund and the International Bank for Reconstruction and Development or are owed by these institutions to the Philippines. Any remaining profit or loss shall be carried in a special frozen account which shall be named Revaluation of International Reserve and the net balance of which shall appear either among the liabilities or among the assets of the Central Bank, depending on whether the revaluation have produced net profit or net losses. The Revaluation of International Reserve account shall be neither credited nor debitted for any purpose other than those specifically authorized in the present section or in section 45 of this Act.

This provision answers the confiscation argument, because the profits from resale are not disposable income of the Bank but are earmarked for currency stabilization.

Ruling

On the first issue, the Court held that the Central Bank is authorized to compel the surrender of twenty percent of export receipts. The power to license and restrict foreign exchange transactions necessarily implies the authority to impose upon licensees such conditions, including surrender of receipts, as the Bank may deem necessary to protect its international reserve. Whether the Bank should have limited itself to restricting imports, or should also have commandeered exporters' dollars, is a question of policy and wisdom entrusted to the Monetary Board and the President, not to the courts.

On the second issue, the Court held that the pronouncement in Bacolod-Murcia was not binding precedent. It was the personal view of the writer, expressly labeled as such, and the majority resolved that case on estoppel. The Court also noted that the validity of Circular 20, requiring surrender of one hundred percent of export receipts, had been sustained in earlier cases, and that its own resolution denying reconsideration in Bacolod-Murcia recognized that before Republic Act Numbered Two Thousand Six Hundred Nine the Bank had authority to commandeer exporters' dollars.

On the third issue, the Court held that the law did not decree total decontrol after four years. Its express terms are that the monetary authorities shall take steps for the adoption of a four-year program of gradual decontrol. The Court quoted the sponsor's speech showing that the aim was that by the end of the fourth year no less than eighty percent of total imports be decontrolled, which necessarily left the Bank's power intact as to the balance. The supersession of Section 74 by the Act was therefore not total.

On the fourth issue, the Court held that the retention is not confiscation, because the twenty percent is paid for at legal parity; not an export tax, because a tax is a levy for revenue while the proceeds strengthen the international reserve; and not an undue delegation or invalid exercise of police power, as already settled in earlier cases involving circulars of the same character. The Court also held that the exchange crisis continued, since reserves had fallen from two hundred fifty-one million dollars in 1949 to one hundred four point seven million dollars in April 1964, and that the gradual relaxation from one hundred percent to twenty percent showed the restriction was temporary, not permanent.

Doctrine

First, the power of the Central Bank under Section 74 of its Charter to suspend or restrict sales of exchange and to subject transactions to license necessarily implies the power to impose conditions on licensees, including the surrender of export receipts at parity, in order to protect the international reserve.

Second, the determination of whether and how to exercise that power during an exchange crisis is a question of policy and wisdom, committed to the Monetary Board and the President, and is not for the courts to decide once it appears the measures relate to protecting the international reserve.

Third, Republic Act Numbered Two Thousand Six Hundred Nine did not decree absolute decontrol after four years; it required only that the monetary authorities take steps for a four-year program of gradual decontrol, and the Bank's power under Section 74 continued, limited by that Act.

Fourth, only the ratio decidendi of a decision binds as precedent; a statement expressly presented as the personal view of the writer, and not adopted by the majority, is not legal doctrine.

Disposition

The petition was dismissed, and the writ of prohibition was denied, the Court upholding the continued enforcement of Circulars 133 and 171.

Remember This

The one line to memorize is that the power to license foreign exchange necessarily includes the power to impose conditions, including surrender of export receipts, and that its exercise during a crisis is a question of policy beyond judicial review. Examiners use this case to test the extent of the Central Bank's police power over foreign exchange, the weight of separate opinions as precedent, and the reading of a statutory decontrol program as a directive to take steps rather than a fixed deadline.