[WITH RESOLUTION OF AUGUST 31, 1960]

Tan versus Co

The Case

This is the case of Tan versus Co, a criminal prosecution for violation of Central Bank Circular Number 20, issued in relation to Section 34 of Republic Act Number 265, the Central Bank Charter. Francisco Tan, also known as Lim Te and Tan Sek, and his employee Felino Co were charged before the Court of First Instance of Pampanga with dealing in foreign exchange without a license from the Central Bank. The case matters to a reviewee because it is the classic affirmation of the validity of exchange control in the Philippines: it settles that Circular Number 20 is a valid penal regulation, that it was issued under a valid delegation of legislative power, and that its prohibitions reach purchases and dispositions of foreign exchange by private persons, regardless of how briefly they held the dollars.

Procedural History

Tan and Co were tried in the Court of First Instance of Pampanga. After due trial, both were found guilty. Francisco Tan was sentenced to imprisonment of from two years as minimum to four years as maximum, and to pay a fine of ten thousand pesos, plus one-half of the costs. Felino Co was sentenced to imprisonment of from six months as minimum to two years as maximum, and to pay a fine of two thousand pesos, plus one-half of the costs. Both were also sentenced to subsidiary imprisonment in case of insolvency, and the trial court decreed the forfeiture in favor of the Government of the various dollar instruments seized. From that sentence, the defendants appealed to the Court of Appeals, but that court certified the case to the Supreme Court because the constitutionality or validity of a law, executive order, or regulation was in question. The Supreme Court decided the appeal on June 30, 1960, affirming the conviction in full, and later resolved the defendants' motion for reconsideration in a resolution dated August 31, 1960.

Facts

Sometime in June 1952, Felino Co, an employee of Francisco Tan, persuaded Edward Custer, an American serviceman stationed at Clark Air Force Base in Angeles, Pampanga, but living outside the base, to buy money orders for him at the post office inside the base. Custer received a commission of thirty pesos for every one hundred dollars worth of money orders he bought. Later that same month, before leaving for Japan, Tan gave Custer two thousand dollars in military payment certificates, commonly called scrips, to buy a car in Japan. Custer could not buy the car, and following Tan's instructions he instead bought five United States postal money orders of one hundred dollars each in his own name. Upon returning on August 5, 1952, Custer delivered the money orders to Tan together with the fifteen hundred dollars in scrips remaining from the amount given him, and received one hundred fifty pesos as commission. In the presence of Custer, Co signed Custer's name on the space for the indorsee's signature, leaving the indorsee's name blank.

Also in August 1952, Co gave Custer various sums with which to buy bank drafts for Tan at the Clark Air Base branch of the National City Bank of New York, with instructions to place them in the names of Custer's folks. Custer had some of his airmen friends buy the drafts and bought some himself, then delivered them to Tan and collected his commission. On August 22, 1952, Co gave Custer four sealed envelopes and asked him to post them at the United States Post Office inside the base. The envelopes, addressed to persons in California and Hongkong, contained twenty-eight United States postal money orders, one United States treasury check, one traveller's check, and twenty-five bank drafts. On August 25, 1952, Co again delivered four thousand dollars in scrips for the purchase of bank drafts, and Custer turned the whole amount over to Airman Alberto Gonzales.

That same morning, Captain William McMahon of the United States Air Force, detailed to the Office of Special Investigation at Clark Air Base, searched Custer's writing desk and found the four envelopes containing Tan's dollar instruments, as well as the drafts Gonzales had placed there. McMahon confiscated the instruments and placed Custer under arrest; Gonzales was later apprehended with two more one thousand dollar drafts. When Tan and Co learned of the arrests and the seizure, they contacted McMahon. At a meeting at the Spic and Span Night Club in Angeles, Tan first admitted ownership only of the two envelopes addressed to California, but later admitted ownership of the other two as well, and offered McMahon one thousand dollars and five hundred pesos for the return of the four envelopes. McMahon reported the offer to his superior and notified Antonio Laforteza, chief intelligence operative of the Central Bank, together with agents of the National Bureau of Investigation, the Military Intelligence Service, and the Philippine Constabulary, who planned the arrest. At about midday of November 14, 1952, in a private dining room of the San Fernando Hotel, McMahon delivered the dollar instruments to Tan and asked him to sign a receipt, which Co signed as witness. Tan then handed McMahon the bribe money of eight hundred dollars in scrips and five hundred pesos, apologizing that he could not bring the full amount agreed upon. At that point the officers barged in, arrested Tan and Co, and seized the instruments.

Issues

• Whether or not the trial court's finding that Tan owned the dollar instruments, and not merely held them as payment of a debt, should be sustained on appeal.
• Whether or not the defendants are exempt from Circular Number 20 by virtue of Notification Number 13 of the Central Bank.
• Whether or not the defendants could have violated Circular Number 20 when the dollar instruments were in their possession for only about five minutes before seizure.
• Whether or not Circular Number 20 is a valid penal law, considering the claims of lack of presidential approval, conflict with international agreements, absence of an emergency, and undue delegation of legislative power.
• Whether or not the transactions, having taken place with servicemen inside Clark Air Force Base, fall outside the reach of Circular Number 20.
• Whether or not the acts of the defendants adversely affected the dollar reserves of the Philippines.

Applicable Provisions

Paragraph 4(a) of Central Bank Circular Number 20, as described in the decision, provides:

Paragraph 4(a) requires any person who receives foreign exchange to sell it to the Central Bank or its authorized agents within one business day following the receipt of such foreign exchange, and prohibits the disposition without a license by the Bank of such foreign exchange except to designated agents of the said bank.

This is the provision that fixes the duty to sell received foreign exchange to the Central Bank or its agents, which the defendants failed to observe.

Paragraph 4(b) of the same circular provides:

Paragraph 4(b) prohibits the purchase of foreign exchange, directly or indirectly, except from or through authorized agents of the Central Bank.

This is the provision directly violated by the defendants, who purchased dollar instruments through Custer without any license.

Section 74 of Republic Act Number 265 provides:

Notwithstanding the provisions of the third paragraph of the preceding section, in order to protect the international reserve of the Central Bank during an exchange crisis and to give the Monetary Board and the Government time in which to take constructive measures to combat such a crisis, the Monetary Board 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 statutory source of the authority to issue Circular Number 20, and the Court reads its grant as broad enough to cover all sales, purchases, and dispositions of foreign exchange, whether by the Central Bank or by private persons.

Paragraph 2(b) of Notification Number 13 provides:

The exemption granted to resident foreign citizens under this notification does not authorize any resident foreign citizen to buy foreign exchange or sell, transfer, or otherwise surrender foreign exchange to anyone in the Philippines other than as provided in Central Bank Circular No. 20 or regulations, notifications, rulings, instructions, or licenses issued thereunder.

This forecloses the defense of exemption, because even resident aliens may not buy or dispose of foreign exchange except as Circular Number 20 allows.

Ruling

On the first issue, the Court sustained the trial court's finding of ownership. Tan admitted ownership of the instruments in letters signed by his lawyer and in his statements to Captain McMahon, and he admitted to Laforteza that he had delivered the instruments to Custer for mailing. The Court held that the trial judge's determination, made with the advantage of hearing the witnesses and observing their demeanor, stands absent compelling reasons to reject it.

On the second issue, the Court held that Notification Number 13 does not exempt the defendants. The dollar instruments were not property physically situated elsewhere than in the Philippines, nor did they involve dealings with non-residents, since the defendants received the foreign exchange from Custer, a resident of the Philippines. The Court also noted that under the Bases Agreement, the Philippine Government never abdicated its sovereignty over the bases as part of Philippine territory.

On the third issue, the Court held that the length of possession is immaterial. The evidence showed that Tan held the postal money orders from August 2 to August 22, 1952, and that the other instruments must likewise have been in the defendants' possession long before seizure. More fundamentally, the Court ruled that the purchase of foreign exchange without a license is a violation regardless of the length of possession.

On the fourth issue, the Court held that the validity of Circular Number 20 had already been settled in the Jolliffe, Koh, Henderson, and Lim Ho cases. The circular was in fact approved by the President; the prosecution need not prove compliance with international agreements, since the Central Bank and the President certify that it accords with them; its temporary character need not appear on its face so long as it was issued during an exchange crisis; and the standards in the Central Bank Charter are sufficiently concrete and definite to place the grant of authority beyond a delegation of legislative power.

On the fifth issue, the Court rejected the claim that the transactions occurred inside Clark Air Force Base, because the evidence established that the defendants personally received from and delivered to Custer, a resident of the Philippines, and received scrips from army personnel while they were in Angeles, Pampanga.

On the last issue, the Court held that the restrictions have a double purpose, the replacement of dollars disbursed from the international reserve and the acquisition of dollars to augment it, and that every dollar that should be added but is not adversely affects the country's economy.

Doctrine

Circular Number 20 is a valid penal regulation issued under Section 74 of Republic Act Number 265, and the authority granted by that section is broad enough to cover all sales, purchases, and dispositions of foreign exchange, whether by the Central Bank itself or by the general public. The purchase of foreign exchange, directly or indirectly, without a license from the Central Bank or its authorized agents is punishable regardless of the length of possession of the foreign exchange. The exemption granted to resident foreign citizens does not authorize them to buy foreign exchange or to sell, transfer, or otherwise surrender it to anyone in the Philippines except as Circular Number 20 allows. The temporary character of the circular need not appear on its face so long as it was issued during an exchange crisis, and the standards in the Central Bank Charter are sufficiently concrete and definite to avoid an undue delegation of legislative power. Finally, the Philippine Government never abdicated its sovereignty over the American military bases, which remain part of Philippine territory.

Disposition

The Court affirmed the judgment of conviction in full, with costs against the appellants, and denied their motion for reconsideration.

Remember This

Memorize this line: the purchase of foreign exchange without a license from the Central Bank or its authorized agents violates Circular Number 20 regardless of the length of possession. Examiners use this case to test the validity of exchange control, the scope of Section 74 of the Central Bank Charter, and the rule that the bases remain Philippine territory for purposes of our penal and regulatory laws.