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[CENTRAL BANK OF PHILIPPINES v. HERMOGENES CALUAG](http://lawyerly.ph/juris/view/c33d2?user=fbGU2WFpmaitMVEVGZ2lBVW5xZ2RVdz09)
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G. R. No. L-12361

[ G. R. No. L-12361, September 28, 1957 ]

CENTRAL BANK OF THE PHILIPPINES, PETITIONER, VS. HON. HERMOGENES CALUAG, ET AL., ERESPONDENT.

D E C I S I O N

BAUTISTA ANGELO, J.:

This  is a petition for certiorari and prohibition with preliminary injunction seeking to  set aside an order of respondent  judge entered, on April 29,  1957 enjoining petitioner from enforcing its directive prohibiting American residents  who receive U.   S.   treasury warrants from remitting them for deposit  to   their  banks  in  the United States  in accordance with   the authorization previously given them by petitioner.

Tomas Fortes is an American citizen, who had retired from the Armed Forces of the United States. He is a temporary resident   of the Philippines and a  recipient  of a monthly pension from  the US government which  is paid to him in the form of  a  treasury warrant.     He had  been regularly receiving his  pension in  the  manner above  stated  and had been transmitting  the corresponding treasury warrant to his  bank in the United States through the National City Bank of New York,  Manila   Branch,   for deposit,   until February 26,   1957 which  the  Central Bank issued a directive enjoining said  National City Bank from henceforth, transmitting said treasury warrants as previously authorized,  for  which reason lie  brought  an action in the  Court  of First        Instance of  Queson City seeking; to enjoin 'the Central Bank from enforcing the aforesaid directives.

Tomas Fortes   claims  that  the directive  issued  by the 'Central Bank on February 26,  1957  is arbitrary  and unconstitutional because   (a)   the  charter of said bank does not vest in it   the power to  control  the treasury warrants   issued to American  citizens  since  the  same are   chargeable against the  funds  of   the United States ;   (b)  the  directive ,was issued  Dy Deputy Governor Andrea V,   Castillo in  contravention of  Section 5, Republic Act No.  265,  which cite ;such power to "the Monetary Board;   (c)   the directive  is confiscatory as  it  deprives petitioner  (Fortes)   of  his property without  due process  of  law;   and   (d)  it was  not approved b  the Monetary Board nor by  the President  of   the Philippines  and was  not  even published in  the Official Gazette.    In his  petition,   Tanas  Fortes  asked for the immediate issuance of  a deceit of preliminary injunction,  claiming that,   unless   that writ  is   issued,   irreparable  damage and and injury would be  caused to him and many others  similarly situated.

This  petition was vigorously  objected  to  by the  Central Bank on the following grounds:   (a)  the writ was  unnecessory because  Fortes and others similarly' situated  could  cash ,their treasury warrants  at the National City Bank of New York, Manila Branch,  and receive the full' value thereof,   or could remit  the dollar proceeds representing their!, to  their tanks in the United States  pursuant  to the provisions  of  Central Bank Circular No.   20;   (b)  the directive was  issued by the deputy governor in  the exercise .of  his power  to implement arid enforce the provisions of said circular;   (c) the authorization previously given by the deputy governor to American  citizens  on August 31,   1950 to  remit  abroad  the dollar proceeds  of their treasury warrants  through the National City Bank of New York,  Manila Branch,  was  but a left privilege which could be  revoked when such privilege is misused or abused;   (d)  if   the writ  is  issued,   the  injury and damage, that  public  interest would suffer would , be beyond pecuniary estimation whereas,   if  denied the injury that Fortes may suffer would be fully  compensated: and (e)  the treasury warrants  in question partake of they nature of   "foreign exchange" which are subject  to  regulation by the  Central  Bank.

At  the hearing held in  connection with the  petition 'for' the issuance  of  a writ  of  preliminary injunction,   both parties appeared and argued and submitted written memoranda.    Thereafter,   the  court Issued, an. order granting the writ.    The court held that the  deputy governor did not  have the authority to Issue the directive of February 26, 1957, the some being the exclusive function of  the Monetary  Board.    The court further held ''that  the withdrawal  of  the   exemption may only be made by the Monetary Board,   subject to the approval of  the Resident  of  the Philippines   and only "after negotiations with the United States government " or its representative here in  the Philippines.    It may not 'be made by a unilateral act  of  one party where  the agreement was made by two. "    The  court did  not deem it necessary at that instance to pass upon the validity of  Circular No. 20 of the Central  Bank.   In due  course,   the  Central  Bank filed the present petition f or certiorari.

The main issue involved in  the present, petition hinges on  the validity of  the directive of  the Central Bank  dated February 26,   1957,   but  before   this   can be determined, there is need to. make a brief statement of   the factual background which led  to  the  issuance of  said directive.

On December  9, 1949,  the Central Bank promulgated 'Circular No.  20 providing that all transactions in old and foreign exchange in the Philippines were subject to license by said bank and that all foreign exchange received or acquired by residents whether nationals  or not are to be sold to  the  Central Bank or to any of  its  authorized agents within one business  day following receipt.    American citizens residing in the Philippines who were receiving  checks in dollars from, the U. S.   government as  pensions were included.    These citizens, when transmitting  to  the United States  the  dollar proceeds  of  their pension checks mad to apply for a license from the  Central Bank for each and every remittance.

Sometime in 1950,  however,  due to  the fact   that  a great number of these checks were found channelled to Hongkong and to the United States  through  the blackmarket  in violation of the exchange  control,   the Central Bank went into consultation with the representatives  of the U.S. Treasury Department and with U.S. Ambassador Myron Cowen with the result that an informal arrangement was arrived at whereby a  change in the .procedure of payment of said checks to American citizens was effected.    The change was that the US.  Treasury Department would issue restrictive checks which are made payable only to the National City Bank of New York, Manila Branch,   and that  "American citizens who are residing in the Philippines will be permitted to remit   to the United  States  the dollar amount  of checks issued in their names,   or any part  thereof,  and. that the Philippine Exchange Control will  issue, an appropriate authorization  to the Manila Branch of  the National' City Bank of  New York to enable  that  bank to make such remittances."    Accordingly,  on August 31,   1950,   Deputy Governor Alfonso  Calalang issued  the requested authorization under "certain specific conditions which must  be  complied     with by American  citizens.    This authorization was subsequently amended on two  other occasions  in view of the  new situation that had arisen which necessitated   the adoption of measures  calculated to plug certain lopeholes  devised  to circumvent the exchange control regulations.

On December 12,   1956,, the National  City Bank of New York, Manila  Branch, wrote to the Central Bank  report in that the remittances effected by said National  City Bank through its San Francisco correspondent,   the American  Trust  Company,  for credit to the accounts of  the persons   mined in a given list, ninety-nine   (99)  in all, were returned with the advice that said persons did.not have accounts therein and that,  subsequently,   said correspondent  also received  99  unsigned letters  supposedly sent  by the , remitters of the checks giving instructions for the disposal of  the funds  involved.     On  the  other hand,   the Intelligence Division of  the Central Bank received a communication from Mr. Paul  F.   Cassady,   Security Officer of the U.S. Embassy,  Manila,  stating that a  Filipino-American woman went to said embassy for the authentication of a certain card authorizing the deposit of a check in the amount of over two  thousand, dollars in a  certain bank.    Because said card appeared to be similar to  those which had  been used previously by one Vernon King,   an American well  known in the  embassy for his  questionable activities  the woman was investigated.    She revealed  that Vernon King  was waiting for her in a car outside the embassy compound; that he offered to pay her check in pesos at  the rate, of P2.50 for every dollar  that she had already made two trips to the office of  Vernon King and during those trips she had seen at  least  fifteen   (15) more Americans  and Filipinos  also holders of U. S.   treasury checks who had gone there for same purpose.     The  investigation revealed  that, the privilege granted by  the  Central Bank to American citizens was being flagrantly abused by selling the checks  to unauthorized persons in exchange for pesos at  a premium,   thus channelling them to  the blackmarket.    This discovery prompted the Central Bank to issue  its directive  of February  26,  1957.

As we have already stated elsewhere,  the validity -of?Circular No.  20 of   the Central Bank is not now in issue. for the same was considered by  the trial, court as one which  strikes at the very merit of   the case,  and so we will limit our discussion to  the determination of the validity of the directive issued by Deputy Governor Castillo on February  26, 1957.    It is contended that said directive which withdraws from American residents in  the Philippines  the privilege of remitting  the proceeds  of their treasury warrants  to their banks  in the United States through the National City Bank of New York, Manila Branch,  is legally ineffective  because when said directive was issued the deputy  governor did not have the authority to do so for that power can only to exercised by  the Monetary Board.     It is likewise contended that  inasmuch as the exemption granted to American citizens by the  Central  Bank was  the result of  an  agreement between the two governments,   that exemption can not  be withdrawn by one without  the consent of  the other or,   as the trial court said,   "It may not  be made by a unilateral act of one party where the agreement was made by two."

There can be no question that  the governor and in his absence,   the deputy governor,  has the power and the duty to submit for   the   consideration, of   the Monetary Board the policies and measures which  they believe to be necessary to carry out the purposes  of Republic Act No.  265,   and that it is they who are  called  upon to represent  the Monetary Board "in all dealings with other offices,   agencies,   and instrumentalities of  the  Government and. with all other persons or entities,  public or private,   whether domestic,   foreign or International"  (Sections 16,  17 and 21, Republic Act No. 265).    It is under this authority that Deputy Governor Culalang first,  and Governor Castillo later,   conducted  negotiations  with the representatives of  the U. S.  government relative to the  issuance  of  the two directives  relating to the authorization and cancellation of  the privilege given to American citizens  to remit to  their banks in the United States  the  dollar proceeds  of   the checks  issued to  them.    And it cannot be contended that said directives  were issued without  the sanction of  the Monetary Board for  the record shows that  they were submitted to that body for its information and approval ( Exhibit E-1 of Petitioner).

The claim that  the authorization given by Deputy Governor Calalang on August 31,  1950 was  the result of an formal bilateral agreement  between the United States, and Philippine governments  cannot be seriously entertained, 'for the truth is that  the same, is but the result of an informal negotiation conducted between a" representative of the Central Bank on one hand and the American ambassador and representatives of  the United States on the other.    It was a mere arrangement arrived at  between them in  order, merely to accommodate the American  citizens  in  the Philippines,  and the  same  cannot be deemed to be a  formal agreement between  the two governments.    Rathers   it was a mere  request on  the part  of Ambassador Cowen to extend said  privilege  to American reside nits whose families may be abroad to which the  Central Bank graciously acceded,  as can be inferred from the following portion of Mr. Cowen.'s letter.
"x x x That  the Philippine Exchange Control will  issue an appropriate authorization to  the Manila Branch of  the National City Bank of New York to enable  that  bank to make such remittances.    I will   be glad if   you will issue such authorization,  in order  that  I may advise  the  Treasury Department ."
Moreover,   it  should be mentioned that  the  issuance  of the directive was prompted by the  recurrent violation of the privilege by American citizens  by channelling their checks to the blackmarket,  and the directive was  issued  after mutual  correspondence and consultation  between the  authorities  concerned.     This   is shown by the letter of Mr. Cassady of   the U.  S.  Embassy to  the Central  Bank dated, June 11, 1956  (Appendix A),  the testimony of Mr.  Cradock  of the U. S.  Treasury before  the Fiscal of Pasay City (Appendix C),  and the letter of  the Central Bank to Mr.  Michael Cross,. U.  S.   Treasury Attache to   the U. S. Embassy of Manila,   dated May 10,  1957   (Appendix D).     It  further  appears  that  the directive is  merely temporary in nature it having been resorted to to forestall the of restricted  U.  S.  treasury checks.     It  is evident  that  the exemption is a mere privilege that  can be withdrawn when there are justifiable reasons that warrant it.    Here both authorities agree that  that privilege had been abused.

Wherefore,   the order of respondent   judge  dated April  29,  1957 is hereby set aside.    The injunction issued  by  thls Court is declared permanent.

Paras, C. J., Bengzon, Padilla, Montemayor, Reyes,   A., Labrador, Concepcion, Reyes,   J.B.L., Endencia,  and Felix,  JJ., concur.

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