G.R. No. 69078 December 4, 1989
CENTRAL BANK OF THE PHILIPPINES, petitioner, vs. HON. INTERMEDIATE APPELLATE COURT, ARTEX DEVELOPMENT CO., INC., EASTERN TEXTILE MILLS, INC., CENTRAL MANUFACTURING CORP., PACIFIC KNITTING MILS, INC., and ATLAS TEXTILE DEVELOPMENT CORPORATION, respondents.

FACTS

Private respondents are domestic textile corporations. In the late 1950s, the Monetary Board of the Central Bank established an integration program for the local textile industry to promote investment and save foreign exchange. As participants, private respondents were required to submit integration schedules and were encouraged to import capital machinery on a deferred payment basis. Their project studies and applications for tax exemptions were approved by an inter-agency committee. Consequently, they incurred foreign currency obligations for machinery, and their applications for foreign exchange allocations to cover these specific deferred payment contracts were approved by the Monetary Board through several resolutions prior to April 23, 1960.
Subsequently, Republic Act 2609 mandated a gradual decontrol program. Implementing this, the Central Bank issued Circular No. 105 on April 25, 1960, setting a new decontrol exchange rate but expressly excluding “existing contractual obligations previously approved by the Monetary Board” from this higher rate. However, Circular No. 121, issued on March 2, 1961, eliminated this exclusion. The Central Bank then denied private respondents’ requests to purchase foreign exchange at the original preferred rate of P2.00 to US$1.00 to service their approved deferred payment contracts, forcing them to buy at the higher free market rate under protest.

ISSUE

Whether the Central Bank is obligated to sell foreign exchange to private respondents at the preferred rate of P2.00 to US$1.00 to service their deferred payment contracts for machinery imports, which were incurred under and approved pursuant to the Bank’s own integration program prior to the decontrol circulars.

RULING

Yes. The Supreme Court affirmed the decision of the Intermediate Appellate Court, ruling in favor of private respondents. The legal logic rests on the principle of estoppel and the protection of vested rights acquired under specific government directives. The Court distinguished this case from Batchelder v. Central Bank, where a general policy on dollar utilization was held not to create a contractual obligation. Here, private respondents’ actions were not merely pursuant to a general policy. They were direct participants in a specific integration program mandated and supervised by the Central Bank. They incurred foreign exchange obligations only after the Bank approved the foreign currency costs and the corresponding peso payments for their machinery imports, with the explicit directive to use a deferred payment plan.
Having induced private respondents to undertake substantial investments and contractual commitments based on its approvals and under its prescribed terms, the Central Bank is estopped from retroactively applying a new circular (No. 121) to their detriment by denying the preferred exchange rate. The earlier Circular No. 105 explicitly protected such pre-approved obligations. To allow the Central Bank to renege would cause grave prejudice to entities that faithfully complied with a government program designed for national economic benefit. The Court emphasized that while the Central Bank has the authority to maintain exchange stability, its exercise must be tempered by fairness and decency, avoiding irreparable harm to those who relied in good faith on its official directives. Thus, the Bank is obligated to honor the preferred rate for servicing these specific, pre-approved obligations.