respondent Franco because petitioner BPI-FB could not comply
BPI Family Bank v. Amado Franco and Court of
Appeals
G.R. No. 123498
23 November 2007
FACTS:
 15 Aug 1989: Tevetesco Arrastre-Stevedoring Co., Inc. opened a savings and
current account with BPI-FB (petitioner)
 25 Aug: First Metro Investment Corporation (FMIC) also opened a time
deposit account w/ same branch of BPI-FB (San Francisco del Monte) in a
series of transactions
 31 Aug: Amado Franco (respondent) opened three (3) accounts (current,
savings, and time-deposit) w/ BPI-FB. Total amount of P2M use to open
these accounts is traceable to a check issued by Tevesteco allegedly in
consideration of respondent Franco’s introduction of Eladio Teves (looking
for a conduit bank to facilitate Tevetesco’s business transactions) to Jaime
Sebastian (BPI-FB’s Branch Manager). The P2M is part of the P80M debited
by BPI-FB from FMCI’s time deposit account and credited to Tevetesco’s
current account pursuant to an Authority to Debit allegedly signed by FMCI’s
officers w/c appears to be forged.
o Current: Initial deposit of P500k
o Savings: Initial deposit of P500k
o Time deposit: P1M w/ maturity date of 31 Aug 1990
 4 Sept: Antonio Ong, upon being shown the Authority to debit, personally
declared his signature to be a forgery.
 Tevetesco already effected several withdrawals from its current account
amounting to P37,455,410.54 including the P2M paid to respondent Franco.
 8 Sept: BPI-FB, through Senior VP Severino Cornamcion, instructed Jesus
Arangorin to debit Franco’s savings & current accounts for the amounts
remaining therein but the latter’s time deposit account couldn’t be debited
due to computer limitations.
 2 checks drawn by Franco against BPI-FB current account were dishonored
upon presentment for payment & stamped w/ notation account under
garnishment.
o Garnished by virtue of an Order of Attachment issued by Makati
RTC in a civil case filed by BPI-FB against Franco, etc. to recover
the P37,455,410.54 (Tevetesco’s total withdrawals from its account)
o Dishonored checks were issued by respondent Franco & presented
for payment at BPI-FB prior to Franco’s receipt of notice of
garnishment. At the time the notice dated 27 Sept was served on
BPI-FB, respondent Franco has yet to be impleaded in said case
where writ of attachment was issued. It was only on 15 May 1990
that respondent Franco was impleaded. The attachment was
subsequently lifted however the funds were not released to
given that the money has already been debited because of FMIC’s
forgery claim. petitioner BPI-FB’s computer that branch indicated
that the current account record was not on file.
 As to respondent Franco’s savings account he agreed to an arrangement as a
favor to Sebastian where P400K from said account was temporarily
transferred to Domingo Quiaoits savings account, subject to its immediate
return upon issuance of a certificate of deposit which Quiaoit needed in
connection with his visa application at the Taiwan Embassy.
o Sebastian retained custody of Quiaoits’ savings account passbook to
preserve respondent Franco’s deposits.
 17 May 1990: Respondent Franco pre-terminated his time deposit account.
o Petitioner BPI-FB deducted P63,189 from the remaining balance of
the account representing advance interest paid to him.
 Several cases have been filed and resolved pertaining to these transactions.
 PET FPI-FB’s refusal to heed RES Franco’s demand to unfreeze his accounts
& release his deposits gave rise to the latter’s filing a case with Manila RTC.
 RTC
o Rendered judgment in favor of respondent Franco ordering
Petitioner BPI-FB to pay sums of money.
 CA
o Modified decision but Petitioner BPI-FB still to pay interest
deducted rom the time-deposit of Respondent Franco, damages, etc.
ISSUE:
Who has a better right to the deposits in respondent Franco’s accounts? (FRANCO)
HELD:
 No doubt that petitioner BPI-FB owns the deposited monies in the accounts
of respondent Franco, but not as a legal consequence of its unauthorized
transfer of FMIC’s deposits to Tevetesco’s account.
o The deposit of money in banks is governed by the Civil Code
provisions on simple loan or mutuum.
o As there is a debtor-creditor relationship between a bank and its
depositor, petitioner FPI-FB ultimately acquired ownership of
respondent Franco’s deposits, but such ownership is coupled w/ a
corresponding obligation to pay him an equal amount on demand.
Although petitioner BPI-FB owns the deposits, it cannot prevent
respondent Franco from demanding payment of the former’s
obligation by drawing checks against his current account or asking
for the released of the funds in his savings account.
 When respondent Franco issued checks drawn against his current account, he
had every right as creditor to expect that those checks would be honored by
petitioner BPI-FB as debtor.
Cebu Financial vs CA and Alegre Credit Digest
Cebu Financial vs CA and Alegre
GR No. 123031, 12 October 1999
316 SCRA 488
FACTS
Vicente Alegre invested with Cebu International Finance Corporation (CIFC)
P500,000 in cash. CIFC issued promissory note which covered private respondent’s
placement. CIFC issued BPI Check No. 513397 (the Check) in favor of private
respondent as proceeds of his matured investment. Mrs. Alegre deposited the Check
with RCBC but BPI dishonoured it, annotating therein that the “Check is subject of an
investigation”. BPI took possession of the Check pending investigation of several
counterfeit checks drawn against CIFC’s checking account. Private respondent
demanded from CIFC that he be paid in cash but the latter refused. Private respondent
Alegre filed a case for recovery of a sum of money against CIFC.
CIFC asserts that since BPI accepted the instrument, the bank became primarily liable
for the payment of the Check. When BPI offset the value of the Check against the
losses from the forged cheks allegedly committed by private respondent, the Check
was deemed paid.
ISSUE
Whether or not petitioner CIFC is discharged from the liability of paying the value of
the Check.
HELD
The Court held in the negative. In a money market transaction, the investor is a lender
who loans his money to a borrower through a middleman or dealer. A check is not
legal tender, and therefore cannot constitute valid tender of payment. Since a
negotiable instrument is only substitute for money and not money, the delivery of such
an instrument does not by itself, operate as payment. Mere delivery of checks does not
discharge the obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually realized.
(Article 1249)
Petition denied.
Commissioner of Public Highways vs. Burgos (Consti1)
Commissioner of Public Highways, petitioner, vs. Hon. Francisco P. Burgos, in his
capacity as Judge of the Court of First Instance of Cebu City, Branch II, and Victor
Amigable, respondents.
March 31, 1980
De Castro, J:
Facts:
On 1924, the government took private respondent Victor Amigable's land for road-
right-of-way purpose.
On 1959, Amigable filed in the Court of First Instance a complaint to recover the
ownership and possession of the land and for damages for the alleged illegal
occupation of the land by the government (entitled Victor Amigable vs. Nicolas
Cuenco, in his capacity as Commissioner of Public Highways and Republic of the
Philippines).
Amigable's complaint was dismissed on the grounds that the land was either donated
or sold by its owners to enhance its value, and that in any case, the right of the owner
to recover the value of said property was already barred by estoppel and the statute of
limitations. Also, the non-suability of the government was invoked.
In the hearing, the government proved that the price of the property at the time of
taking was P2.37 per square meter. Amigable, on the other hand, presented a
newspaper showing that the price was P6.775.
The public respondent Judge ruled in favor of Amigable and directed the Republic of
the Philippines to pay Amigable the value of the property taken with interest at 6%
and the attorney's fees.
Issue:
Whether or not the provision of Article 1250 of the New Civil Code is applicable in
determining the amount of compensation to be paid to private respondent Amigable
for the property taken.
Held:
Not applicable.
Ratio:
Article 1250 of the NCC provides that the value of currency at the time of the
establishment of the obligation shall be the basis of payment which would be the value
of peso at the time of taking of the property when the obligation of the government to
pay arises. It is only when there is an agreement that the inflation will make the value
of currency at the time of payment, not at the time of the establishment, the basis for
payment.The correct amount of compensation would be P14,615.79 at P2.37 per
square meter, not P49,459.34, and the interest in the sum of P145,410.44 at the rate of
6% from 1924 up to the time respondent court rendered its decision as was awarded
by the said court should accordingly be reduced.
Commissioner of Public Highways vs Hon. Burgos
G.R. No. L-36706 March 31, 1980
De Castro, J.:
FACTS:
Plaintiff Victoria Amigable was the owner of a parcel of land in Cebu City with an
area of 6,167 square meters taken by the Government in 1924 for road-right of way
purpose. She filed a complaint in 1959 for the recovery of the said lot to the CFI Cebu
to which it rendered favorable decision to the adverse party, the Commissioner of
Public Highways. The plaintiff then appealed this decision to the Supreme Court which
reversed the lower court’s ruling. The Supreme Court also directed that the
determination of the just compensation of the plaintiff for the said lots should be based
on the price or value thereof at the time of taking. Respondent court in the capacity of
Hon. Burgos then rendered judgment on 1973 directing the Republic of the Philippines
to pay Amigable a total of P214,356.75 based on the dollar current dollar exchange
rate causing the Solicitor General to file a petition for review on certiorari.
ISSUE:
WON the provision of Article 1250 of the New Civil Code regarding extra-ordinary
inflation applicable in determining the just compensation of Amigable.
HELD:
No. Article 1250 provides that, “In case extra-ordinary inflation or deflation of the
currency stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary.” The Court held that based on the import of the law, it is
clear that the said provision applies only to cases where a contract or agreement is
involved. It does not apply where the obligation to pay arises from law, independent
of contract. The taking of private property by the Government in the exercise of its
power of eminent domain does not give rise to a contractual obligation. This was
expressed in the case of Velasco vs. Manila Electric Co. Moreover, the law clearly
provides that the value of the currency at the time of the establishment of the obligation
shall be the basis of payment which, in cases of expropriation, would be the value of
the peso at the time of the taking of the property when the obligation of the
Government to pay arises.
Telengtan Brothers & Sons, Inc. v. United States Lines, Inc.
Facts:
Petitioner Telengtan is a domestic corporation doing business under the name and style
La Suerte Cigar & Cigarette Factory, while respondent U.S. Lines is a foreign
corporation engaged in the business of overseas shipping. During the period material,
the provisions of the Far East Conference Tariff No. 12 were specifically made
applicable to Philippine containerized cargo from the U.S. and Gulf Ports, effective
with vessels arriving at Philippine ports on and after December 15, 1978. After that
date, consignees who fail to take delivery of their containerized cargo within the 10-
day free period are liable to pay demurrage charges.
On June 22, 1981, respondent U.S. Lines filed a suit against petitioner Telengtan
seeking payment of demurrage charges plus interest and damages. Docketed as Civil
Case No. R-81-1196 of the Regional Trial Court of Manila and raffled to Branch 38
thereof, the complaint alleged that between the years 1979 and 1980, goods belonging
to petitioner loaded on containers aboard its (respondent’s) vessels arrived in Manila
from U.S. ports. After the 10-day free period, petitioner still failed to withdraw its
goods from the containers wherein the goods had been shipped. Continuing,
respondent U.S. Lines alleged that petitioner incurred on all those shipments a
demurrage in the total amount of ₱94,000.00 which the latter refused to pay despite
repeated demands.
Telengtan disclaims liability for the demanded demurrage, alleging that it has never
entered into a contract nor signed an agreement to be bound by any rule on demurrage.
It likewise maintains that, absent an obligation to pay respondent who made no proper
or legal demands in the first place, there is justifiable reason to refuse payment of the
latter’s unwarranted claims. By way of counterclaim, petitioner states that, upon
arrival of the conveying vessels, it presented the Bills of Lading (B/Ls) and all other
pertinent documents covering seven (7) shipments and demanded from respondent
delivery of all the goods covered by the aforesaid B/Ls, only to be informed that
respondent had already unloaded the goods from the container vans, stripped them of
their contents which contents were then stored in warehouses. Petitioner further states
that respondent had refused to deliver the goods covered by the B/Ls and required
petitioner to pay the amount of ₱123,738.04 before the goods can be released.
The Trial Court found that [petitioner] liable to [respondent] for demurrage incurred
in the amount of P99,408.00 which sum will bear interest at the legal rate from the
date of the filing of the complaint till full payment thereof plus attorney’s fees in the
amount of 20% of the total sum due, all of which shall be recomputed as of the date of
payment in accordance with the provisions of Article 1250 of the Civil Code.
Exemplary damages in the amount of P80,000.00 are also granted. The counterclaim
is dismissed. Costs against [petitioner].
Contrary to [petitioner’s] contentions, both the provisions of the contract between the
parties, in this case the bill of lading, and the interpretation given by the higher courts
to these provisions are to the effect that demurrage may be lawfully collected.

On the other hand, [petitioner] claims that [respondent] company owes them the far
larger sum of P123,738.04 by way of damages allegedly suffered by their goods when
[respondent] company removed these goods from its cargo vans and deposited them
in bonded warehouses without its consent. It is not disputed that [respondent] company
did not [sic] in fact remove these goods belonging to [petitioner] from its vans and
deposited them in warehouses. However, this was done by authority of the Bureau of
Customs and for that purpose, [respondent] addressed a letter-request to the Collector
of Customs, for permission to remove the goods of defendant from its vans.
The Court finds that the charges for warehousing were necessary expenses covered by
the terms of the bill of lading which the consignee was responsible for. There is
therefore now no necessity of discussing whether or not the counterclaim of
[petitioner] had prescribed or not. Neither is there any question of bad faith on the part
of [respondent]. When it requested for authority to remove [petitioner’s] consigned
goods from its vans and deposited them in warehouses, [respondent] had already given
consignee sufficient time to take delivery of the shipment. This, [petitioner] chose not
to do. Instead, it sat pat by the telephone calling without making any positive effort to
check up on the shipment or arrange for its delivery to its factory. Once arrived at the
port, the shipment was available to consignee for its proper delivery and receipt and
the carrier discharged of its responsibility therefor. Rather, by its inaction, [petitioner]
was guilty of bad faith. Once it had received the notice of arrival of the carrier in port,
it was incumbent on consignee to put wheels in motion in order that the shipment could
be delivered to it. The inaction of [petitioner] would only indicate that it had no
intention of taking delivery except at its own convenience thus preventing carrier from
taking on other shipments and from leaving port. Such unexplained and unbusiness-
like delay smacks highly of bad faith on the part of [petitioner] rather than of the
[respondent].
Issues:
Whether or not the CA erred in concluding that it [petitioner] was the one at fault in
not withdrawing its cargo from the container vans in which the goods were originally
shipped despite documentary evidence and written admissions of private respondent
to the contrary; and in affirming the trial court’s order for the recomputation of the
judgment award in accordance with Article 1250 of the Civil Code contrary to existing
jurisprudence and without any evidence at all to support it.
Held:
It is undisputed that the goods subject of petitioner’s counterclaim and covered by
seven B/Ls were loaded for shipment to Manila on respondent’s vessels in container
vans on a "House/House Containers-Shippers Load, Stowage and Count" basis. This
shipping arrangement means that the shipping company’s container vans are to be
brought to the shipper for loading of its goods; that from the shipper’s warehouse, the
goods in container vans are brought to the shipping company for shipment; that the
shipping company, upon arrival of its ship at the port of destination, is to deliver the
container vans to the consignee’s compound or warehouse; and that the shipper
(consignee) is supposed to load, stow and count the goods from the container van.
Likewise undisputed is the fact that the container vans containing the goods covered
by 3 of the aforesaid B/Ls, particularly were delivered to a warehouse, stripped of their
contents and the contents deposited thereat.
The Court sustain the CA’s stance faulting the petitioner for not taking delivery of its
cargo from the container vans within the 10-day free period, an inaction which led
respondent to deposit the same in warehouse/s.
It may be that, when the relevant facts are undisputed, the question of whether or not
the conclusion deduced therefrom by the CA is correct is a question of law properly
cognizable by this Court. However, it has also been held that all doubts as to the
correctness of such conclusions will be resolved in favor of the disposing court. So it
must be in this case.
As it were, however, the conclusion of the CA on who contextually is the erring party
was not exactly drawn from a vacuum, supported as such conclusion is by the records
of the case. What the CA wrote with some measure of logic commends itself for
concurrence:
However, ... We find that [petitioner] was the one at fault in not withdrawing its cargo
from the containers wherein the goods were shipped within the ten (10)-day free
period. Had it done so, then there would not have been any need of depositing the
cargo in a warehouse.
It is incumbent upon the carrier to immediately advise the consignee of the arrival of
the goods for if it does not, it continues to be liable for the same until the consignee
has had reasonable opportunity to remove them.
Sound business practice dictates that the consignee, upon notification of the arrival of
the goods, should immediately get the cargo from the carrier especially since it has
need of it. xxx.
It is agreed that when possession of the goods is received or taken by the customs or
other authorities or by any operator of any lighter, craft, ... or other facilities whether
selected by the carrier or master, shipper of consignee, whether public or private, such
authority or person shall be considered as having received possession and delivery of
the goods solely as agent of and on behalf of the shipper and consignee, .... Also if the
consignee does not take possession or delivery of the goods as soon as the goods are
at the disposal of the consignee for removal, the goods shall be at their own risk and
expense, delivery shall be considered complete and the carrier may, subject to carrier's
liens, send the goods to store, warehouse, put them on lighters or other craft, put them
in possession of authorities, dump, permit to lie where landed or otherwise dispose of
them, always at the risk and expense of the goods, and the shipper and consignee shall
pay and indemnify the carrier for any loss, damage, fine, charge or expense whatsoever
suffered or incurred in so dealing with or disposing of the goods, or by reason of the
consignee's failure or delay in taking possession and delivery as provided herein.
On the second issue raised, the Court finds as erroneous the trial court’s decision, as
affirmed by the CA, for the recomputation of the judgment award as of the date of
payment in accordance with Article 1250 of the Civil Code.
In calling for the application of the aforementioned provision, respondent urged that
judicial notice be taken of the succeeding devaluations of the peso vis-à-vis the US
dollar since the time the proceedings began in 1981. According to respondent, the
computation of the amount thus due from the petitioner should factor in such peso
devaluations.
agreement that would find reason only in the supervention of extraordinary inflation
or deflation.
To be sure, neither the trial court, the CA nor respondent has pointed to any provision
of the covering B/Ls whence respondent sourced its contractual right under the
premises where the defining "agreement to the contrary" is set forth. Needless to stress,
the Court sees no need to speculate as to the existence of such agreement, the burden
of proof on this regard being on respondent.

Article 1250 of the Civil Code states:

In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to the contrary.

Extraordinary inflation or deflation, as the case may be, exists when there is an unusual
increase or decrease in the purchasing power of the Philippine peso which is beyond
the common fluctuation in the value of said currency, and such increase or decrease
could not have been reasonably foreseen or was manifestly beyond the contemplation
of the parties at the time of the establishment of the obligation.Extraordinary inflation
can never be assumed; he who alleges the existence of such phenomenon must prove
the same.

The Court holds that there has been no extraordinary inflation within the meaning of
Article 1250 of the Civil Code. Accordingly, there is no plausible reason for ordering
the payment of an obligation in an amount different from what has been agreed upon
because of the purported supervention of extraordinary inflation.
As it were, respondent was unable to prove the occurrence of extraordinary inflation
since it filed its complaint in 1981. Indeed, the record is bereft of any evidence,
documentary or testimonial, that inflation, nay, an extraordinary one, existed. Even if
the price index of goods and services may have risen during the intervening period,
this increase, without more, cannot be considered as resulting to "extraordinary
inflation" as to justify the application of Article 1250.

Lest it be overlooked, Article 1250 of the Code, as couched, clearly provides that the
value of the peso at the time of the establishment of the obligation shall control and be
the basis of payment of the contractual obligation, unless there is "agreement to the
contrary." It is only when there is a contrary agreement that extraordinary inflation
will make the value of the currency at the time of payment, not at the time of the
establishment of obligation, the basis for payment.23 The Court, in Mobil Oil
Philippines, Inc. vs. Court of Appeals and Fernando A. Pedrosa formulated the same
rule in the following wise:

In other words, an agreement is needed for the effects of an extraordinary inflation to

be taken into account to alter the value of the currency at the time of the establishment
of the obligation which, as a rule, is always the determinative element, to be varied by
Equitable PCI Bank v. Ng Sheung Ngor 2. Extraordinary inflation exists when there is an unusual decrease in the purchasing
Payment Currency and Value power of
currency (that is, beyond the common fluctuation in the value of currency) and such
decrease
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated could not be reasonably foreseen or was manifestly beyond the contemplation of the
should parties
intervene, the value of the currency at the time of the establishment of the obligation at the time of the obligation. Extraordinary deflation involves an inverse situation.
shall be 3. Article 1250. In case an extraordinary inflation or deflation of the currency
the basis of payment, unless there is an agreement to the contrary. stipulated
xxx should intervene, the value of the currency at the time of the establishment of the
FACTS: obligation
1. Respondents Ng Sheung Ngor et al. filed an action for annulment and/or reformation shall be the basis of payment, unless there is an agreement to the contrary.
of 4. For extraordinary inflation or deflation to affect an obligation, the following
documents and contracts against Equitable PCI Bank and its employees. requisites
2. Respondents claim that Equitable induced them to avail of its peso and dollar credit must be proven:
facilities a) That there was an official declaration of extraordinary deflation from the Bangko
by offering low interest rates, so they accepted the bank’s proposal and signed Sentral ng Pilipinas
Equitable’s b) That the obligation was contractual in nature
pre-printed promissory notes. c) That the parties expressly agreed to consider the effects of the extraordinary
3. However, they were unaware that the documents contained identical escalation deflation.
clauses 5. In this case, despite the devaluation of the peso, the BSP never declared a situation
granting Equitable authority to increase interest rates without their consent. Equitable of
answered that respondents knowingly accepted all the terms and conditions contained extraordinary inflation.
in the promissory notes. 6. Moreover, although the obligation arose out of a contract, the parties did not agree
4. RTC upheld the validity of the promissory notes but invalidated the escalation to
clause because recognize the effects of extraordinary inflation.
it violated the principle of mutuality of contracts. 7. The RTC never mentioned that there was such a stipulation either in the promissory
5. Nevertheless, RTC took judicial notice of the steep depreciation of the peso during note or
the loan agreement.
intervening period and declared the existence of extraordinary deflation. RTC ordered 8. Therefore, respondents Ng Sheung Ngor should pay their dollar-denominated loans
the at
use of the 1996 dollar exchange rate in computing respondents’ dollar-denominated the exchange rate fixed by the BSP on the date of maturity.
loans.
6. RTC’s dispositive: directing Ng Sheung Ngor et al. to pay Equitable the unpaid
principal
obligation for the peso loan as well as the unpaid obligation for the dollar-denominated
loan,
following the conversion rate at the time of incurring the obligation, in accordance
with
Article 1250 of the Civil Code.

RELEVANT ISSUE:
1. Whether or not respondents Ng Sheung Ngor should pay their dollar-denominated
loans at the exchange rate fixed by the BSP on the date of maturity YES
HELD:
1. THERE WAS NO EXTRAORDINARY DEFLATION.
EUFEMIA ALMEDA and ROMEL ALMEDA, petitioners, vs. BATHALA
MARKETING INDUSTRIES, INC., respondent.
G.R. No. 150806. January 28, 2008
NACHURA, J.:
FACTS:
Sometime in May 1997, respondent Bathala Marketing Industries, Inc., as
lessee, represented by its president Ramon H. Garcia, renewed its Contract of Lease
with Ponciano L. Almeda (Ponciano), as lessor, husband of petitioner Eufemia and
father of petitioner Romel Almeda. Under the said contract, Ponciano agreed to lease
a portion of the Almeda Compound, located at 2208 Pasong Tamo Street, Makati City,
consisting of 7,348.25 square meters, for a monthly rental of P1,107,348.69, for a term
of four (4) years from May 1, 1997 unless sooner terminated as provided in the
contract. The contract of lease contained the following pertinent provisions which gave
rise to the instant case:
SIXTH – It is expressly understood by the parties hereto that the rental rate
stipulated is based on the present rate of assessment on the property, and that in case
the assessment should hereafter be increased or any new tax, charge or burden be
imposed by authorities on the lot and building where the leased premises are located,
LESSEE shall pay, when the rental herein provided becomes due, the additional rental
or charge corresponding to the portion hereby leased; provided, however, that in the
event that the present assessment or tax on said property should be reduced, LESSEE
shall be entitled to reduction in the stipulated rental, likewise in proportion to the
portion leased by him;
SEVENTH – In case an extraordinary inflation or devaluation of Philippine
Currency should supervene, the value of Philippine peso at the time of the
establishment of the obligation shall be the basis of payment;
During the effectivity of the contract, Ponciano died. Thereafter, in a letter dated
December 29, 1997, petitioners advised respondent that the former shall assess and
collect Value Added Tax (VAT) on its monthly rentals. In response, respondent
contended that VAT may not be imposed as the rentals fixed in the contract of lease
were supposed to include the VAT therein, considering that their contract was
executed on May 1, 1997 when the VAT law had long been in effect. On January 26,
1998, respondent received another letter from petitioners informing the former that its
monthly rental should be increased by 73% pursuant to condition No. 7 of the contract
and Article 1250 of the Civil Code. Respondent opposed petitioners’ demand and
insisted that there was no extraordinary inflation to warrant the application of Article
1250 in light of the pronouncement of the Court in various cases.
On February 18, 1998, respondent instituted an action for declaratory relief for
purposes of determining the correct interpretation of condition Nos. 6 and 7 of the
lease contract to prevent damage and prejudice. The case was docketed as Civil Case
No. 98-411 before the RTC of Makati.
After trial on the merits, on May 9, 2000, the RTC ruled in favor of respondent and
against petitioners, declaring that plaintiff is not liable for the payment of any rental
adjustment, there being no extraordinary inflation or devaluation, as provided in the
Seventh Condition of the lease contract, to justify the same.
Petitioners elevated the aforesaid case to the Court of Appeals which affirmed
with modification the RTC decision in that the order for the return of the balance of
the rental deposits and of the amounts representing the 10% VAT and rental
adjustment is deleted. Hence, this petition for review on certiorari.
ISSUE: Whether the amount of rentals due the petitioners should be adjusted by
reason of extraordinary inflation or devaluation.
HELD:
No. Petitioners cannot legitimately demand rental adjustment because of
extraordinary inflation or devaluation. While, indeed, condition No. 7 of the contract
speaks of “extraordinary inflation or devaluation” as compared to Article 1250’s
“extraordinary inflation or deflation,” when the parties used the term “devaluation,”
they really did not intend to depart from Article 1250 of the Civil Code. Condition
No. 7 of the contract should, thus, be read in harmony with the Civil Code provision.
That this is the intention of the parties is evident from petitioners’ letter dated
January 26, 1998, where, in demanding rental adjustment ostensibly based on
condition No. 7, petitioners made explicit reference to Article 1250 of the Civil Code,
even quoting the law verbatim.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to the contrary.
Extraordinary inflation exists when there is a decrease or increase in the purchasing
power of the Philippine currency which is unusual or beyond the common fluctuation
in the value of said currency, and such increase or decrease could not have been
reasonably foreseen or was manifestly beyond the contemplation of the parties at the
time of the establishment of the obligation.
The factual circumstances obtaining in the present case do not make out a
case of extraordinary inflation or devaluation as would justify the application of
Article 1250 of the Civil Code. It is stressed that the erosion of the value of the
Philippine peso in the past three or four decades, starting in the mid-sixties, is
characteristic of most currencies. And while the Court may take judicial notice of the
decline in the purchasing power of the Philippine currency in that span of time, such
downward trend of the peso cannot be considered as the extraordinary phenomenon
contemplated by Article 1250 of the Civil Code. Furthermore, absent an official
pronouncement or declaration by competent authorities of the existence of
extraordinary inflation during a given period, the effects of extraordinary inflation are
not to be applied.
FALLO:
WHEREFORE, premises considered, the petition is DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No. 67784, dated September 3, 2001, and its
Resolution dated November 19, 2001, are AFFIRMED.SO ORDERED.