Palanca v. Court of Appeals
NEW DOCTRINEFacts
The Antecedents: Petitioner and Jose S. Sanicas entered into a Contract to Sell on Installment for a parcel of land, which included a downpayment, monthly installments with 14% annual interest, real property taxes, and a provision for a proportionate increase in the unpaid balance due to "monetary fluctuation" based on an exchange rate of P6.72 to US$1.00. Edgardo S. Sanicas assumed the account and designated Jose S. Sanicas as his representative. After the petitioner failed to provide a detailed statement of account, the private respondent hired an accountant and tendered P44,955.87 with 12% annual interest. The petitioner refused this tender, claiming the actual liability was P155,630.40 due to the escalator clause. The private respondent then made a judicial consignment of the amount and filed a complaint for reconveyance to prevent cancellation of his rights and to compel the petitioner to accept the consigned amount. Procedural History: The Regional Trial Court (RTC) ruled that Article 1250 of the Civil Code requires "extraordinary inflation or deflation" for the escalator clause to be effective, which was not present, and found the 100.398% increase unconscionable, ordering the petitioner to execute a deed of conveyance upon payment of P44,979.87 (the judicially consigned amount). The Court of Appeals (CA) modified the RTC judgment, setting the payable amount at P70,688.17 (comprising P45,186.04 principal balance, P22,604.63 interest, and P2,897.00 land taxes), and concurred with the RTC that the escalator clause was inapplicable without extraordinary inflation or deflation. The Petition: Petitioner sought review of the CA decision, questioning the entitlement to a proportionate increase in payment based on paragraph 11 of the contract.
Issue(s)
Whether petitioner is entitled to a proportionate increase in the unpaid balance of the purchase price pursuant to paragraph 11 of the Contract to Sell on Installment, which links the adjustment to "monetary fluctuation" based on the US dollar exchange rate, and whether such a stipulation violates Section 1 of R.A. No. 529. Whether Article 1250 of the Civil Code, requiring "extraordinary inflation or deflation," is the sole basis for enforcing such an escalator clause, and the effect of Central Bank Circulars on R.A. No. 529.
Ruling
The petition is denied. The stipulation in paragraph 11 of the Contract to Sell on Installment, which allows for a proportionate increase in the unpaid balance based on monetary fluctuation pegged to the US dollar exchange rate, is declared void and against public policy under Republic Act No. 529, as amended (Cuenco Law).
Ratio Decidendi
On the applicability of the escalator clause, Article 1250 of the Civil Code, and R.A. No. 529: The Supreme Court clarified that while the parties intended an upward adjustment of the purchase price upon "monetary fluctuation" (deterioration of the Philippine peso vis-a-vis the US dollar), the enforcement of such a stipulation is governed by Republic Act No. 529, not solely by Article 1250 of the Civil Code. The Court held that paragraph 11 of the contract violates Section 1 of R.A. No. 529, which declares as against public policy and void any provision in a domestic obligation that purports to give the obligee the right to require payment in a particular kind of coin or currency other than Philippine currency, or "in an amount of money of the Philippines measured thereby." The stipulation effectively gave petitioner the right to demand payment of the balance measured by the US dollar, which is prohibited. The law mandates that domestic obligations must be payable in Philippine currency. The Court reiterated that the purpose of R.A. No. 529 is to preserve the value of the Philippine peso and maintain confidence in the domestic monetary system. The obligation should be paid in the stipulated amount of Philippine currency without adjustment based on the exchange rate. On the relevance of Article 1250 and the effect of Central Bank Circulars: The Court found it unnecessary to determine if "extraordinary inflation" occurred, as the stipulation itself was problematic under R.A. No. 529. The lower courts' reliance on the absence of extraordinary inflation to invalidate the clause was not the primary ground for the Supreme Court's dismissal of the petition. The Court emphasized that the autonomy of parties to stipulate on escalator clauses is limited by law. The liberalization of foreign exchange regulations by Central Bank Circulars did not repeal R.A. No. 529, as a circular cannot repeal a law.
Main Doctrine
A stipulation in a domestic contract that allows for the proportionate increase of the unpaid balance of the purchase price based on monetary fluctuation, measured by a foreign currency exchange rate, is void and against public policy under Republic Act No. 529 (Cuenco Law), as it effectively gives the obligee the right to demand payment in an amount of Philippine currency measured by a foreign currency.