C.F. Sharp & Co., Inc. v. Northwest Airlines, Inc.
REITERATIONFacts
1. The Antecedents: Respondent Northwest Airlines, Inc. entered into an International Passenger Sales Agency Agreement with petitioner C.F. Sharp & Co., Inc. in 1974. Petitioner failed to remit proceeds from ticket sales, leading respondent to file a collection suit in Japan. The Tokyo District Court ordered petitioner to pay 83,158,195 Yen plus damages for delay. Respondent's attempt to enforce this foreign judgment in the Philippines was initially dismissed by the Regional Trial Court of Manila due to jurisdictional issues, a decision affirmed by the Court of Appeals. 2. Procedural History: Respondent appealed the dismissal to the Supreme Court (G.R. No. 112573), which partly granted the petition, affirming the dismissal of claims for attorney's fees but reversing the dismissal of the complaint. The Supreme Court ordered petitioner to pay the adjudged amounts with interest. The Regional Trial Court then issued a writ of execution, later modified to specify interest rates and conversion dates. Petitioner challenged this modification via a petition for certiorari (G.R. No. 122890), which was referred to the Court of Appeals. The Court of Appeals modified the execution order, annulling prior orders and enjoining execution based on a reduced principal balance, with interest and conversion rates specified. Petitioner and respondent filed motions for reconsideration, which were denied. 3. The Petition: This petition for review under Rule 45 of the Rules of Court assails the Court of Appeals' decision and resolution. Petitioner questions the applicable conversion rate for its liability, arguing it was denied due process as this issue was not submitted for resolution. Petitioner also contends that the repeal of R.A. No. 529 by R.A. No. 8183 renders the jurisprudence relied upon by the Court of Appeals inapplicable. Respondent, not having appealed, prays for modification of the award of interest, arguing for the application of the 12% legal rate as established in prior Supreme Court rulings. The Court addresses the conversion rate, due process, the applicability of Article 1250 of the Civil Code, and the correct legal interest rate.
Issue(s)
Whether the Court of Appeals erred in ruling that the applicable conversion rate of petitioner's liability is the rate at the time of payment, and whether petitioner was deprived of due process. Whether Article 1250 of the Civil Code should apply. Whether the respondent is entitled to a modification of the award of interest.
Ruling
The petition is denied. The February 17, 1997 decision and the April 2, 1998 resolution of the Court of Appeals are affirmed with modification. Petitioner is directed to pay respondent 61,734,633 Yen plus damages for the delay at the rate of 6% per annum from August 28, 1980, up to and until payment is completed, with interest at the rate of 12% per annum counted from the date of filing of the complaint on August 28, 1980, until fully satisfied. Petitioner's liability may be paid in Philippine currency, computed at the exchange rate prevailing at the time of payment.
Ratio Decidendi
On the applicable conversion rate and due process: The Court held that the repeal of Republic Act No. 529 by Republic Act No. 8183 removed the prohibition against stipulating payment in foreign currency. However, the new law, like its predecessor, does not provide for the applicable rate of exchange for conversion to Philippine currency. Therefore, the established jurisprudence interpreting R.A. No. 529, which holds that the rate of exchange for conversion should be the prevailing rate at the time of payment, remains applicable. This ensures the preservation of the real value of the foreign exchange-incurred obligation to the date of its payment. The Court found no denial of due process, as the matter of the conversion rate was an issue submitted for resolution before the Court of Appeals, and petitioner was afforded an opportunity to be heard through its motion for reconsideration. On the applicability of Article 1250 of the Civil Code: The Court found petitioner's contention that Article 1250 of the Civil Code should apply untenable. The rule that the value of the currency at the time of the establishment of the obligation shall be the basis of payment applies only when there is an official pronouncement or declaration of the existence of extraordinary inflation or deflation. In this case, no such declaration was made, and the obligation was a foreign currency obligation, not subject to the extraordinary inflation/deflation clause of Article 1250. On the modification of the award of interest: The Court ruled that it has the authority to consider errors, even if unassigned, if they involve plain errors or are necessary for a just decision. Citing Eastern Shipping Lines, Inc. v. Court of Appeals, the Court held that absent any stipulation, the legal rate of interest in obligations for the payment of a sum of money is 12% per annum. The Court noted that the final and executory decision in G.R. No. 112573 stipulated interest at the legal rate of 12% per annum from the filing of the complaint. Therefore, the Court modified the CA's award to include 12% per annum interest from August 28, 1980, until fully satisfied, in addition to the 6% damages for delay, to conform to the final judgment and established jurisprudence on legal interest.
Main Doctrine
The repeal of Republic Act No. 529 by Republic Act No. 8183 removed the prohibition on stipulating payment in foreign currency, but the jurisprudence on the rate of exchange for conversion to Philippine currency, which is the prevailing rate at the time of payment, remains applicable.