Singson v. CALTEX (Phil) Inc.

 LUCIA R. SINGSON, Petitioner

vs.

CALTEX (PHILIPPINES), INC., Respondent

FACTS:

• Singson and Caltex entered into a contract of lease on July 16, 1968, over a parcel of land in Quezon City to be used by respondent as a gasoline service station.

• The contract of lease provides that the lease shall run for a period of 20 years, and that the monthly rental was fixed at P3,500.00 for the first 10 years, and at P4,200.00 for the succeeding 10 years of the lease.

• On June 23, 1983, five years before the expiration of the lease contract, Singson asked Caltex to adjust or increase the amount of rentals citing that the country was experiencing extraordinary inflation.

• Respondent refused on the basis of the clear provisions of rental fees.

• Petitioner instituted a complaint before the RTC on September 21, 1983, to adjust rentals, invoking Article 1250 of the Civil Code, since the contract of lease was executed during extraordinary inflation.

To substantiate its allegation of extraordinary inflation, petitioner presented as witness Mr. Narciso Uy, Assistant Director of the Supervising and Examining Sector of the Central Bank, who attested that the inflation rate increased abruptly during the period 1982 to 1985, caused mainly by the devaluation of the peso. Petitioner also submitted into evidence a certification of the official inflation rates from 1966 to 1986 prepared by the National Economic Development Authority ("NEDA") based on consumer price index, which reflected that at the time the parties entered into the subject contract, the inflation rate was only 2.06%; then, it soared to 34.51% in 1974, and in 1984, reached a high of 50.34%.

• The RTC, as affirmed by the CA, dismissed the complaint for lack of merit.

ISSUE/S:

Whether or not there existed an extraordinary inflation when the parties executed the contract that would call for the application of Article 1250 of the Civil Code and justify an adjustment or increase of the rentals between the parties.

RULING:

No, the Court holds that Article 1250 of the Civil Code is inapplicable in the instant case.

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.”

Article 1250 was inserted in the Civil Code of 1950 to abate the uncertainty and confusion that affected contracts entered into or payments made during World War II, and to help provide a just solution to future cases.

We have held extraordinary inflation to exist 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.

An example of extraordinary inflation, as cited by the Court in Filipino Pipe and Foundry Corporation v. NAWASA:

"More recently, in the 1920s, Germany experienced a case of hyperinflation. As reported, prices were going up every week, then every day, then every hour. Women were paid several times a day so that they could rush out and exchange their money for something of value before what little purchasing power was left dissolved in their hands. Some workers tried to beat the constantly rising prices by throwing their money out of the windows to their waiting wives, who would rush to unload the nearly worthless paper. A postage stamp cost millions of marks and a loaf of bread, billions."

(a) from the period 1966 to 1986, the official inflation rate never exceeded 100% in any single year; (b) the highest official inflation rate recorded was in 1984 which reached only 50.34%; (c) over a twenty one (21) year period, the Philippines experienced a single-digit inflation in ten (10); (d) in other years, when the Philippines experienced double-digit inflation rates, the average of those rates was only 20.88%; (e) while there was a decline in the purchasing power of the Philippine currency from the period 1966 to 1986, such cannot be considered as extraordinary; rather, it is a normal erosion of the value of the Philippine peso which is a characteristic of most currencies.

Moreover, the Court has held that the effects of extraordinary inflation are not to be applied without an official declaration thereof by competent authorities. Lastly, the provisions on rentals in the lease contract dated July 16, 1968 between petitioner and respondent are clear and categorical, and there is no reason to suppose that such lease contract does not reflect or express their true intention and agreement. The contract is the law between the parties and if there is indeed reason to adjust the rent, the parties could have by themselves negotiated the amendment of the contract. 

WHEREFORE, the petition is DENIED.