7/18/2020 G.R. No.

L-43446

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SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-43446 May 3, 1988

FILIPINO PIPE AND FOUNDRY CORPORATION, plaintiff-appellant,

GRIÑO-AQUINO, J.:
The plaintiff Filipino Pipe and Foundry Corporation (hereinafter referred to as "FPFC" for brevity) appealed the dismissal of its complaint against defendant
National Waterworks and Sewerage Authority (NAWASA) by the Court of First Instance of Manila on September 5, 1973. The appeal was originally brought to the
Court of Appeals. However, finding that the principal purpose of the action was to secure a judicial declaration that there exists 'extraordinary inflation' within the
meaning of Article 1250 of the New Civil Code to warrant the application of that provision, the Court of Appeals, pursuant to Section 3, Rule 50 of the Rules of
Court, certified the case to this Court for proper disposition.

On June 12,1961, the NAWASA entered into a contract with the plaintiff FPFC for the latter to supply it with 4" and
6" diameter centrifugally cast iron pressure pipes worth P270,187.50 to be used in the construction of the Anonoy
Waterworks in Masbate and the Barrio San Andres-Villareal Waterworks in Samar. Defendant NAWASA paid in
installments on various dates, a total of One Hundred Thirty-Four Thousand and Six Hundred Eighty Pesos
(P134,680.00) leaving a balance of One Hundred Thirty-Five Thousand, Five Hundred Seven Pesos and Fifty
centavos (P135,507.50) excluding interest. Having completed the delivery of the pipes, the plaintiff demanded
payment from the defendant of the unpaid balance of the price with interest in accordance with the terms of their
contract. When the NAWASA failed to pay the balance of its account, the plaintiff filed a collection suit on March 16,
1967 which was docketed as Civil Case No. 66784 in the Court of First Instance of Manila.

On November 23, 1967, the trial court rendered judgment in Civil Case No. 66784 ordering the defendant to pay the
unpaid balance of P135,507.50 in NAWASA negotiable bonds, redeemable after ten years from their issuance with
interest at 6% per annum, P40,944.73 as interest up to March 15, 1966 and the interest accruing thereafter to the
issuance of the bonds at 6% per annum and the costs. Defendant, however, failed to satisfy the decision. It did not
deliver the bonds to the judgment creditor. On February 18, 1971, the plaintiff FPFC filed another complaint which
was docketed as Civil Case No. 82296, seeking an adjustment of the unpaid balance in accordance with the value
of the Philippine peso when the decision in Civil Case No. 66784 was rendered on November 23, 1967.

On May 3, 1971, the defendant filed a motion to dismiss the complaint on the ground that it is barred by the 1967
decision in Civil Case No. 66784.

The trial court, in its order dated May 26, 1971, denied the motion to dismiss on the ground that the bar by prior
judgment did not apply to the case because the causes of action in the two cases are different: the first action being
for collection of the defendant's indebtedness for the pipes, while the second case is for adjustment of the value of
said judgment due to alleged supervening extraordinary inflation of the Philippine peso which has reduced the value
of the bonds paid to the plaintiff.

Article 1250 of the Civil Code provides:

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..

The court suggested to the parties during the trial that they present expert testimony to help it in deciding whether
the economic conditions then, and still prevailing, would justify the application of Article 1250 of the Civil Code. The
plaintiff presented voluminous records and statistics showing that a spiralling inflation has marked the progress of
the country from 1962 up to the present. There is no denying that the price index of commodities, which is the usual
evidence of the value of the currency has been rising.
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The trial court pointed out, however, than this is a worldwide occurence, but hardly proof that the inflation is
extraordinary in the sense contemplated by Article 1250 of the Civil Code, which was adopted by the Code
Commission to provide "a just solution" to the "uncertainty and confusion as a result of Malabanan contracts entered
into or payments made during the last war." (Report of the Code Commission, 132-133.)

Noting that the situation situation during the Japanese Occupation "cannot that the be compared with the economic
conditions today," the a. Malabanan trial court, on September 5, 1973, rendered judgment dismissing the complaint.

The only issue before Us whether, on the basis of the continously spiralling price index indisputably shown by the
plaintiff, there exists an extraordinary inflation of the currency justifying an adjustment of defendant appellee's
unpaid judgment obligation the plaintiff-appellant.

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 said currency, and such decrease or
increase could not have reasonably foreseen or was manifestly beyond contemplation the the parties at the time of
the establishment of the obligation. (Tolentino Commentaries and Jurisprudence on the Civil Code Vol. IV, p. 284.)

An example of extraordinary inflation is the following description of what happened to the Deutschmark in 1920:

More recently, in the 1920's Germany experienced a case of hyperinflation. In early 1921, the value of
the German mark was 4.2 to the U.S. dollar. By May of the same year, it had stumbled to 62 to the U.S.
dollar. And as prices went up rapidly, so that by October 1923, it had reached 4.2 trillion to the U.S.
dollar! (Bernardo M. Villegas & Victor R. Abola, Economics, An Introduction [Third Edition]).

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 upload the nearly worthless paper. A postage
stamp cost millions of marks and a loaf of bread, billions." (Sidney Rutberg, "The Money Balloon" New York: Simon
and Schuster, 1975, p. 19, cited in "Economics, An Introduction" by Villegas & Abola, 3rd Ed.)

While appellant's voluminous records and statistics proved that there has been a decline in the purchasing power of
the Philippine peso, this downward fall of the currency cannot be considered "extraordinary." It is simply a universal
trend that has not spared our country.

WHEREFORE, finding no reversible error in the appealed decision of the trial court, We affirm it in toto. No costs.

SO ORDERED.

Narvasa, Cruz and Gancayco, JJ., concur.

The Lawphil Project - Arellano Law Foundation

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