SIMPLICIO A. PALANCA, PETITIONER, VS. COURT OF APPEALS (SPECIAL FORMER ELEVENTH DIVISION), AND EDGARDO S. SANICAS, REPRESENTED BY HIS ATTORNEY-IN-FACT, JOSE S. SANICAS, RESPONDE…

This is a petition for review on certiorari under Rule 45
of the Revised Rules of Court to set aside the Decision of the Court of Appeals
in CA-G.R. CV No. 20245 and its Resolution dated August 12, 1992 denying the
motion for reconsideration of said decision.

We deny the petition.

I

On January 22, 1977, petitioner, as vendor, and Jose S. Sanicas,
as vendee, entered into a Contract to Sell on Installment of a parcel of land
covered by TCT No. T-6771766. Under the
terms of the contract, private respondent agreed to pay petitioner the amount
of P9,851.00 as downpayment and the balance of P88,659.00 in 120 monthly
installments with 14% interest per annum on the outstanding
balance. Jose S. Sanicas further agreed
to pay the annual real property taxes, and that should he fail to pay the said
taxes, he would have to pay a yearly surcharge or penalty of 50% of the taxes
due plus 12% compounded interest per annum.

Respondent Edgardo S. Sanicas later assumed the account of his
brother Jose and he designated the latter as his authorized representative in
dealing with petitioner.

Paragraph 11 of the contract contained the following provision:

“That it is further agreed and understood by the VENDEE that in the event of monetary
fluctuation, the unpaid balance account of the herein VENDEE on the aforecited subdivision lot shall be increased
proportionately on the basis of the present value of P6.72 to $1.00 US
dollar” (Rollo, p. 2).

Following demands from petitioner for the updating of the
account, private respondent requested a detailed statement. When petitioner
failed to furnish him with the statement, private respondent hired an
accountant to compute his obligations under the contract. Thereafter, he tendered the amount of
P44,955.87 in cash upon petitioner, which amount included interest at 12% per
annum.

Petitioner, however, refused to receive the amount tendered,
prompting private respondent to make a judicial consignment of the amount on
May 29, 1987.

Private respondent then filed with the trial court a complaint for
reconveyance with preliminary injunction, praying that petitioner be restrained
from cancelling private respondent’s rights under the contract and from
ejecting him from the property. Private
respondent further prayed that the trial court order petitioner to accept the
amount earlier consigned, and subsequently, to declare as fully paid the
purchase price of the parcel of land.

Petitioner justified his refusal to accept the amount of
P44,955.87 by asserting that private respondent’s actual liability was
P155,630.40, relying on the escalator clause in paragraph 11 of the contract.

Applying Article 1250 of the New Civil Code, the trial court
ruled that for an agreement providing for the adjustment of the purchase price
in case of a diminution of the value of the peso to come into effect, there
should be an “extraordinary inflation or deflation.” It was the
position of the trial court that inasmuch as there was no extraordinary
inflation or deflation, paragraph 11 of the contract should not be taken into
account in the computation of the amount payable under the contract (Rollo, pp.
45-46).

Furthermore, the trial court ruled that it was unconscionable to
peg the unpaid balance in the event of monetary fluctuation at 100.398% aside
from the agreed interest rate of 14% (Rollo, p. 48).

Accordingly, the trial court, in its Decision dated June 17,
1988, disposed as follows:

“WHEREFORE, judgment is hereby rendered ordering the defendant
to execute a deed of conveyance in favor of plaintiff covering Lot No. 8, Blk.
1, TCT No. T-77176 considering the payment made by plaintiff of the balance of
the purchase price in the sum of Forty Four Thousand Nine Hundred Seventy Nine
Pesos and Eighty Seven Centavos (P44,979.87) thru judicial consignation
effected on May 29, 1987 per Official Receipt No. 4016228 issued by the
Provincial Treasurer of Negros Occidental.

Without pronouncement as to attorney’s fees and costs” (Rollo,
p. 48).

Petitioner appealed to the Court of Appeals.

The Court of Appeals modified the judgment of the trial
court. Based on the trial court’s
record, the appellate court ruled that the amount payable by private respondent
was P70,688.17, broken down as follows:

“P45,186.04              Balance
on the principal;

P22,604.63              Interest thereon from January 24,
1983 to April 2, 1987 plus, balance on interest; and

P 2,897.00               Land
taxes from 1977 to 1986″

(Rollo, p. 38).

The Court of Appeals concurred with the trial court’s ruling that
paragraph 11 of the contract cannot come into effect absent an actual extraordinary
inflation or deflation.

II

Not pleased with the judgment of the appellate court, petitioner
comes to this Court raising the sole issue of “whether or not petitioner
is entitled to a proportionate increase in payment on the balance of the purchase
price for a piece of real property bought on installment, pursuant to paragraph
11 of the subject Contract To Sell on Installment” (Rollo, p. 2).

III

We cannot grant the petition but not on the grounds relied upon
by the trial court and the Court of Appeals that there should be an
“extraordinary inflation” before a stipulation for an upward
adjustment of the purchase price can be enforced.

The specific provision of
law applied by the two lower courts is Article 1250 of the Civil Code of the
Philippines, which provides:

“In case 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.”

In the case at bench, the clear understanding of the parties is
that there should be an upward adjustment of the purchase price the moment
there is a deterioration of the Philippine peso vis–a–vis
the U.S. dollar. This is the
“monetary fluctuation” contemplated by them as would justify the
adjustment. Under this scenario, it is
an idle task to determine whether the contract has been visited by an
“extraordinary inflation” as to trigger the operation of Article
1250.

While the contract may contain an “escalator clause”
providing that in the occurrence of certain events, the contract price shall be
increased to a fixed percentage of the base price (“Escalator” price
adjustment clauses, 63 ALR 2d 1337 [1959]), still the autonomy of the parties
to provide such escalator clauses may be limited by law.

The petition should be dismissed on the ground that the
stipulation of the parties is in violation of R.A. No. 529, as amended,
entitled “An Act to Assure Uniform Value To Philippine Coin and
Currency,” otherwise known as the Cuenco Law.

Section 1 of R.A. No.
529, as amended, provides in pertinent part:

“Every provision contained in, or made with respect to, any
domestic obligation, to wit, any obligation contracted in the Philippines which
provisions purport to give the obligee the right to require payment in gold or
in a particular kind of coin or currency other than Philippine currency or in
an amount of money of the Philippines
measured thereby, be as it is hereby declared against public
policy, and null, void and of no effect, and no such provision shall be
contained in, or made with respect to, any obligation hereafter incurred. x x x” (Underscoring supplied).

Often lost sight of is the fact that the said law prohibits two
things in all domestic contracts: (1)
giving the obligee the right to require payment in a specified currency other
than Philippine currency; and (2) giving the obligee the right to require
payment “in an amount of money of the Philippines measured thereby.”

When the parties stipulated that “xxx in the event of
monetary fluctuation (meaning any change in the rate of exchange of the
Philippine peso to the U.S. dollar), the unpaid balance account of the herein
vendee on the aforesaid subdivision lot shall be increased proportionately on the
basis of the present value of P6.72 to US$ 1.00,” the obligee was given
the right to demand payment of the balance of the purchase price “in an
amount of money of the Philippines measured” by a foreign coin or
currency.

Republic Act No. 529 mandates that the money of obligation or
payment to be stipulated in all contracts entered into in the Philippines shall
be in Philippine currency. The
authority to legislate on the money of obligation or payment in all transactions
entered into in the Philippines is beyond dispute.

The whereas clause of R.A. No. 529 reads as follows:

“WHEREAS, the value of Philippine coin and currency affects
public interest and is subject to regulation by the Congress of the
Philippines;

“WHEREAS, it has been disclosed that the provisions of certain
obligations contracted in the Philippines purport to give the obligee the right
to require payment in gold or in a particular kind of coin or currency or in an
amount in money of the Philippines measured thereby, thus obstructing the power
of the Congress to regulate the value of the money of the Philippines and
contravening the policy of the Congress, here declared, to maintain at all
times the equal and stable power of every peso coined or issued by the
Philippines, in the markets and in the payment of debts.”

Congress passed Republic Act No. 529, having in mind the
preservation of the value of the Philippine peso. A currency has value because people are willing to accept it in
exchange for goods and services and in payment for debts. Thus, despite the fact that money has no
value as a commodity, it has value to those willing to use it as a medium of
exchange (Cargill, Money, The Financial System and Monetary Policy 18 [2nd ed.,
1983]; Grubel, The International Monetary System 185 [3rd ed.]). If goods and services are available in
return for a definite medium of exchange, the value of all goods and services
necessarily will be measured in terms of that medium. But these functions of money are not capable of performance if
there is no confidence in the currency (Nusbaum, Money in the Law 3-4 [1939
ed.]). If instead of the Philippine
currency, the people would use a foreign currency as the mode of payment or as
basis for measuring the amount of money to be paid in Philippine currency, such
usage would adversely affect the confidence of the public on the Philippine
monetary system.

The contract in question is a sale of a parcel of land in the
Philippines payable in Philippine pesos. While the balance of the purchase price is payable in Philippine
currency measured by a foreign currency, no foreign currency was directly
involved in the transaction. The
obligation should therefore be paid in the same amounts of Philippine currency
as stipulated in the contract without any adjustment based on the prevailing
exchange rate of the U.S. dollar to the Philippine peso. The transaction does not involve a loan in a
foreign currency stipulated to be payable in Philippine currency but measured
by a foreign currency, in which case the rate of exchange prevailing at the
stipulated date of payment shall prevail (Lily San Buenaventura v. Court of
Appeals, 181 SCRA 197 [1990]).

The liberalization of the foreign exchange regulations on
receipts and disbursements of residents arising from both non-trade and trade
transactions (Resolution of the Monetary Board dated August 7, 1992; Central
Bank Circulars No. 1353, Series of 1992; No. 1318 dated January 3, 1992; No.
1338 dated April 28, 1992; No. 1348 dated July 28, 1992) did not repeal or in
any way amend R.A. No. 529. In essence,
the said Circulars of the Central Bank merely allowed the free sale and
purchase of foreign exchange outside the banking system and other transactions
involving foreign currency previously subject to Central Bank control.

While foreign exchange controls are tools in the maintenance of
the value of the Philippine currency, such controls are not the only means of
maintaining that value. The
requirements in R.A. No. 529 that the money of obligation or payment in all
domestic transactions must be in Philippine currency are also measures to
maintain such value.

Besides, a Central Bank Circular cannot repeal a law. Only a law can repeal another law. Article 7 of the Civil Code of the
Philippines provides:

“Laws are repealed only by subsequent ones and their violation
or non-observance shall not be excused by disuse, or custom or practice to the
contrary.”

WHEREFORE, the petition is DENIED.

SO ORDERED.

Narvasa, C.J., (Chairman), Bidin, Regalado, Davide, Jr., Romero,
Bellosillo, Melo, Puno, Vitug, Kapunan, and
Mendoza, JJ., concur.

Feliciano, J., on official leave.

Padilla, J., in the result.