Palanca v CA

G.R. No. 106685 December 2, 1994

Art. 1250 – Extraordinary inflation or deflation

Facts:

·          Petitioner Palanca, as vendor, and Jose Sanicas, as vendee, entered into a Contract to Sell on Installment of a parcel of land.

·          Under the terms of the contract, Jose agreed to pay Palanca 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 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 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 escalator clause:

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.

·         Respondent tendered supposed balance payment (44k), but petitioner rejected it, which prompted the former make a judicial consignment of the amount.

·         Petitioner justified his refusal by asserting the escalator clause in paragraph 11 of the contract (155k).

Issue:

WoN the contract has been visited by an "extraordinary inflation" as to trigger the operation of Article 1250.

Held:

            No, the Court holds that while the contract may contain an "escalator clause” still the autonomy of the parties to provide such escalator clauses may be limited by law.

            Article 1250 of the Civil Code of the Philippines is not the basis herein, but R.A. No. 529, as amended, as a ground for violation of said clause.

            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 with the U.S. dollar. This is the "monetary fluctuation" contemplated by them as would justify the adjustment, and not "extraordinary inflation" described in Art.1250.

            Thus, the petition is DENIED.