G.R. No. L-79552 November 29, 1988
EVELYN J. SANGRADOR, joined by her husband RODRIGO SANGRADOR, SR., petitioners, vs. SPOUSES FRANCISCO VALDERRAMA and TERESITA M. VALDERRAMA, respondents.

FACTS

The respondents, spouses Valderrama, obtained a loan of P1,000,000 from petitioner Evelyn Sangrador on April 6, 1984, to pay off a prior mortgage. The loan was evidenced by a promissory note stipulating payment of P1,400,000 after eight months. The note included a clause invoking Article 1250 of the Civil Code, stating that in case of an “extraordinary inflation,” the value of the peso at the time the obligation was established would be the basis for payment, using the official exchange rate of P14.002 to US$1 as a benchmark. Upon maturity, the respondents failed to pay. The petitioners filed for collection, claiming the full P1,400,000 plus an additional sum based on their contention that an extraordinary inflation had supervened, as the peso had allegedly depreciated to an exchange rate of P19.70 to US$1 by the time of maturity.
The Regional Trial Court ruled in favor of the petitioners, ordering payment of the P1,400,000 principal plus the additional inflation adjustment. On appeal, the Court of Appeals affirmed the liability for the P1,400,000 but deleted the additional adjustment for extraordinary inflation. The appellate court held that the petitioners failed to prove the occurrence of such an extraordinary inflationary period. The petitioners then elevated the case to the Supreme Court via certiorari.

ISSUE

The core issue is whether the petitioners are entitled to an adjustment of the loan obligation based on an alleged extraordinary inflation of the Philippine peso between the contract date and the maturity date, pursuant to Article 1250 of the Civil Code.

RULING

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals. The legal logic centers on the interpretation and application of Article 1250 of the Civil Code, which allows for monetary revaluation only if an “extraordinary inflation or deflation” supervenes. The Court clarified that extraordinary inflation is not a mere decline in purchasing power or a usual currency fluctuation; it is an extreme, unusual, and unforeseen increase in prices that is catastrophic in nature. The Court cited historical examples, like the German hyperinflation after World War I, to illustrate the severity required.
The petitioners’ sole proof was the change in the official peso-to-dollar exchange rate from P14.002 to P19.70. The Court ruled this was insufficient. A change in foreign exchange rates, by itself, does not constitute proof of extraordinary inflation affecting the domestic purchasing power of the currency. The petitioners presented no evidence, such as data on the price index of goods and services, to demonstrate that the general price level had risen in an extraordinary manner within the eight-month period. Since the burden of proof lies with the party invoking the benefit of Article 1250, and the petitioners failed to discharge this burden, no legal basis existed to adjust the principal obligation. The stipulated amount in the promissory note, P1,400,000, therefore remained the correct basis for payment.