G.R. No. 106685 December 2, 1994
SIMPLICIO A. PALANCA, petitioner, vs. COURT OF APPEALS and EDGARDO S. SANICAS, represented by his Attorney-in-Fact, JOSE S. SANICAS, respondents.

FACTS

Petitioner Simplicio Palanca and Jose Sanicas entered into a Contract to Sell a parcel of land on installment. The contract contained an escalator clause in Paragraph 11, stipulating that the unpaid balance would be increased proportionately based on monetary fluctuation, using the exchange rate of P6.72 to US$1.00 as a base. Respondent Edgardo Sanicas later assumed the obligation. After demands for payment, Edgardo tendered a computed amount, which Palanca refused, insisting on a higher sum based on the escalator clause due to peso depreciation. Edgardo consigned the amount judicially and filed a complaint for reconveyance.
The trial court ruled the escalator clause could not be enforced absent “extraordinary inflation” under Article 1250 of the Civil Code and deemed it unconscionable. The Court of Appeals affirmed the unenforceability of the clause but modified the payable amount. Palanca elevated the case, arguing his entitlement to a proportionate increase under Paragraph 11 of the contract.

ISSUE

Whether the escalator clause in the Contract to Sell, which pegs the unpaid balance to the value of the US dollar, is valid and enforceable.

RULING

The Supreme Court denied the petition, ruling the escalator clause is void. The legal logic proceeds not from Article 1250 on extraordinary inflation, but from Republic Act No. 529 , as amended. This law mandates that every domestic obligation to pay money shall be discharged in Philippine currency, which is legal tender for all debts. The contract involved a purely domestic sale of land payable in Philippine pesos. While the clause measured the peso obligation against the US dollar, no foreign currency was actually involved in the transaction.
Such a stipulation effectively allows payment to be measured by a foreign currency, which undermines the Philippine currency as the standard of value and contravenes the policy of RA 529 to preserve public confidence in the monetary system. The Court distinguished this from a loan transaction involving foreign currency, where different exchange rate rules may apply. The subsequent liberalization of foreign exchange regulations through Central Bank circulars did not repeal RA 529, as a circular cannot abrogate a law. Therefore, the obligation must be paid in the stipulated Philippine peso amount without adjustment based on dollar fluctuation.