G.R. No. L-22768 October 28, 1977
LIRAG TEXTILE, INC., plaintiff-appellant, vs. REPARATIONS COMMISSION, defendant-appellee.

FACTS

Lirag Textile Mills, Inc. applied for and received reparations goods allocations from the Reparations Commission, including a subsequent allocation of $1,300,000. The parties executed a “Contract to Purchase” in 1961, wherein Lirag made a down payment calculated at the official exchange rate of P2.00 to $1.00. The contract stipulated it would be superseded by a future Contract of Conditional Purchase and Sale. The implementation of this allocation was delayed due to a court injunction and a subsequent presidential directive for re-examination.
In March 1963, a Presidential Directive was issued, mandating that the free market rate of exchange (then approximately P4.00 to $1.00) be applied to all items in the Seventh Year Reparations Schedule, including carried-over items like Lirag’s. The Commission then required Lirag to execute the final Contract of Conditional Purchase and Sale reflecting the goods’ value at the free market rate and to pay the difference in the down payment. Lirag objected, insisting the official rate should govern, as it was the basis for its initial application, project study, and down payment.

ISSUE

Whether the peso cost of the reparations goods allocated to Lirag should be computed based on the official rate of exchange (P2.00 to $1.00) or the free market rate (P4.00 to $1.00) prevailing at the time of procurement.

RULING

The Supreme Court affirmed the lower court’s decision, ruling that the free market rate of exchange must be applied. The Court anchored its decision on the precedent established in Reparations Commission vs. Northern Lines, Inc. (G.R. No. L-24805, October 4, 1977). The legal logic is that the procurement cost of reparations goods is fixed in US dollars. The conversion of this dollar cost into Philippine pesos must be based on the rate of exchange prevailing at the time the procurement cost becomes “fixed and certain and definitely ascertained.”
This point of fixation is not at the stage of application or initial allocation, but at the later phase when the Reparations Mission concludes the actual procurement contracts with Japanese suppliers. In this case, those contracts were finalized around April 1963. Since the Presidential Directive of March 1963 had already mandated the use of the free market rate for the relevant schedule, and this coincided with the time the dollar cost was definitively ascertained through procurement, the free market rate was the proper measure of conversion. The Court rejected Lirag’s arguments based on the initial official rate, noting that applying different exchange rates to installment payments would impose an unwarranted burden. The conversion is a single, definitive act applied to the total dollar cost, not a variable factor for each payment installment.