G.R. No. 55372 May 31, 1989
LETTY HAHN, petitioner, vs. COURT OF APPEALS, JOSIE M. SANTOS and FRANCISCO SANTOS, respondents.

FACTS

Petitioner Letty Hahn delivered two diamond rings valued at P47,000.00 to respondent Josie M. Santos in 1966 under receipts acknowledging the transaction as a sale on commission, with the rings to be returned upon demand if unsold. Santos failed to sell or return the rings upon Hahn’s demand. Hahn filed a civil case for recovery and a criminal case for estafa. Santos was acquitted in the criminal case on reasonable doubt. In the civil case, the trial court ruled in Hahn’s favor, ordering Santos to return the rings or pay their value, adjusted upward to P65,000.00 based on alleged extraordinary inflation under Article 1250 of the Civil Code, and awarded moral and exemplary damages due to Santos’s “seeming lack of scruples.”
The Court of Appeals modified the decision. It deleted the upward adjustment, holding Article 1250 inapplicable, and disallowed the moral and exemplary damages, finding no clear showing of malice or bad faith. It ordered Santos to return the rings or pay P47,000.00 with legal interest from the filing of the complaint, plus attorney’s fees. Hahn elevated the case, contesting the deletion of the monetary adjustment and the damages.

ISSUE

The issues are: (1) whether the Court of Appeals erred in disallowing the upward adjustment of the rings’ value based on Article 1250; and (2) whether it erred in deleting the award of moral and exemplary damages.

RULING

The Supreme Court partly granted the petition. On the first issue, it sustained the Court of Appeals. Article 1250 applies only when there is an “extraordinary inflation or deflation” expressly recognized by the government. The petitioner’s reliance on Central Bank statistics was insufficient to prove such an official declaration. The obligation was a simple monetary debt to return the rings or their specific value (P47,000.00), not a obligation adjustable by inflation absent the required official pronouncement.
On the second issue, the Court reversed the Court of Appeals and reinstated the awards for moral and exemplary damages. It found that the trial court’s factual findings on Santos’s bad faith were conclusive. Her conduct was devious, including misrepresenting the contract as one of sale despite clear agency terms in the receipts she signed, fabricating stories about installment payments, and attempting to return a different, less valuable solitaire ring. This pattern of deceit demonstrated fraud and malice, warranting damages for the besmirched reputation and wounded feelings of Hahn, who had reposed trust in her. The decision was modified to include the P10,000.00 moral and P5,000.00 exemplary damages, with interest on the principal accruing from the time of judicial demand.