G.R. No. L-28776 August 19, 1988
SIMEON DEL ROSARIO, plaintiff-appellant, vs. THE SHELL COMPANY OF THE PHILIPPINES LIMITED, defendant-appellee.

FACTS

On September 20, 1960, Simeon del Rosario and The Shell Company of the Philippines entered into a lease agreement for a parcel of land in Albay at a monthly rental of P250. Paragraph 14 of the contract stipulated that the rental would be adjusted in accordance with any law or decree specifically applying to rentals in the event of an “official devaluation or appreciation of the Philippine currency.” On November 6, 1965, President Diosdado Macapagal issued Executive Order No. 195, which changed the par value of the peso from US$0.50 to US$0.2564103, effective November 8, 1965. Relying on this executive order, del Rosario demanded an increase in the monthly rental to P487.50, contending it constituted an official devaluation under their contract.
Shell refused to pay the increased rental. Consequently, del Rosario filed a complaint with the Court of First Instance of Manila, seeking payment of the adjusted rental from November 8, 1965, plus damages and attorney’s fees. The trial court dismissed the complaint, ruling that Executive Order No. 195 did not officially devalue the Philippine peso as it merely modified the par value without changing the gold value of the peso as defined in the Central Bank Act. The court held the executive order did not trigger the adjustment clause in the lease contract.

ISSUE

Whether Executive Order No. 195, which changed the par value of the peso, constitutes an “official devaluation” or its equivalent under Paragraph 14 of the lease contract, thereby justifying an upward adjustment of the monthly rental.

RULING

The Supreme Court reversed the trial court’s decision and granted the rental adjustment. The Court clarified the contractual terms by examining economic definitions. It noted that while “devaluation” technically refers to an official reduction in the metallic content of a currency, and “depreciation” refers to a fall in a currency’s value relative to foreign currencies, the terms are often used interchangeably by laypersons to signify a decrease in value. The Court found that Executive Order No. 195 effectively reduced the par value and purchasing power of the Philippine peso against the US dollar.
The legal logic centers on interpreting the contract according to the parties’ probable intent. The Court reasoned that the parties, in using the term “devaluation” in their agreement, contemplated any official act that decreases the currency’s value, not strictly a reduction in gold content. The change in par value effected by the executive order was precisely the kind of event meant to trigger the rental adjustment clause, as it diminished the peso’s value. Therefore, the rental should be proportionately increased to reflect this change. The adjustment was made effective from the date the complaint was filed, with no award of damages or costs.