G.R. No. L-59213. November 27, 1986
CONGRESSIONAL COMMERCIAL CORPORATION and BIENVENIDO LIM, Petitioners, vs. COURT OF APPEALS, COURT OF FIRST INSTANCE OF RIZAL [QUEZON CITY], BRANCH XVIII, HON. ERNANI CRUZ-PAÑO, CITY SHERIFF OF QUEZON CITY, HIGINO FRANCISCO and NORBERTA GANA, Respondents.

FACTS

Spouses Higino Francisco and Norberta Gana leased two lots in Quezon City to Congressional Commercial Corporation, through its president Bienvenido Lim, for twenty years to operate the Cubao Cinema. The lease contract stipulated a fixed, staggered monthly rental. A specific clause provided that in case of any “official inflation or deflation” declared by the Central Bank regarding the peso-dollar exchange rate, the monthly rental would be adjusted based on changes in the movie ticket price, with the baseline orchestra ticket price set at P1.75. In 1973, the lessor-spouses requested a rental increase, arguing that the peso had depreciated and the lessee was already charging P2.00 per ticket. The lessee refused, contending the adjustment clause was inoperative absent an official Central Bank declaration of inflation or deflation.
The lessor-spouses then sought a declaratory relief from the trial court, asking whether an official Central Bank declaration was indispensable for enforcing the rental adjustment clause. The trial court ruled in favor of the lessors, holding that the clause’s condition was potestative and contrary to law, thus demandable. It ordered the lessee to pay adjusted rentals and, upon continued refusal, authorized the lessors to rescind the lease. The Court of Appeals affirmed this decision.

ISSUE

Whether the contractual provision for rental adjustment, conditioned upon an “official inflation or deflation” declaration by the Central Bank, is valid and enforceable.

RULING

The Supreme Court dismissed the petition and affirmed the lower courts’ rulings. The legal logic centers on the interpretation of the contractual condition as potestative and impossible. The clause made the rental adjustment contingent upon a future and uncertain event—an official declaration of inflation or deflation by the Central Bank. The Court noted that the Central Bank, through its floating rate policy (Circular No. 289), had a policy of not administratively fixing an official exchange rate, intervening only to counteract excessive fluctuations. This policy made the stipulated event—an “official declaration”—not merely uncertain but effectively impossible as a matter of the Central Bank’s operational stance.
Consequently, the condition was deemed potestative, depending solely on the will of a third party (the Central Bank) whose policy was against making such declarations. Under Article 1182 of the Civil Code, an obligation is void if its fulfillment depends upon the sole will of the debtor. By analogy, a condition that is impossible or depends on the sole will of a third party, rendering it illusory, is considered not written. The Court held that to insist on such an impossible condition would negate the clear intent of the parties to provide for a rental adjustment mechanism tied to economic realities (i.e., ticket price changes). Therefore, the condition was disregarded, and the lessee’s obligation to pay adjusted rentals based on the actual increase in ticket prices became demandable. The lessee’s persistent refusal to pay constituted a substantial breach, justifying the rescission of the lease contract ordered by the lower courts.