Equitable PCI Bank v. Ng Sheung Ngor

Equitable PCI Bank v. Ng Sheung Ngor P ay men t Cu rr en cy a n d V al u e D i g e st b y C a r me l a F o j a s ❤

Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should intervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. xxx

FACTS: 1. Respondents Ng Sheung Ngor et al. filed an action for annulment and/or reformation of documents and contracts against Equitable PCI Bank and its employees. 2. Respondents claim that Equitable induced them to avail of its peso and dollar credit facilities by offering low interest rates, so they accepted the bank’s proposal and signed Equitable’s pre-printed promissory notes. 3. However, they were unaware that the documents contained identical escalation clauses granting Equitable authority to increase interest rates without their consent. Equitable answered that respondents knowingly accepted all the terms and conditions contained in the promissory notes. 4. RTC upheld the validity of the promissory notes but invalidated the escalation clause because it violated the principle of mutuality of contracts. 5. Nevertheless, RTC took judicial notice of the steep depreciation of the peso during the intervening period and declared the existence of extraordinary deflation. RTC ordered the use of the 1996 dollar exchange rate in computing respondents’ dollar-denominated loans. 6. RTC’s dispositive: directing Ng Sheung Ngor et al. to pay Equitable the unpaid principal obligation for the peso loan as well as the unpaid obligation for the dollar-denominated loan, following the conversion rate at the time of incurring the obligation, in accordance with Article 1250 of the Civil Code.

RELEVANT ISSUE: 1. Whether or not respondents Ng Sheung Ngor should pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of maturity  YES

HELD: 1. THERE WAS NO EXTRAORDINARY DEFLATION. 2. Extraordinary inflation exists when there is an unusual decrease in the purchasing power of currency (that is, beyond the common fluctuation in the value of currency) and such decrease could not be reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the obligation. Extraordinary deflation involves an inverse situation. 3. Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should intervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. 4. For extraordinary inflation or deflation to affect an obligation, the following requisites must be proven: a) That there was an official declaration of extraordinary deflation from the Bangko Sentral ng Pilipinas b) That the obligation was contractual in nature c) That the parties expressly agreed to consider the effects of the extraordinary deflation. 5. In this case, despite the devaluation of the peso, the BSP never declared a situation of extraordinary inflation. 6. Moreover, although the obligation arose out of a contract, the parties did not agree to recognize the effects of extraordinary inflation. 7. The RTC never mentioned that there was such a stipulation either in the promissory note or loan agreement. 8. Therefore, respondents Ng Sheung Ngor should pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of maturity.