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.
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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 banks proposal and signed Equitables
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. RTCs 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.