FILIPINO PIPE AND FOUNDRY CORPORATION vs.

NATIONAL WATERWORKS AND

SEWERAGE AUTHORITY

(G.R. No. L-43446 May 3, 1988)

FACTS:

National Waterworks and Sewerage Authority (NAWASA) contracted with Filipino Pipe and
Foundry Corporation (FPFC) for the latter to supply 4” and 6” centrifugally cast pressure iron
pipes to be used at the former’s projects in Masbate and Samar. The contract costed
P270,187.50 to which NAWASA paid P134,680.00 on various dates. FPFC completed its
delivery of the pipes and demanded NAWASA to pay for the remaining amount of P135,507.50
excluding interest. NAWASA failed to pay its outstanding balance. FPFC filed a collection suit
in 1967 before the Court of First Instance (CFI) in Manila. The CFI ruled in favor of FPFC and
ordered NAWASA to pay the unpaid balance of P135,507.50 in NAWASA negotiable bonds
which were redeemable in ten years from their issuance with interest at 6% per annum and
costs.

In 1971, FPFC filed another suit against NAWASA which sought to adjust NAWASA’s unpaid
balance in accordance with the value of the Philippine Peso which decreased from the CFI’s
decision in 1967. NAWASA filed a motion to dismiss FPFC’s second suit as it was barred from
the 1967 CFI decision. The CFI dismissed NAWASA’s motion on the ground that there were
two different causes of action – collection of payments and adjustment of judgment due. The
CFI further suggested during trial that FPFC submit expert testimony to justify its claim of
extraordinary inflation according to Article 1250 of the Civil Code. The CFI eventually
dismissed FPFC’s second suit on the ground that while the inflation is a worldwide occurrence,
there was no proof of the same being an extraordinary in the sense contemplated by the Civil
Code.

ISSUE:

Whether an extraordinary inflation exists to justify FPFC’s claim of adjustment of payment

due it.

RULING:

There was no extraordinary inflation.

The Court ruled that extraordinary inflation exists when there is a decrease or increase in the
value of the Philippine peso which is unusual or beyond the common fluctuation. And that
such decrease or increase could not have reasonable foreseen or was beyond contemplation
of the parties at the time the obligation was made. The Court further set as an example the
hyperinflation Germany experienced in 1920 to which their currency could not keep up with
the inflation that occurred. The Court finally ratiocinated that the inflation was a universal
trend to which the Philippines was not spared of. Hence, the Court affirmed the CFI’s decision.