What is extraordinary inflation and what is its effect on contractual obligations?
Extraordinary inflation exists when ‘there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such decrease or increase could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. It is only when an extraordinary inflation supervenes that the law affords the parties a relief in contractual obligations.Art. 1250 of the Civil Code provides that “in case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of the payment, unless there is an agreement to the contrary”.
