Clarity is Key: Specifying Currency and Exchange Rates in Philippine Contracts

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F.A.T. KEE COMPUTER SYSTEMS, INC., vs. ONLINE NETWORKS INTERNATIONAL, INC., G.R. No. 171238, February 02, 2011

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Imagine entering a business deal where the currency fluctuates wildly. You agree on a price, but when it’s time to pay, the exchange rate has shifted, leading to a dispute over the final amount. This scenario highlights the critical importance of clearly defining currency and exchange rate terms in contracts, especially in the Philippines where businesses often deal with both Philippine pesos and US dollars.

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This case, F.A.T. Kee Computer Systems, Inc. vs. Online Networks International, Inc., revolves around a disagreement over the applicable exchange rate for a debt denominated in US dollars. The core legal question is: When a contract involves foreign currency, how do Philippine courts determine the correct exchange rate if the parties disagree? The Supreme Court decision underscores the importance of explicit agreements and the potential pitfalls of implied understandings.

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The Legal Landscape of Currency Obligations in the Philippines

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Philippine law has evolved regarding the currency in which obligations can be settled. Republic Act No. 8183, which repealed Republic Act No. 529, allows parties to a contract to agree that obligations can be settled in any currency, not just Philippine pesos. This opened the door for contracts denominated in US dollars or other foreign currencies.

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However, RA 8183 doesn’t specify how to convert foreign currency obligations into pesos when payment is made in local currency. This gap is where legal disputes often arise, making clear contractual terms essential. In the absence of a specific agreement, courts generally apply the exchange rate prevailing at the time of payment.

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Article 1249 of the Civil Code states the general rule of payment:

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“The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.”