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    Almeda vs. Bathala Marketing

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    Gia Dimayuga
    Bathala Marketing Industries renewed its contract to lease property from Ponciano Almeda in 1997. After Ponciano died, his wife and son Eufemia and Romel Almeda tried to increase the rent by adding VAT and claiming extraordinary inflation under the contract. However, the court found that: 1) Ponciano did not originally charge VAT in the contract so it could not be added later; 2) any new taxes referred to in the contract must post-date 1997, not VAT from 1994; and 3) there was no extraordinary inflation proven, as inflation must be unusual or unforeseeable, which a long-term declining peso does not meet. Therefore, Bathala Marketing did not have

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    Almeda vs. Bathala Marketing

    Uploaded by

    Gia Dimayuga
    998 views3 pages
    Bathala Marketing Industries renewed its contract to lease property from Ponciano Almeda in 1997. After Ponciano died, his wife and son Eufemia and Romel Almeda tried to increase the rent by adding VAT and claiming extraordinary inflation under the contract. However, the court found that: 1) Ponciano did not originally charge VAT in the contract so it could not be added later; 2) any new taxes referred to in the contract must post-date 1997, not VAT from 1994; and 3) there was no extraordinary inflation proven, as inflation must be unusual or unforeseeable, which a long-term declining peso does not meet. Therefore, Bathala Marketing did not have

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    Bathala Marketing Industries renewed its contract to lease property from Ponciano Almeda in 1997. After Ponciano died, his wife and son Eufemia and Romel Almeda tried to increase the rent by adding VAT and claiming extraordinary inflation under the contract. However, the court found that: 1) Ponciano did not originally charge VAT in the contract so it could not be added later; 2) any new taxes referred to in the contract must post-date 1997, not VAT from 1994; and 3) there was no extraordinary inflation proven, as inflation must be unusual or unforeseeable, which a long-term declining peso does not meet. Therefore, Bathala Marketing did not have

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    998 views3 pages

    Almeda vs. Bathala Marketing

    Uploaded by

    Gia Dimayuga
    Bathala Marketing Industries renewed its contract to lease property from Ponciano Almeda in 1997. After Ponciano died, his wife and son Eufemia and Romel Almeda tried to increase the rent by adding VAT and claiming extraordinary inflation under the contract. However, the court found that: 1) Ponciano did not originally charge VAT in the contract so it could not be added later; 2) any new taxes referred to in the contract must post-date 1997, not VAT from 1994; and 3) there was no extraordinary inflation proven, as inflation must be unusual or unforeseeable, which a long-term declining peso does not meet. Therefore, Bathala Marketing did not have

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Almeda vs.

    Bathala Marketing
    G.R. No 150806.; January 28, 2008
    Interpretation of Contracts - Primacy of intention

    FACTS:
    In May 1997, Bathala Marketing Industries, Inc., as lessee, represented by its president Ramon H.
    Garcia, renewed its Contract of Lease with Ponciano L. Almeda (Ponciano), as lessor, husband of
    petitioner Eufemia and father of petitioner Romel Almeda. Under the said contract, Ponciano agreed to
    lease a portion of the Almeda Compound, located at 2208 Pasong Tamo Street, Makati City, consisting of
    7,348.25 square meters, for a monthly rental of P1,107,348.69, for a term of four (4) years from May 1,
    1997 unless sooner terminated as provided in the contract.

    The contract of lease contained the following pertinent provisions which gave rise to the instant case:

    SIXTH: It is expressly understood by the parties hereto that the rental rate stipulated is based on
    the present rate of assessment on the property, and that in case the assessment should hereafter be
    increased or any new tax, charge or burden be imposed by authorities on the lot and building where the
    leased premises are located, LESSEE shall pay, when the rental herein provided becomes due, the
    additional rental or charge corresponding to the portion hereby leased; provided, however, that in the
    event that the present assessment or tax on said property should be reduced, LESSEE shall be entitled to
    reduction in the stipulated rental, likewise in proportion to the portion leased by him;

    SEVENTH: In case an extraordinary inflation or devaluation of Philippine Currency should


    supervene, the value of Philippine peso at the time of the establishment of the obligation shall be the basis
    of payment.

    During the effectivity of the contract, Ponciano died. Thereafter, Bathala Marketing dealt with
    petitioners Eufemia and Romel Almeda, wife and son of Ponciano. In a letter dated December 29, 1997,
    petitioners advised respondent that the former shall assess and collect Value Added Tax (VAT) on its
    monthly rentals. In response, Bathala Marketing contended that VAT may not be imposed as the rentals
    fixed in the contract of lease were supposed to include the VAT therein, considering that their contract
    was executed on May 1, 1997 when the VAT law had long been in effect.

    On January 26, 1998, Bathala Marketing received another letter from the Almedas informing the
    former that its monthly rental should be increased by 73% pursuant to condition No. 7 of the contract and
    Article 1250 of the Civil Code. Respondent opposed petitioners' demand and insisted that there was no
    extraordinary inflation to warrant the application of Article 1250 in light of the pronouncement of this
    Court in various cases. Bathala Marketing refused to pay the VAT and adjusted rentals as demanded by
    the Almedas but continued to pay the stipulated amount set forth in their contract.

    ISSUE: Whether or not Bathala Marketing is is liable to pay 10% VAT pursuant to Republic Act (RA)
    7716 and whether the amount of rentals should be adjusted by reason of extraordinary inflation or
    devaluation?

    NO, Bathala Marketing is not liable to pay the 10% VAT and the amount of rentals should not be
    adjusted because there is no extraordinary inflation or deflation.
    RULING:

    10% VAT pursuant to Republic Act (RA) 7716


    Clearly, the person primarily liable for the payment of VAT is the lessor Almeda who may
    choose to pass it on to the lessee or absorb the same. Beginning January 1, 1996, the lease of real property
    in the ordinary course of business, whether for commercial or residential use, when the gross annual
    receipts exceed P500,000.00, is subject to 10% VAT. Notwithstanding the mandatory payment of the
    10% VAT by the lessor, the actual shifting of the said tax burden upon the lessee is clearly optional on the
    part of the lessor, under the terms of the statute. The word "may" in the statute, generally speaking,
    denotes that it is directory in nature. It is generally permissive only and operates to confer discretion. In
    this case, despite the applicability of the rule under Sec. 99 of the NIRC, as amended by R.A. 7716,
    granting the lessor the option to pass on to the lessee the 10% VAT, to existing contracts of lease as of
    January 1, 1996, the original lessor, Ponciano L. Almeda did not charge the lesse the 10% VAT nor
    provided for its additional imposition when they renewed the contract of lease in May 1997. More
    significantly, said lessor did not actually collect a 10% VAT on the monthly rental due from the lessee
    after the execution of the May 1997 contract of lease. The inevitable implication is that the lessor
    intended not to avail of the option granted him by law to shift the 10% VAT upon the lessee.

    Petitioners' reliance on the sixth condition of the contract is, likewise, unavailing. This provision
    clearly states that respondent can only be held liable for new taxes imposed after the effectivity of the
    contract of lease, that is, after May 1997. Considering that RA 7716 took effect in 1994, the VAT cannot
    be considered as a "new tax" in May 1997, as to fall within the coverage of the sixth stipulation.

    No extraordinary inflation or devaluation

    Essential to contract construction is the ascertainment of the intention of the contracting parties,
    and such determination must take into account the contemporaneous and subsequent acts of the parties.
    This intention, once ascertained, is deemed an integral part of the contract.

    While, indeed, condition No. 7 of the contract speaks of "extraordinary inflation or devaluation"
    as compared to Article 1250's "extraordinary inflation or deflation," we find that when the parties used the
    term "devaluation," they really did not intend to depart from Article 1250 of the Civil Code. Condition
    No. 7 of the contract should, thus, be read in harmony with the Civil Code provision.

    That this is the intention of the parties is evident from petitioners' letter dated January 26, 1998,
    where, in demanding rental adjustment ostensibly based on condition No. 7, petitioners made explicit
    reference to Article 1250 of the Civil Code, even quoting the law verbatim. Jurisprudential rules on the
    application of Article 1250 should be considered.

    Article 1250 of the Civil Code states:


    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
    payment, unless there is an agreement to the contrary.

    Inflation has been defined as the sharp increase of money or credit, or both, without a
    corresponding increase in business transaction. There is inflation when there is an increase in the volume
    of money and credit relative to available goods, resulting in a substantial and continuing rise in the
    general price level. In a number of cases, this Court had provided a discourse on what constitutes
    extraordinary inflation, thus:
    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 increase or decrease could not have been reasonably foreseen or was
    manifestly beyond the contemplation of the parties at the time of the establishment of the
    obligation.

    The factual circumstances obtaining in the present case do not make out a case of extraordinary
    inflation or devaluation as would justify the application of Article 1250 of the Civil Code. We would like
    to stress that the erosion of the value of the Philippine peso in the past three or four decades, starting in
    the mid-sixties, is characteristic of most currencies. And while the Court may take judicial notice of the
    decline in the purchasing power of the Philippine currency in that span of time, such downward trend of
    the peso cannot be considered as the extraordinary phenomenon contemplated by Article 1250 of the
    Civil Code. Furthermore, absent an official pronouncement or declaration by competent authorities of the
    existence of extraordinary inflation during a given period, the effects of extraordinary inflation are not to
    be applied.

    DISPOSITIVE:

    WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals in
    CA-G.R. CV No. 67784, dated September 3, 2001, and its Resolution dated November 19, 2001, are
    AFFIRMED.

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