Case No. 30 Article 1250 EUFEMIA ALMEDA and ROMEL ALMEDA, petitioners, vs. BATHALA MARKETING INDUSTRIES, INC.

., respondent. G.R. No. 150806. January 28, 2008

NACHURA, J.: FACTS: Sometime in May 1997, respondent 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, 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, respondent 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, respondent received another letter from petitioners 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 the Court in various cases. On February 18, 1998, respondent instituted an action for declaratory relief for purposes of determining the correct interpretation of condition Nos. 6 and 7 of the lease contract to prevent damage and prejudice. The case was docketed as Civil Case No. 98-411 before the RTC of Makati. After trial on the merits, on May 9, 2000, the RTC ruled in favor of respondent and against petitioners, declaring that plaintiff is not liable for the payment of any rental adjustment, there being no extraordinary inflation or devaluation, as provided in the Seventh Condition of the lease contract, to justify the same.

Petitioners elevated the aforesaid case to the Court of Appeals which affirmed with modification the RTC decision in that the order for the return of the balance of the rental deposits and of the amounts representing the 10% VAT and rental adjustment is deleted. Hence, this petition for review on certiorari. ISSUE: Whether the amount of rentals due the petitioners should be adjusted by reason of extraordinary inflation or devaluation.

HELD: No. Petitioners cannot legitimately demand rental adjustment because of extraordinary inflation or devaluation. While, indeed, condition No. 7 of the contract speaks of extraordinary inflation or devaluation as compared to Article 1250s extraordinary inflation or deflation, 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. 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. 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. It is stressed that the erosion of the value of the Philippine peso in the past three or four decades, starting in the midsixties, 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. FALLO: 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. SO ORDERED.