G.R. No. 148411 - Horrigan vs. Troika Commercial Inc.

Troika Commercial, Inc. (respondent) is the lessee of the entire ground floor of a two-story building located at 53-A Annapolis St., San Juan, Metro Manila.
Troika subsequently sub-let a portion of the ground floor to Martha R. Horrigan (petitioner) for the operation of her restaurant, Tia Maria.

The sub-lease contract was dated April 20, 1983 and prepared by petitioner’s husband.
Key provisions of the agreement included:

Under sub-paragraph 2.1, petitioner was to pay P12,500 monthly starting March 15, 1983, payable on a fixed day every month until December 31, 1989.
Under sub-paragraph 2.2, petitioner was to pay an additional P4,500 monthly starting August 1, 1983, for seven years until December 31, 1989, with a guaranteed yearly increase of 10% applied to a specified rental sum.

Dispute arose from the differing interpretations of the phrase “a guaranteed yearly increase equivalent to 10% thereof.”
The respondent interpreted the 10% increase as applicable both to the original monthly rental of P12,500 (sub-paragraph 2.1) and to the additional rental of P4,500 (sub-paragraph 2.2).
The petitioner maintained that the 10% increase applied solely to the additional rental of P4,500 under sub-paragraph 2.2.

Respondent sent letters and accompanying billing statements clarifying its interpretation regarding the application of the 10% yearly increase.
Petitioner did not act on these communications.
On May 3, 1991, a final demand letter was issued by respondent for unpaid rental adjustments amounting to P318,489.00.

Petitioner’s refusal to pay led respondent to file a complaint for sum of money in the Regional Trial Court, Branch 148, Makati City (Civil Case No. 91-2410).
In her answer, petitioner admitted the application of the 10% increase solely on the additional P4,500 and acknowledged payment of corresponding amounts since 1984.
Petitioner denied that payments made “ex-gratis” from June 1984 amounted to rental adjustments, contending that the actual obligation under sub-paragraph 2.2 amounted only to P58,485.50.
Payment of the 10% increase was halted in August 1986 due to respondent’s demand for additional payment on the original rental amount.
The trial court rendered a decision in favor of the respondent on May 18, 1995, ordering the petitioner to pay the outstanding adjusted rental sum with interest.
The Court of Appeals later affirmed the trial court’s decision in its entirety, prompting the petition for review on certiorari.

Whether the 10% guaranteed yearly increase in rental rates should apply to both the original monthly rental of P12,500 and the additional monthly rental of P4,500 as per the sub-lease contract, or exclusively to the additional rental component.