Title
Almeda vs. Bathala Marketing Industries, Inc.
Case
G.R. No. 150806
Decision Date
Jan 28, 2008
Dispute over lease terms: VAT liability and rental adjustment claims denied; declaratory relief upheld as respondent complied with original contract terms.
lessor
lessee
dispute

Case Summary (G.R. No. 150806)

Factual Background

The lease was executed between respondent as lessee and Ponciano L. Almeda as lessor on May 1, 1997. The contract contained a Sixth Clause allocating to the lessee additional charges for any increase in assessment or for any new tax imposed on the property, and a Seventh Clause providing that in case of extraordinary inflation or devaluation the value of the peso at the time of the obligation would be the basis of payment. After lessor Ponciano died, petitioners dealt with respondent. Petitioners notified respondent on December 29, 1997 that they would assess and collect VAT on monthly rentals. On January 26, 1998 petitioners demanded a 73% increase in rent citing the Seventh Clause and Article 1250 of the Civil Code. Respondent refused to pay the VAT and the adjusted rentals, continued to pay the contractual rent, and thereafter filed a petition for declaratory relief to determine the proper interpretation of the contractual conditions.

Procedural History

Respondent’s action for declaratory relief was docketed as Civil Case No. 98-411 before the RTC, Makati, Branch 136. Petitioners filed an ejectment, rescission and damages action on March 10, 1998, which they later dismissed and refiled before the Metropolitan Trial Court. Petitioners moved to dismiss the declaratory relief action, but the trial court denied the motion. After trial, the RTC rendered judgment on May 9, 2000 in favor of respondent. Petitioners appealed to the Court of Appeals, which affirmed the RTC decision with modification on September 3, 2001 by deleting the trial court’s order for restitution. Petitioners then filed the present petition for review under Rule 45, Rules of Court.

Issues Presented

Petitioners posed multiple questions: whether Article 1250 of the Civil Code applied; whether the doctrines in Filipino Pipe and Foundry Corp. v. NAWASA and companion cases applied; whether the Court of Appeals erred in not applying Del Rosario v. The Shell Company of the Philippines; whether respondent was liable to pay 10% VAT under RA 7716; and whether declaratory relief was proper given petitioners’ claim of prior breach. The Court distilled the dispute to three issues: the propriety of declaratory relief; respondent’s liability for 10% VAT under RA 7716; and the entitlement to rental adjustment for extraordinary inflation or devaluation.

Trial Court’s Decision

The Regional Trial Court declared respondent not liable for the payment of 10% VAT on the rent and not liable for any rental adjustment for extraordinary inflation or devaluation. The RTC found no basis to apply the Sixth Clause for new taxes or the Seventh Clause for extraordinary inflation. The court ordered petitioners to return P1,119,102.19 representing payments alleged to have been erroneously made by respondent for VAT charges and rental adjustments for January to March 1999, and to return P1,107,348.69 representing the balance of respondent’s rental deposit. The court reached those affirmative monetary awards notwithstanding the general rule restricting declaratory relief to mere declarations of rights and obligations.

Court of Appeals’ Ruling

The Court of Appeals affirmed the RTC’s conclusions as to interpretation of the contractual clauses and denial of VAT and rental adjustment, but modified the judgment by deleting the trial court’s order for restitution of the rental deposits and amounts representing VAT and rental adjustment. The appellate court concluded that the RTC exceeded its jurisdiction in granting affirmative monetary relief in an action for declaratory relief.

Supreme Court’s Resolution

The Supreme Court denied the petition and affirmed the Decision of the Court of Appeals and its Resolution. The Court upheld the appellate court’s modification and its refusal to reinstate the trial court’s order for restitution. The petitioners’ challenges to the appellate court’s application of precedent and its construction of the contractual clauses did not persuade the Court to reverse the CA.

Declaratory Relief Analysis

The Court reviewed the nature and requisites of an action for declaratory relief and cited established authority delineating those requisites. It found that the requisites were present in this case: the controversy concerned a written instrument, its terms required construction, an actual justiciable controversy existed, the issue was ripe for judicial determination, and adequate relief was not available by other means. The Court rejected petitioners’ contention that respondent’s filing was improper because of an alleged prior breach, finding that respondent had continued to perform by paying the stipulated rent and had not committed a breach. The Court distinguished precedents where declaratory relief was dismissed because a breach had already occurred or an alternative action had been resolved, and exercised its discretion to entertain the declaratory relief to bring finality to the parties’ dispute.

VAT Issue and Legal Reasoning

The Court adopted the appellate court’s reasoning that the lessor was primarily liable for VAT and that the statute conferred upon the lessor the option to pass the tax to the lessee. The Court observed that the statutory use of the word "may" in the pertinent tax provision denotes permissive discretion. The Court found that the original lessor, Ponciano L. Almeda, neither charged nor collected the 10% VAT after the May 1997 renewal and did not provide for its imposition in the contract. That conduct implied an intention not to avail himself of the statutory option to shift the tax. The Court further held that the Sixth Clause of the contract applied only to taxes newly imposed after the contract’s effectivity, and that RA 7716 and the VAT regime predated the May 1997 contract. Accordingly, the VAT could not be considered a new tax within the meaning of the Sixth Clause, and petitioners were estopped from shifting the VAT burden to respondent.

Article 1250 and Extraordinary Inflation Reasoning

The Court addressed petitioners’ claim for rental adjustment under Article 1250 of the Civil Code and analyzed the Seventh Clause’s use of the term "devaluation." The Court found that the parties intended that clau

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