carceller and almeda digests (intention of parties)

8/12/2019 Carceller and Almeda Digests (Intention of Parties)

1/5

Carceller vs. Court of AppealsG.R. No. 124791, February 10, 1999

In construing a written agreement, the reason behind and thecircumstances surrounding its execution are of paramount

importance.

RECIT-READY \:D/ :D

Respondent SIHI & Petitioner Carceller entered into a leasecontract with an option to purchase said land anytime withinthe lease period. Before expiration of contract, SIHI notifiedCarceller of impeding termination and period left for exercisingthe option. Petitioner requested for an extension of the leasecontract because he still needed to raise funds. SIHIdisapproved petitioners request. Days later, Petitioner notifiedSIHI of decision to exercise option to purchase which SIHI

again disapproved, saying period to exercise option alreadylapsed. Petitioner filed complaint for specific performance forSIHI to execute deed of sale. RTC, CA and Supreme Courtruled in favor of Petitioner. According to the Court, inconstruing a written agreement, the reason behind and thecircumstances surrounding its execution are of paramountimportance. To ascertain the intent of the parties in acontractual relationship, it is imperative that the variousstipulations provided for in the contract be construed together,consistent with the parties contemporaneous and subsequentacts as regards the execution of the contract. SIHI, prior to

negotiations with petitioner, was already financially unstableand had the intent to dispose some assets including subjectproperty, which is clearly seen when it leased and gave theoption to purchase property to petitioner. Petitioner also madesome permanent improvements in the property, expressing hisintent to acquire dominion over it. Court also found the delay ofPetitioner to exercise option was neither substantial norfundamental and did not amount to a b reach that woulddefeat the intention of the parties.

FACTS

Respondent State Investment Houses, Inc. (SIHI)owned two parcels of land in Cebu.

Petitioner Carceller & SIHI entered into a leaseagreement with option to purchase said lands anytimewithin the lease period until January 30, 1986.

Before expiration of the lease contract, SIHI notifiedpetitioner of impending termination of the leaseagreement & the short period of time left where hecould still validly exercise the option.

In a letter dated January 15, which SIHI received onJanuary 29, petitioner requested for 6 monthsextension of lease contract because he needed to raise

more funds in order to exercise option. On February 14, SIHI disapproved petitioners request

but still offered to lease the property. It also informedthe general public of the sale of leased property.

On February 18, petitioner notified SIHI of decision toexercise option to purchase property. SIHI reiteratedthat the period to exercise option had already lapsed. Itasked petitioner to vacate property and pay rentals andpenalty.

Petitioner filed complaint for specific performance forSIHI to execute deed of sale.

RTC and CA rendered judgment in favor of petitioner.

ISSUE

WON petitioner should be allowed to exercise option topurchase leased property despite alleged delay in giving therequired notice to SIHI

HELD:YES


2/5

RATIO:

Petitioners letter to SIHI on January 15, 1986, was fairnotice of his intent to exercise the option, despite therequest for the extension of the lease contract.

It is well-settled in both law and jurisprudence, thatcontracts are the law between the contracting partiesand should be fulfilled, if their terms are clear and leaveno room for doubt as to the intention of the contractingparties. Further, it is well-settled that in construing awritten agreement, the reason behind and thecircumstances surrounding its execution are ofparamount importance. Sound construction requiresone to be placed mentally in the situation occupied bythe parties concerned at the time the writing wasexecuted.

To ascertain the intent of the parties in a contractualrelationship, it is imperative that the various stipulationsprovided for in the contract be construed together,consistent with the parties contemporaneous andsubsequent acts as regards the execution of thecontract. And once the intention of the parties has beenascertained, that element is deemed as an integral partof the contract as though it has been originallyexpressed in unequivocal terms.

Intention of the parties:o SIHI, prior to its negotiation with petitioner,

already had financial problems. It was in direneed of liquidating its assets. Thus, SIHI wascompelled to dispose some of its assets,among which is the subject leased property, togenerate sufficient funds. This then broughtabout the execution of the lease contract with

option to purchase between SIHI and thepetitioner.

o SIHIs agreement to enter into a lease contractwith option to purchase with petitioner is a clear

proof of its intent to promptly dispose saidproperty although the full financial returns maymaterialize only in a years time. Furthermore,its letter reminding the petitioner of the shortperiod of time left within which to consummatetheir agreement, clearly showed its desire tosell that property.

o Petitioners determination to purchase saidproperty is equally indubitable. He introducedpermanent improvements on the leasedproperty, demonstrating his intent to acquiredominion in a years time.

In SIHIsview, there was already a delay of 18 days inexercising option, which was fatal to petitionerscause. But respondent court found the delay neithersubstantial nor fundamental and did not amount to abreach that would defeat the intention of the partieswhen they executed the lease contract with option topurchase.

CA decision AFFIRMED. However the purchase price

should be based on the fair market value of realproperty in Bulacao, Cebu City, as of February 1986,when the contract would have been consummated.

NOTES

(Just in case) Option: a preparatory contract in which

one party grants to the other, for a fixed period and

under specified conditions, the power to decide,

whether or not to enter into a principal contract. It


3/5

binds the party who has given the option, not to enter

into the principal contract with any other person during

the period designated, and, within that period, to enter

into such contract with the one to whom the option was

granted, if the latter should decide to use the option. Itis a separate agreement distinct from the contract

which the parties may enter into upon the

consummation of the option

Pineda (page 540) cited doctrine of this case

(Mentioned in the RATIO portion, just to

emphasize):

o The reasons which induced the parties to

enter into the contract and the

circumstances surrounding the execution of

the contract are of paramount importance in

interpreting it

o To ascertain intent of parties in contractual

relationship, it is imperative that the various

stipulations provided for in the contract be

construed together, consistent with the

parties contemporaneous and subsequent

acts as regards the execution of the

contract. And once the intention of parties is

ascertained, that element is deemed anintegral part of the contract as though it has

been originally expressed in unequivocal

terms

ALMEDA v. BATHALA MARKETING542 S 470

Essential to contract construction is the ascertainment of theintention of the contracting parties, and such determination

must take into account the contemporaneous and subsequent

acts of the parties

RECIT READY \:D/ :D

Respondent Bathala renewed its contract of lease of a portionof the Almeda Compound with Ponciano Almeda. The contractstated that in case an extraordinary inflation or DEVALUATIONof the Philippine currency should supervene, the value ofPhilippine peso at the time of the establishment of obligationshall be the basis of payment (NOTE: This is Article 1250 ofthe Civil Code, but in the Article it stated extraordinary inflation

or DEFLATION). Ponciano died and respondent dealt with hiswife and son, the petitioners. Respondent received a letterfrom petitioners which stated that pursuant to Article 1250,monthly rental should be increased. Respondent insisted therewas no extraordinary inflation to warrant the application of the

Article. RTC, CA and Supreme Court ruled in favor ofRespondent Bathala. Petitioners contend that Article 1250 ofthe Civil Code does not apply to this case because the contractstipulation speaks of extraordinary inflation or devaluationwhile the Code speaks of extraordinary inflation ordeflation. According to the Court, the intention of the parties

was evident because petitioners made explicit reference to andcited verbatim Article 1250 when they demanded for rentaladjustments. Essential to contract construction is theascertainment of the intention of the contracting parties, andsuch determination must take into account thecontemporaneous and subsequent acts of the parties. Thisintention, once ascertained, is deemed an integral part of thecontract.


4/5

FACTS

In May 1997, Respondent Bathala MarketingIndustries, Inc., as lessee, renewed its Contract ofLease with Ponciano Almeda, as lessor.

Under said contract, Ponciano agreed to lease aportion of the Almeda Compound for a term of 4 yearsfrom May 1997 unless sooner terminated.

It also stated that:o The rental rate stipulated is based on the

present rate of assessment on the property,and in case the assessment should beincreased or any new tax or burden be imposedby the authorities on the lot, the additionalcharge shall be paid by the lessee when therental becomes due.

o (CONTRACT CONDITION RELEVANT TOOUR TOPIC):In case an extraordinary inflationor devaluation of Philippine Currency shouldsupervene, the value of Philippine peso at thetime of the establishment of the obligation shallbe the basis of payment (NOTE: This is Article1250 of the Civil Code, but remember that inthe article it stated extraordinary inflation orDEFLATION. However, see Courtsexplanation about this in the RATIO part.)

During effectivity of contract, Ponciano died, sorespondent dealt with petitioners, his wife and son.

Petitioners advised BATHALA that they will assess andcollect VAT on its monthly rentals.

Respondent contended that VAT may not be imposedas the rentals fixed in the contract of lease weresupposed to include the VAT.

Respondent received another letter from petitionersinforming the former that its monthly rental should beincreased pursuant to Article 1250 of the Civil Code.

Respondent opposed petitioners demand and insistedthat there was no extraordinary inflation to warrant theapplication of Article 1250.

Respondent refused to pay the VAT and adjustedrentals as demanded by petitioners. It instituted an

action for declaratory relief for purposes of determiningthe correct interpretation of the lease contract toprevent damage and prejudice.

RTC ruled that respondent is not liable for payment ofVAT and for the payment of rental adjustment, therebeing no extraordinary inflation or devaluation.

Petitioners appealed to the CA, which affirmed, withmodification, trial courts judgment.

ISSUE(S) + HELD

(1) WON respondent is liable to pay 10% VAT pursuant toRepublic Act (RA) 7716. -----> NO (Just placed this in case,but the second issue is the one mainly related to our lesson)

*(2) WON the amount of rentals due the petitioners shouldbe adjusted by reason of extraordinary inflation ordevaluation. -----> NO

RATIO

1) Petitioners are estopped from shifting to respondent theburden of paying the VAT.

The contract provision clearly states that respondentcan only be held liable for new taxesimposed after theeffectivity of the contract of lease, after May 1997.Considering that RA 7716 took effect in 1994, the VATcannot be considered as a new tax in May 1997.


5/5

*2) Petitioners cannot legitimately demand rental adjustmentbecause of extraordinary inflation or devaluation.

Petitioners contend that Article 1250 of the Civil Codedoes not apply to this case because the contract

stipulation speaks of extraordinary inflation ordevaluation while the Code speaks of extraordinaryinflation or deflation.

Essential to contract construction is the ascertainmentof the intention of the contracting parties, and suchdetermination must take into account thecontemporaneous and subsequent acts of theparties. This intention, once ascertained, is deemed anintegral part of the contract.

While, indeed, the condition of the contract speaks ofextraordinary inflation or devaluation as compared toArticle 1250s extraordinary inflation or deflation,when the parties used the term devaluation, theyreally did not intend to depart from Article 1250 of theCivil Code. It should thus, be read in harmony with theCivil Code provision.

In demanding rental adjustment, the intention of theparties is evident. Petitioners, in their letter torespondent, made explicit reference to Article 1250 ofthe Civil Code, even quoting the law verbatim.

Downward trend of the peso cannot be considered asthe extraordinary phenomenon contemplated by Article1250 of the Civil Code. Furthermore, absent an officialpronouncement or declaration by competent authoritiesof the existence of extraordinary inflation during a givenperiod, the effects of extraordinary inflation are not tobe applied.

NOTES (Just In Case)

Inflation: When there is an increase in the volume ofmoney and credit relative to available goods, resultingin a substantial and continuing rise in the general price

level Extraordinary inflation: When there is a decrease or

increase in the purchasing power of the Philippinecurrency which is unusual or beyond the commonfluctuation in the value of said currency, and suchincrease or decrease could not have been reasonablyforeseen or was manifestly beyond the contemplationof the parties at the time of the establishment of theobligation.

Article 1250 of the Civil Code: In case an extraordinaryinflation or deflation of the currency stipulated shouldsupervene, the value of the currency at the time of theestablishment of the obligation shall be the basis ofpayment, unless there is an agreement to the contrary.

carceller and almeda digests (intention of parties)

Documents