G.R. No.: L-11437

FACTS:
1. On April 23, 1910, the attorney-in-fact for Benito Legarda y Tuason leased three lots to three Japanese women. The contracts stipulated that the annual rental was “ten per cent (10%) per annum, net, of the assessed valuation of the property.”
2. On September 5, 1910, the original lessees, with consent, transferred their leasehold rights to Mariano B. Zarate.
3. The defendant constructed buildings on the lots. The assessed valuation of the property, initially very low, increased over the years due to the improvements and the opening of streets, reaching P4 per square meter in 1914.
4. The plaintiff demanded payment of rentals based on 10% of the increased assessed valuation. The defendant refused, contending that at the time of the transfer, it was verbally agreed that the rental would be based on an assessed valuation not exceeding P1 per square meter.
5. The defendant tendered payment based on the P1 valuation, but the plaintiff refused to accept it.
6. The trial court held the defendant liable only for rents at the rate of 5% per annum of the assessed valuation, amounting to P583.32. Both parties appealed.

ISSUE:
What is the proper interpretation of the lease provision stating that the rental is “ten per cent (10%) per annum, net, of the assessed valuation of the property”?

RULING:
The Supreme Court REVERSED the trial court’s decision.
1. The terms of the written contract are clear, explicit, and positive. Under Article 1281 of the Civil Code, when the terms of a contract are clear, the literal sense of its stipulations shall be observed.
2. The contract unambiguously obligates the lessee to pay 10% of the actual assessed valuation of the property, subject to its natural fluctuations (increase or decrease) during the lease term. There is no stipulation fixing the valuation at a specific amount like P1 per square meter.
3. The defendant, by accepting the transfer of the leases, assumed all liabilities under the original contracts. He is therefore bound to pay 10% of the property’s assessed valuation as determined by the government for each year.
4. Parol or extrinsic evidence (like the alleged verbal agreement to cap the valuation) is inadmissible to vary the terms of the written agreement under Section 285 of the Code of Civil Procedure, as none of its exceptions apply.
5. The validity and fulfillment of contracts cannot be left to the will of one party (Article 1256, Civil Code).

DISPOSITIVE:
The defendant, Mariano B. Zarate, is sentenced to pay the plaintiff the sum of P1,166.65 as rentals in arrears, and to pay future rentals on the basis of 10% per annum of the assessed valuation of the land. No costs.