Digested by: Kent John Evangelista

BROADWAY CENTRUM CONDOMINIUM CORPORATION, petitioner, vs.

TROPICAL HUT FOOD MARKET, INC. and THE HONORABLE COURT OF
APPEALS, respondents.
G.R. No. 79642 July 5, 1993
Ponente: FELICIANO, J.

DOCTRINE:

If objective novation is to take place, it is essential that the new obligation

expressly declare that the old obligation is to be extinguished, or that new
obligation be on every point incompatible with the old one. Novation is never
presumed; it must be established either by the discharge of the old debt by the
express terms of the new agreement, or by the acts of the parties whose
intention to dissolve the old obligation as a consideration of the emergence of
the new one must be clearly manifested.

FACTS:

Broadway Centrum Condominium Corporation (Broadway) agreed to lease

a 3,042.19 sqm portion of the Broadway Centrum Commercial Complex to
Tropical Hut Food Market (Tropical) for a period of 10 years with rental rates as
follows:

1st 3 years (Feb 1 1981 to Feb 1 1984) : Php120,000

2nd 3 years (Feb 1 1984 to Feb 1 1987) : Php140,000
Last 4 years (Feb 1 1987 to Feb 1 1991) : Php165,000

During the first year of lessor-lessee relationship between Broadway and

Tropical, but on February 5, 1982 Tropical wrote to Broadway requesting for a
rental rate reduction due to financial difficulties. Tropical Hut is paying a rental
rate of 6.08% of sales "which is too high for Tropical Hut-Broadway considering
that the present rental rates of other Tropical branches are even below the
normal rate of 1.5% on sales." Negotiations between Broadway Centrum and
Tropical Hut representatives were made. Tropical's officers recounted the low
sales volume is a result of the temporary closure of Doña Juana Rodriguez
Avenue. This Avenue is a major thoroughfare adjacent to the Broadway Centrum
and was then closed to vehicular traffic because of the road expansion project of
the Government.

Broadway agreed on 20 April 1982 to a "provisional and temporary

agreement" wherein Tropical will pay a monthly rental on the basis of 2% of
gross receipts or P60,000.00, whichever is higher. Tropical also committed to
return 466.56 square meters of their leased premises to Broadway
management.

Tropical refused to pay the increased and rent and continually negotiated
a P60K or 2% of gross sales whichever is higher monthly rate because of their
“low sales volume”. Broadway continually refused until Tropical took a different
stance and stated that Broadway cannot just arbitrarily and unilaterally increase
rentals and that they are not in a financial position to agree to such an

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 Digested by: Kent John Evangelista

increase.-Broadway replied that if Tropical continues to refuse heeding their

demands, they are formally serving them notice that they will implement par 5
of their lease contract.-Tropical filed a complaint a week later, seeking to
prevent Broadway from invoking par 5 of their lease contract and to decree that
the rental provided for in the letter-agreement in April 1982 “should subsist
while the low volume sales (of Tropical) still continue”

ISSUE:

Whether or not the letter-agreement dated April 20, 1982 novated the
Lease Contract of November 28, 1980?

RULING:

No. By definition, novation is the extinguishment of an obligation by the

substitution of that obligation with a subsequent one, which terminates it, either
by changing its object or principal conditions (objective) or by substituting a now
debtor in place of the old one (subjective), or by subrogating a third person to
the rights of the creditor. If objective novation is to take place, it is essential
that the new obligation expressly declare that the old obligation to be
extinguished, or that now obligation be on every point incompatible with the old
one. Novation is never presumed; it must be established either by the discharge
of use old debt by the express terms of the new agreement, or by the acts of the
parties whose intention to dissolve the old obligation as a consideration of the
emergence of the new one must be clearly manifested. The will to novate,
whether totally or partially, must appear by express agreement of the parties, by
their acts which are too clear and unequivocal to be mistaken.

It is clear that the letter-agreement of Apr 1982 did not extinguish or alter
the obligations of Tropical and the rights of Broadway under the Lease Contract
of Nov 1980. It was expressly stated in the Apr 1982 agreement that it was a
“provisional agreement should not be interpreted as amendment to the contract
entered into” by both parties. There is nothing in the text of this agreement that
could suggest that the reduced concessional rental rates could not be terminated
by Broadway without the consent of Tropical. Also, the course of negotiation
between the two parties before the execution of the letter-agreement clearly
indicates that what they were negotiating was supposed to be only temporary.

Secondly, the Nov 1980 Lease Contract made it clear that a temporary
and provisional concessional reduction of rentals that Broadway might grant was
not to be construed as alteration or waiver of any way to the terms of the lease
contract itself. The course of discussions between the parties after the execution
of the letter agreement shows that there was no agreement that the reduction in
rentals is to persist for the rest of the 10-year lease.

Finally, the “low volume of sales” that Tropical was stating as their cause
for petitioning a reduction in rental rates was based on feasibility study that
Tropical had made on its own before Tropical and Broadway have entered into
their 1980 lease contract. It was no more than an expression of Tropical’s own
expectations when it entered into the Contract of Lease.

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