G.R. No. 79642, 5 July 1993

FACTS:

Broadway agreed to lease a portion of the Broadway Centrum Commercial Complex to Tropical Hut 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. There were no problems during the first year of lease, but on 1982 Tropical Hut requested 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. Broadway agreed 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. After a few months, Broadway sent Tropical a letter returning the old rental rates. Tropical requested that the reduced rental scheme be maintained but Broadway did not agree and sought to enforce the original contract details. Tropical Hut filed for a writ of prohibition against Broadway.

ISSUE:

Whether or not the agreement novated the Contract of Lease.

RULING:

No. 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.

In the case at hand, the letter-agreement was, by its own terms, a ” provisional and temporary agreement to a reduction of [Tropical’s] monthly rental —.” The non-specification by Broadway of the period of time during which the reduced rentals would remain in effect, only meant that Broadway retained for itself the discretionary right to return to the original contractual rates of rental whenever Broadway felt it appropriate to do so. The formal notarized Lease Contract made it clear that a temporary and provisional concessional reduction of rentals which Broadway might grant to Tropical was not to be construed as alteration or waiver of any of the terms of the Lease Contract itself. The course of negotiations between Broadway and Tropical clearly indicated that what they were negotiating was a temporary and provisional reduction of rentals only and was not to persist for the rest of the life of the ten (10)-year Contract of Lease.

* Case digest by Vera L.Nataa, LLB-1, Andres Bonifacio Law School, SY 2017-2018