Case Summary (G.R. No. 187536)
Contractual Framework and Original Lease Terms
On November 28, 1980, Broadway and Tropical executed a ten‐year lease (February 1, 1981–February 1, 1991) for a 3,042.19 sqm portion of a commercial complex. The lease provided graduated monthly rentals: P120,000 (1981–1984), P140,000 (1984–1987), and P165,000 (1987–1991). It contained a non‐waiver clause preserving Broadway’s rights despite any temporary concession.
Negotiations and Provisional Rent-Reduction Agreement
In early 1982, Tropical sought rent relief, citing low sales due to a road closure. Broadway proposed a conditional P20,000 monthly reduction for four months, repayable if sales targets were met. On April 20, 1982, both parties signed a “provisional and temporary agreement” reducing rent to P60,000 or 2% of gross receipts, whichever was higher, expressly “not an amendment” of the lease and conditioned on turnover of certain leased areas and implementation of operational improvements.
Post-Agreement Correspondence and Unilateral Rent Adjustments
After the road reopened, Broadway by December 15, 1982, unilaterally proposed phased increases to P80,000 (January 1983) and P100,000 (April 1983), justifying termination of the temporary concession. Tropical repeatedly requested maintenance of the provisional rate “until recovery,” but Broadway insisted its concession was time-limited and discretionary, citing its own financial strains and the express “temporary” nature of the April 1982 agreement.
Trial Court and Court of Appeals Rulings
The Regional Trial Court (March 14, 1985) and the Court of Appeals (January 30, 1987) held that the April 20, 1982 letter constituted a partial novation of the 1980 lease, thereby permanently modifying principal conditions (leased area and rental rates). They ordered that reduced rentals remain in effect until Tropical overcame its low-sales condition, and set new rental amounts based on Tropical’s original feasibility study.
Issue on Novation and Applicable Law
Under the 1987 Constitution and Civil Code provisions on novation (Art. 1292), novation requires clear, express intent to extinguish the old obligation or new terms incompatible with the original. It is never presumed. A partial novation likewise demands evidence of unequivocal mutual consent to replace specific contractual conditions.
Supreme Court’s Analysis and Holding
- The April 20, 1982 agreement was expressly labeled “provisional and temporary” and “not an amendment” to the lease.
- The original lease’s non‐waiver clause preserved Broadway’s rights to enforce contractual terms despite any concession.
- Pre- and post-agreement correspondence consistently framed the rent reduction as temporary and revocable at Broadway’s discretion.
- There was no clear expression that the parties intended to permanently alter the principal conditions of the lease. Tropical’s reliance on its feasibility study did not transform an estimate into a binding condition. ...continue reading
Case Syllabus (G.R. No. 187536)
Background of Parties and Lease
- On 28 November 1980, Broadway Centrum Condominium Corporation (“Broadway”) and Tropical Hut Food Market, Inc. (“Tropical”) entered into a ten-year written lease.
- Broadway leased 3,042.19 square meters of its commercial complex to Tropical from 1 February 1981 to 1 February 1991.
- The contract provided for renewal “for a like period upon the mutual agreement of both parties.”
Original Rental Provisions
- Rent of ₱120,000.00 per month for the first three years (Feb. 1, 1981–Feb. 1, 1984), with a two-month grace period for renovation.
- Rent increased to ₱140,000.00 per month for the next three years (Feb. 1, 1984–Feb. 1, 1987).
- Rent further increased to ₱165,000.00 per month for the last four years (Feb. 1, 1987–Feb. 1, 1991).
- First payment due in advance by Dec. 1, 1980; subsequent payments due within the first five days of each month without demand.
Tropical’s Request for Rent Reduction
- On 5 February 1982, Tropical wrote that 1981 sales of ₱17,246,103.00 made rent 7.31% of sales while gross profit was only 10%.
- Projected 1982 sales of ₱23,000,000.00 implied a 6.08% rent-to-sales ratio, high compared to 1.5% at other branches.
- Tropical proposed reducing rent to ₱50,000.00 per month or 2% of monthly sales, whichever is higher, up to the end of the third year, subject to renegotiation.
Broadway’s Initial Counter-Proposal
- On 4 March 1982, Broadway attributed low sales to Tropical’s management and suggested six operational improvements to boost sales by 15%.
- Offered a conditional rent reduction of ₱20,000.00 per month for four months, repayable or forgiven based on achievement of sales targets.
- Emphasized that any reduction was a temporary suspension of rent, not an amendment of the lease.
Provisional and Temporary Agreement
- On 20 April 1982, acknowledging the nearby road closure’s impact, Broadway agreed provisionally to rent of 2% of gross receipts or ₱60,000.00, whichever is higher.
- Conditions included surrendering 466.56 square meters of leased area and implementing suggested improvements.
- Letter expressly stated the arrangement was “provisional and temporary” and “not an amendment to the lease contract.”