Broadway Centrum Condominium Corp. vs. Tropical Hut Food Market Inc.

and CA 
G.R. 79642 July 5, 1993 J. Feliciano 
 
Topic: Novation - Changing their object or principal conditions (objective novation), Art. 1292 
 
FACTS 
- On  November  28,  1980,  a  Lease  Contract  was  executed  between  Broadway  (lessor)  and  Tropical  Hut  (lessee)  for  a  portion  of  the 
Broadway Centrum Commercial Complex. 
- For a period of 10 years (Feb 1, 1981 to Feb 1, 1991) 
- Renewable for a period upon mutual agreement 
- P120k  monthly  rental for the first 3 years, basic rental increases to P140k in the next 3 years (1984 - 1987), then increases to 
P165k in the next 3 years (1987- 1991) 
- On February 5, 1982, Tropical wrote a LETTER to Broadway stating that: 
- Tropicals’s rental payments were too much compared to their sales 
- Proposed  a  REDUCTION  of  the  monthly  rental  to  P50k  or  2% of their monthly sales, whichever is higher, up to the end 
of the 3rd year after which it shall again be subject to negotiations 
- On March 4, 1982, Broadway made a COUNTER-PROPOSAL:  
- Conditional reduction of the stipulated rental by P20k for 4 months 
- Reduction  was  conditioned  upon  the  good  faith  implementation  of  6  suggestions  of  Broadway  for  the 
improvement of operations of Tropical 
- Any reduction in the rental is a TEMPORARY SUSPENSION of the original rate, NOT AN AMENDMENT 
- The  decline  in  sales  was  caused  by  the  temporary  closure of Dona Juana Rodriguez Avenue for a road expansion project. It affected 
all of Broadway’s tenants 
- On April 20, 1982, Broadway’s President, Mrs. Cita OROSA agreed to a PROVISIONAL AND TEMPORARY AGREEMENT 
- Formalized the reduction of rentals to 2% of gross monthly sales or P60k, whichever is higher 
- A provisional arrangement, not an amendment 
- On Dec 15, 1982, Broadway ADVISED Tropical Hut that the rental will gradually increase to P100k, effective April 1983 
- Tropical Hut appealed to fix the rental at P60k but Broadway refused 
- Instead, Broadway delayed the rent increase to be effective in July 1983 
- Broadway stated that the “matter was no longer negotiable” 
- Tropical  Hut  responded  that  Broadway  cannot  arbitrarily  and  unilaterally  increase  the  rentals  it  was  a  matter  for  mutual 
agreement 
- Broadway  sent  FORMAL  NOTICE  to  Tropical  Hut  that  failure  to  pay  P100k  by  May  9,  1983  will  cause paragraph 5 of the lease 
contract to be implemented 
 
HISTORY OF PROCEEDINGS 
1. May 12, 1983 - Tropical Hut filed a COMPLAINT before RTC QC seeking the ff: 
- Restraining  order  and  preliminary  injunction  to  prevent  Broadway  from  invoking  and  implementing  par.  5  of  the  Lease 
Contract 
- Court to order that the decreased rental should subsist while low sales continue 
- RTC QC granted the TRO and preliminary injunction 
- While  trial  with  RTC  was  pending,  Broadway  informed  Tropical  that  the  rental  will  be  increased to P140k for the next three years 
(as per lease contract) 
- Tropical  reacted  by  filing a supplemental complaint raising the issue of ​w/n the letter-agreement dated April 20, 1982 
had novated the Lease Contract of Nov 28, 1980. 
- Tropical alleged that the original contract had been novated 
- Broadway disagreed that the contract had been novated 
- RTC DECISION: 
- Preliminary injunction made permanent 
- Reduced  rental  shall  subsist  ​or  be  effective  during the period that Tropical cannot achieve its projected daily sales 
average ​as envisioned in the feasibility study 
- Contract of Lease dated Nov 28, 1980 is partially novated or modified b ​y the letter-agreement 
- Rental after projected sales levels are reached have been specified 
 
2. CA AFFIRMED RTC 
- Held that the letter agreement novated the original lease contract 
- Also  held  that  the  reduction  in  rentals  was  not  entirely  a  gratuitous  accommodation  since  possession  of  a  portion  of  the 
leased space was returned by Tropical to Broadway 
- This constituted a valuable consideration for the reduction of rentals while “low sales volume continued” 
- Directed Tropical to pay when its sales levels recover 
 
ISSUES 
1. W/N the letter-agreement dated April 20, 1982 had novated the Contract of Lease of November 28, 1980? - N ​ O 
 
(case has a discussion about novation pero the important stuff for the issue is ​bold) 
- Novation  is  the  extinguishment  of  an  obligation  by the substitution of that obligation with a subsequent onem which terminates it, 
either  by  changing  its  object  or  principal  conditions  or  by  substituting  a  new  debtor  in  place  of  the  old  one,  or  by  subrogating  a 
third person to the rights of the creditor. 
- Real novation : change of object or principal conditions 
- Personal novation: change of either person of the debtor or creditor 
- Novation may also be objective and subjective (mixed) at the same time 
- Dual purpose is achieved by novation: an obligation is extinguished and a new one is created in lieu thereof 
- Novation  is  never  presumed,  the  will  to  novate must appear by express agreement of the parties by their acts which are too clear and 
unequivocal to be mistaken. 
- The Letter-Agreement was “provisional and temporary” 
- It stated that it “should not be interpreted as amendment to the lease contract” 
- The  reduction  was  “conditioned”  on  the  good  faith  implementation  of  Tropical  of the 6 suggestions Broadway conveyed 
regarding their operations 
- The  non-specification  of  the  period  of  time  for  reduced  rentals  mean  that  Broadway  retained  for  itself  the  discretionary 
right to return to the original rental rate when it felt it appropriate to do so 
- Nothing in the text suggest that the reduced rates could not be terminated without the consent of Tropical 
- The  Lease  Contract  made  it  clear  that  a  temporary  and  provisional  concessional  reduction  of  rentals  was  not  to  be 
construed as an alteration of waiver if any of the terms of the Lease Contract itself (see below) 

-  
- Negotiations  before  execution  of  the  Letter-Agreement  indicate  that  what  they  were  negotiating  was  a  temporary  and 
provisional reduction of rentals 
- Tropical negotiated a reduction of rentals until the third year, ​then it will be subject to renegotiation 
- Discussions  after  execution  of  the  Letter-Agreement  show  that  the  reduction  of  rentals  were  not  to  persist  for  the 
remainder of the 10-yr Contract of Lease 
- It was not a permanent change of stipulations 
- Tropical  was  attempting  to  modify  the  Lease  Contract  by  implying/inserting  terms  which  were  not  found  in  the  Letter 
Agreement 
- Tropical’s  theory  that  Broadway  agreed  to  the  reduced  rental  as  long  as  it  was  suffering  low  sales  appears  to  be  an 
afterthought 
- But there was no agreement as to what level is considered “low sales” 
- RTC referred to to Tropical’s feasibility study which was created before the Lease Contract was executed 
- But  the  1980  Lease Contract was silent as to the expected number of customers, rendering any estimate, 
which Broadway may have conveyed to Tropical, immaterial 
 
2. W/N  the  CA  erred  in  holding  that  the  surrender  of  456.56  sqm  of  leased  space  by  Tropical  to  Broadway  constituted  valuable 
consideration, acceptance of which disbaled Broadway from insisting on the original terms under the Contract of Lease ? - ​YES 
 
- The consideration is immaterial 
- Comparison  of  the  lease  rentals  reduced  and  the  floor  space  surrendered  yields a string presumption that Broadway could 
not have agreed to the supposed partial novation. 
- Rentals were reduced by 50% (from P120k to P60k) 
- Floor space was reduced by 15% only 
- No substantial relations existed between the floor area and the rental reduction 
- In the Contract of Lease, rentals were stipulated for a total floor area of 3,042.19 sqm, no rental rate/sqm was specified 
 
RULING 
- Petition is GIVEN DUE COURSE 
- CA and RTC decisions are REVERSED and SET ASIDE 
- Tropical to pay Broadway the increased rentals 
 
 
FULL DISPOSITIVE PORTION 
WHEREFORE,  for  all  the  foregoing,  the  Petition  for  Review  on  Certiorari  is  hereby  GIVEN  DUE  COURSE,  an  the  Comment  filed  by 
private  respondent  Tropical  is  hereby  TREATED  as  its  ANSWER  and  the  Decision dated 30 January 1987 of the Court of Appeals and the 
Decision  dated  14  March  1985  of  the  trial  court  are  hereby  REVERSED  and  SET ASIDE. A new judgment is hereby entered dismissing the 
complaint filed by private respondent Tropical, and requiring private respondent Tropical to pay to petitioner Broadway the following rental 
rates: 
- P80,000.00 per month from 1 January 1983 up to 30 June 1983; 
- P100,000.00 per month from 1 July 1983 up to 31 January 1984; 
- P140,000.00 per month from 1 February 1984 to 1 February 1987; and 
- P160,000.00 per month from 1 February 1987 to 31 January 1991. 
 
The  penalty  of  2%  per  month  on  unpaid  rentals  specified  in  Section  5  of  the  28  November  1980  Contract  of  Lease  is,  in the exercise of the 
CourtÊs  discretion,  hereby  equitably  REDUCED  to  ten  percent  (10%)  per  annum computed from accrual of such rentals as above specified 
until  fully  paid.  In  addition,  private  respondent  Tropical  shall  pay  topetitioner  Broadway  attorney’s  fees in the amount of ten percent (10%) 
(and  not  twenty  percent  [20%]  as  specified  in  Section  33  of  the  Contract  of  Lease)  of  the  total  amount  due  and  payable  to  petitioner 
Broadway under this Decision. Costs against private respondent. 
 
SO ORDERED.