OBLICON - 132 - Broadway Centrum v Tropical Hut

Broadway Centrum Condominium Corporation v Tropical Hut Food Market, Inc. and CA July 5, 1993 FACTS: - Broadway and Tropical entered into a contract of lease where Tropical is the lessee 3,042.19 sqm portion of Broadway Centrum Commercial Complex for 10yrs (Feb 1, 1981 – Feb 1, 1991). The monthly rental was P120K during the first 3 years, P140K for the next three years and P160K during the last 4 years. -On Feb 1982, Tropical wrote to Broadway that the monthly rental was too high with regards to their gross profit rate and proposed a reduced monthly rental of P50K or 2% their monthly sales, whichever is higher. Broadway denied this request but instead gave them suggestions to boost their sales and reduced their rent conditionally by P20K for four months. If their sales reach a 15% increase, the P80K that was reduced from their rent will be spread over the last six months of the year, but if not, then the P80K will not have to be paid anymore. - Due to the temporary closure of Doña Juana Rodriguez Avenue that was affecting the business of all of Broadway’s tenants, Broadway agreed to a “provisional and temporary agreement” on April 1982. This agreement provides that “This provisional arrangement should not be interpreted as amendment to the lease contract entered into between us”. - After the Doña Juana Rodriguez Avenue was re-opened, Broadway informed Tropical that the agreement can no longer be extended and that the monthly rate will be increased to P100K. -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 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 letteragreement in April 1982 “should subsist while the low volume sales (of Tropical) still continue” ISSUE: W/N the letter-agreement dated Apr 20, 1982 novated the Lease Contract of Nov 20, 1980. HELD/RATIO: 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 terminate dby 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 enetered 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. DECISION: Petition be given due course. RTC and CA reversed and set aside. Tropical will then pay Broadway as follows: 1) P80K monthly from 1-Jan-1983 to 30-Jun-1983; 2) P100K monthly from 1-Jul-1983 to 31-Jan-1984; 3) P140K monthly from 1-Feb-1984 to 1-Feb-1987; and 4) P160K monthly from 1-Feb-1987 to 31-Jan-1991.