Broadway Centrum Condominium Corp. vs.

CA
G. R. No. 79642 July 5, 1993

FACTS: On 28 November 1980 petitioner Broadway Centrum Condominium Corporation

("Broadway") and private respondent Tropical Hut Food Market. Inc. ("Tropical") executed a contract
of lease for ten years, where lessor Broadway leased to Tropical space at the Broadway Centrum
Commercial Complex. Rent is payable on a monthly basis with specific agreements as to the
increase of rentals with time.

Lessor-lessee relationship went smoothly between Tropical and Broadway, until the next year when
Tropical proposed a reduction of monthly rentals as determined by the amount of sales of Tropical.
During this time, Tropical has been suffering from low sales, because of temporary closure of
accessibility to the store due to the construction of an ongoing road expansion project. Broadway in
turn gave its proposals of reducing the rental rates as a temporary suspension of the original rates as
stipulated in the contract of lease.

After the road expansion project has finished, Broadway went to Tropical for an increase in rental
rates. Tropical balked and asked that the provisional rental rates be followed until a higher sales
volume shall have been achieved. Negotiations were made between the two until Broadway began to
demand the increased rentals and back payment for previous months. Broadway asserted that the
provisional reduction of rentals was a temporary arrangement as assistance for Tropical. On 12 May
1983 Tropical filed a Complaint against Broadway to prevent Broadway from implementing Sec. 5 of
their lease contract and asked that the rental provided for in a letter agreement between the two shall
subsist while the low volume of sales of Tropical still continues.

On January 1984, while the Complaint was pending, Broadway informed Tropical that the rentals
would be increased as stipulated in the lease contract. Hence, Tropical filed a supplemental complaint
with the trial court raising the issue of whether or not the lease contract has been novated.

ISSUE: Whether or not the latter-agreement dated 20 April 1982 had novated the Contract of Lease
of 28 November 1980.

HELD: No.

RATIO: 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 or by
substituting a now debtor in place of the old one, or by subrogating a third person to the rights of the
creditor. It is never presumed. The letter agreement did not extinguish or alter the obligations of
respondent Tropical and the rights of petitioner Broadway under their lease contract. The letter-
agreement of 20 April 1982 was, by its own terms, a "provisional and temporary agreement to a
reduction of [Tropical's] monthly rental".