BROADWAY CENTRUM CONDOMINIUM CORPORATION, PETITIONER, VS. TROPICAL HUT FOOD MARKET, INC. AND THE HONORABLE COURT OF APPEALS, RESPONDENTS.

Petitioner Broadway Centrum Condominium Corporation
(“Broadway”) and private respondent Tropical Hut Food Market, Inc.
(“Tropical”) executed on 28 November 1980 a contract of lease. Broadway, as lessor, agreed to lease a
3,042.19 square meter portion of the Broadway Centrum Commercial Complex for a
period of ten (10) years, commencing from 1 February 1981 and expiring on 1
February 1991, “renewable for a like period upon the mutual agreement of
both parties.” The rental provision of this contract read as follows:

“3.     BASIC RENTAL ON LEASED PREMISES —
LESSEE agrees to pay LESSOR a basic monthly rental on the leased premises in
the amount of ONE HUNDRED TWENTY THOUSAND PESOS (P120,000.00) Philippine
Currency, during the first three (3) years of this lease contract from February
1, 1981 to February 1, 1984, allowing two (2) months grace period on rental for
renovation/improvements on the leased premises from December 1, 1980 to January
31, 1981. The basic rental shall be
increased to ONE HUNDRED FORTY THOUSAND PESOS (P140,000.00) per month during
the next three (3) years from February 1, 1984 to February 1, 1987, and ONE
HUNDRED SIXTY FIVE THOUSAND PESOS (P165,000.00) per month during the last four
(4) years from February 1, 1987 to February 1, 1991.

The first basic monthly rental shall be paid in advance to the
LESSOR on or before December 1, 1980. Succeeding basic monthly rentals starting March, 1981 shall be paid by
LESSEE to LESSOR, without the necessity of
a previous demand or the services of a collector, within the first five
(5) days of the month to which said rental shall correspond, at the office of the LESSOR at Broadway
Centrum.”^[1]

During the first year of the lessor-lessee relationship between
Broadway and Tropical, no problems were apparently experienced by either of
them. On 5 February 1982, however,
Tropical wrote to Broadway stating that Tropical’s rental payments to Broadway
were equivalent to 7.31% of Tropical’s actual sales of P17,246,103.00 in 1981,
while “[Tropical’s] gross profit rate [was] only 10%.” Tropical went
on to say that the rental specified in that contract had been “based
merely on [Tropical’s] projections that [Tropical] could reach an average sale
of P120,000.00 a day;” however, Tropical’s total sales projection for 1982
was only P23,000,000.00. This would
mean again 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.” Accordingly,
Tropical made the following proposal to Broadway:

“[Tropical] would therefore propose to reduce the present
monthly rental to P50,000.00 or 2.0% of their monthly sales whichever is
higher, up to the end of the third year after which it shall again be
subject to renegotiations.” (Emphasis supplied)

On 4 March 1982, Broadway responded to Tropical’s letter by
stating that it (Broadway) believed that the problems of Tropical’s supermarket
in the Broadway Centrum were within the control of Tropical’s management. Broadway offered six (6) suggestions which,
if implemented, should result in increased sales for Tropical of at least 15%
in the succeeding months. In the
meantime, Broadway made the following counter-proposal consisting of
conditional reduction of the stipulated rental by P20,000.00 for a limited
period of four (4) months:

“x x x. Meantime, we
are agreeable to a conditional reduction of your rental by P20,000.00 per month
for four months starting this month on a trial basis; that is, the P20,000.00 per month reduction in
rental will be paid back to us and spread over the last six months of the years
should the target of 15% increase in sales be achieved by the fourth
month. However, should your sales not
increased by 5% in spite of the improvements you have introduced, the reduction
in rental of P20,000.00 per month of P80,000.00 for four months will not have
to be paid anymore. In other words, the
monthly reduction in rental is conditioned upon your not achieving the desired
15% increase in sales volume by the
fourth month assuming you implement all of the above changes.

It is understood, however, that any reduction in rental
extended is merely a temporary suspension of the original rate of rental
stipulated in our contract of lease and not an amendment thereto.”^[2]
(Emphases supplied)

Officers of Tropical met with the President of Broadway and
during this conference, Tropical’s officers recounted the “low sales
volume” that the Tropical Supermarket in the Broadway Centrum was
experiencing, apparently as a result of the temporary closure of Dona Juana
Rodriguez Avenue.^[3]
This Avenue is a major thoroughfare adjacent to the Broadway Centrum and was
then closed to vehicular traffic because of the road expansion project of the
Government. Broadway’s President, Mrs. Cita
Fernandez Orosa, was aware that the temporary closure of the Dona Juana
Rodriguez Avenue had affected the business of all the Broadway’s tenants,
including Tropical. She, therefore,
agreed on 20 April 1982 to a “provisional and temporary agreement” which
agreement needs to be quoted in full:

“Further to our letter dated April 6, 1982, we hereby make
formal our provisional and temporary agreement to a reduction of your
monthly rental on the basis of 2% of gross receipts or P60,000.00 whichever
is higher. Gross receipts should be
construed as the total sales and receipts from sublessees of your area and from
whatever source arising from the area leased by you. This provisional arrangement should not be interpreted as
amendment to the lease contract entered into between us.

We invite your attention to the fact that, as agreed upon, you have
committed to return by the end of April a certain portion of your leased premises totalling 466.56 square meters and
presently occupied by your drug store and coffee shop outlets and half of the hallway.

Finally we wish to remind you that the temporary alteration in
rental is conditioned on your good faith implementation on the suggestions
we conveyed to you in our letter of March 4, 1982 regarding the operations of
the supermarket and shall not commence until the area mentioned above to be
surrendered is actually surrendered.

Should you find the foregoing in accordance with our previous
verbal agreement, please signify your acceptance by signing above the word
‘conforme.’

Thank you for your continued patronage.

C o n f o r m e :                                                                                Very
truly yours,

Tropical Hut Food                                                                             Broadway
Centrum

Market, Inc.                                                                                       Condominium
Corp.

By: (Signed)                                                                              By:
(Signed) “^[4]

(Underscoring supplied)

Months later, the road expansion project at the Dona Juana
Rodriguez Avenue was completed. By a
letter dated 15 December 1982, addressed to Tropical, Broadway referred to the rental which “as
of last April 20, 1982, was provisionally reduced” to P60,000.00 a
month or 2% of gross receipts whichever is higher “without waving any
of [Broadway’s] rights under our rental agreement.” Broadway then went
on to say that:

“After careful deliberation, we regret
that this concession can no longer be extended in its present form. We, therefore, advising that we shall
increase the monthly rental to P100,000.00.

This increase, however, shall be
implemented gradually as follows: P80,000.00 effective January, 1983 and P100,000.00 effective April,
1983 until further notice.

Considering the fact that you collect a
monthly gross rental of P24,600.00 from your concessionaires (other forms of
income not considered), the previous temporary arrangement afforded you
more than sufficient respite from whatever business constraints you may have
had then. The consequent effect of said
temporary arrangement is your payment of a monthly rental of P35,400.00 or
an effective rate of P14.32 only per square meter. We are sure that you will agree with us that this rate is very
very low and cannot therefore be sustained indefinitely.”^[5]
(Emphases supplied)

While the rental rate above fixed by Broadway was higher than
that set out in the provisional and temporary agreement of the parties of 20
April 1982, the rates so fixed were nonetheless lower than that stipulated in
their contract of 28 November 1980. Tropical, however, was not satisfied with the adjusted rates fixed by
Broadway. In a letter dated 4 January
1983, Mr. Luis Que of Tropical wrote to Broadway’s President appealing to
Broadway “to fix our monthly rental at P60,000.00 or 2% of our gross
receipts whichever is higher.” In this letter, Mr. Que expressly hoped
that

“[Broadway would] understand our
position, and may we reiterate our appeal to maintain our present provisional
rates until such time that more sales are achieved.” (Underscoring
supplied)

Mr. Luis Que’s appeal was, however, found unsatisfactory by
Broadway. In a letter dated 13 January
1983, Broadway said:

“We are replying
to your letter of January 4, 1983. While it may be admitted that you are incurring losses in your
operations, the same is not a monopoly experienced solely by your
corporation. Broadway Centrum itself
has had its share of business setbacks but we have nevertheless
decided to absorb part of your losses last year by agreeing to a temporary
reduction of your monthly rental. However, as we have stated in our December 15, 1982 letter, this
concession can no longer be extended in its present form which continues to
be a considerable reduction on the provisions of our existing long term
contract. Consequently, we have to
reiterate our advise on you regarding your rental increase.”^[6]
(Underscoring supplied)

Tropical continued its renegotiation efforts. In another letter dated 29 March 1983,
Broadway’s President wrote to Mr. Luis Que turning down his request for
reconsideration. Broadway, however, was
evidently desirous of keeping Tropical as a tenant if possible and so stated
that the P100,000.00 monthly rental would begin, not on April 1983 as stated in
its letter of 15 December 1982 but rather on July 1983. By a letter dated 9 April 1983, the Credit
and Collection Officer of Broadway sent Mr. Luis Que a bill for P81,320.00
representing the accrued differential of P20,000.00 per month between the rental
which Broadway was willing to grant to Tropical (P80,000.00 per month starting
1 January 1983 and up to 30 June 1983) and the P60,000.00 per month or 2% of
gross receipts whichever is higher, under the temporary and provisional
letter-agreement of 20 April 1982.

Tropical responded to the statement of account sent by Broadway
by pleading, once more, in a letter dated 15 April 1983, that Tropical’s
present rentals of P60,000.00 monthly or 2% of gross receipts, whichever is
higher, “would at least stay until we have somehow recovered,”
to which Tropical proposed, however, to add 20% of its income from
concessionaires (i.e., concessionaires at Tropical-Broadway Supermarket).^[7]

Tropical’s last counter-offer was not acceptable to
Broadway. In a letter dated 22 April
1983, Broadway’s President wrote to Mr. Luis Que stating that “the matter
was no longer negotiable”:

“We are responding to your letter of April 15, 1983 proposing
a counter offer to the payment of your rentals. You will remember that in our last meeting our position on the
matter has been unequivocably stated. The
temporary arrangement of reducing your monthly rentals was extended as a an
assistance. This had caused us to
lose P620,000.00 on rental income.

You will agree that this is a sizeable amount which had tremendous
adverse effects on our financial position. This can no longer be sustained.

We reiterate, therefore, that the matter is no longer negotiable
and we strongly urge you to settle your obligation to minimize the 2%
penalty on delayed payments provided for in our contract.

We trust that you will see the merits of the foregoing.”^[8]
(Underscoring supplied)

On 5 May 1983, Mr. Mariano Que, adopting a new and much harder
posture than Mr. Luis Que had, wrote to Broadway as follows:

“x x x, I could only confirm
what I told you in our conference that we cannot afford any increase in rentals
in the space occupied by us at Broadway Centrum. And I could only repeat what is contained in the letter sent you
by our Mr. Luis Que dated April 15, 1983. We cannot agree to an increase in rentals at this time. To do so would put us in a financial
situation worse than we were in before we agreed to reduce the leased premises
and adjust the rentals. Our position
is that you cannot arbitrarily and unilaterally increase the rentals. This is a matter which should be mutually
agreed upon by us and as stated, we are not in a financial position to
agree to such an increase.”^[9]
(Underscoring supplied)

On the same day, 5 May 1983, Mrs. Orosa wrote to Mr. Mariano Que expressing
shock and dismay at the posture suddenly adopted by the latter. Mrs. Orosa wrote:

“We are replying to your
letter of May 5, 1983 categorically stating that your position is that we
cannot arbitrarily and unilaterally increase the rentals. We are appalled by the apparent attempt
to distort the very crystal clear arrangement we reached last April 20, 1982
anent the temporary alteration of your rentals. We hereby attached a xerox copy of said
agreement with our underscores to refresh your memory.

We have exhaustively, repeatedly but patiently labored to explain
to you the temporary and provisional arrangement to reduce your monthly
rentals is not an amendment to the lease contract and this was done
merely as an assistance. There is,
therefore, absolutely no basis to your claim that we cannot arbitrarily and
unilaterally increase the rentals. We
strongly feel that we should have instead been the recipient of an act of
gratitude from you.

In view therefore of your obstinate decision to blur your view and
continue refusing to heed our demands, we are hereby formally serving you
notice that if you still fail to pay your back accounts amounting to
P100,000.00 exclusive of penalty charges by Monday, May 9, 1983, paragraph five
(5) of our lease contract will be implemented.”^[10]
(Underscoring supplied)

A week later, on 12 May 1983, Tropical filed a complaint before the Regional Trial
Court, Quezon City, seeking a restraining order or preliminary injunction to
prevent Broadway from invoking and implementing Section 5 of their Lease
Contract and asking the court to decree that the rental provided for in the
letter-agreement of 20 April 1982 “should subsist while the low volume of
sales [of Tropical] still continues.” A restraining order was issued by
the trial court ex parte
the next day and a preliminary injunction was granted on 2 June 1983, upon
Tropical’s filing of a bond in the amount of
P100,000.00.

On 6 January 1984, while trial before the Regional Trial Court
was pending, Broadway informed Tropical that the basic rental would be
increased to P140,000.00 per month during the next three (3) years from 1
February 1984 to 1 February 1987 in accordance with paragraph (3) of the Lease
Contract dated 28 November 1980.

Tropical reacted by filing a supplemental complaint with the
trial court raising for the first time the issue of whether or not the
letter-agreement dated 20 April 1982 had novated the Lease Contract of 28
November 1980. Tropical alleged that
the original Contract of Lease had been novated in its principal conditions —
i.e., the area subject to the lease and the lease rentals — by the
letter-agreement dated 20 April 1982 and that the reduced lease rates set out
in the letter-agreement are to subsist while Tropical’s sales volume “remains low.”

Petitioner, upon the other hand, vehemently denied that the
original Lease Contract had been novated by the letter-agreement of 20 April
1982.

In time, the trial court rendered its decision dated 14 March
1985, the dispositive portion of which reads as follows:

“WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendant as follows:

1.       The writ of preliminary injunction
previously issued is made permanent;

2.       The reduced rental provided for in the
letter-agreement of April 20, 1982 (Exh. ‘G’ or ‘5’) shall subsist or be
effective during the period that a plaintiff cannot achieve its projected daily
sales average as envisioned in its feasibility study;

3.       The contract of lease dated November 28, 1980
(Exh. ‘A’ or ‘1’) is declared as partially novated or modified by the
letter-agreement;

4.       The amount of monthly rentals payable by
plaintiff for the reduced area of the leased premises after plaintiff
has achieved its projected daily sales average is fixed as follows:

February 1, 1981 to February 1, 1984 ? P39.45 per square
meter or P101,609.00;

February 1, 1984 to
February 1, 1987 – P46.02 per square meter or P118,530.00;

February 1, 1987 to February 1, 1991 – P54.24 per square meter or
P139,702.00.

Correspondingly, defendant’s counterclaim is dismissed.

Costs against the defendant.

So Ordered.”^[11] (Underscoring supplied)

On appeal, the Court of Appeals affirmed the decision of the
trial court. The Court of Appeals held
that the letter-agreement dated 20 April 1982 had novated the principal
conditions of the Lease Contract. The
Court of Appeals also held that
the reduction in the rentals was not entirely a gratuitous accommodation on the
part of Broadway since the reduction of the leased space by 466.56 square
meters, possession of which was returned by Tropical to Broadway, constituted
valuable consideration for the reduction of rentals while the “low sales
volume” of Tropical continued. The
Court of Appeals corrected a microscopic arithmetical error committed by the
trial court and in effect directed
Tropical to pay, when its “low sales volume” shall have been
overcome, the following rental rates:

From 1 February 1984 up to 1 February 1987
— ­P118,529.15 per month;

From 1 February 1987 up to 1 February 1991
— ­P139,695.07 per month.

Petitioner Broadway now asks us to review and set aside the
Decision of the Court of Appeals.

The sole issue confronting us here is whether or not the
letter-agreement dated 20 April 1982 had novated the Contract of Lease of 28
November 1980.

We start with the basic conception that 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 new debtor in place of the old one, or by subrogating a third person to the
rights of the creditor.^[12]
Novation through a change of the object or principal conditions of an existing
obligation is referred to as objective (or real) novation. Novation by the change of either the person
of the debtor or of the creditor is described as subjective (or personal)
novation. Novation may also be
objective and subjective (mixed) at the same time. In both objective and subjective novation, a dual purpose is
achieved — an obligation is extinguished and a new one is created in lieu
thereof.^[13]

If objective novation is to take place, it is essential that the new obligation expressly declare that the old
obligation is to be extinguished, or that new obligation be on every point
incompatible with the old one.^[14]
Novation is never presumed; it must be established either by the discharge of
the 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.^[15]
It is hardly necessary to add that the rule that novation is never presumed, is
not avoided by merely referring to partial novation. 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.

Applying the above principles to the case at bar, it is entirely
clear to the court that the letter-agreement of 20 April 1982 did not
extinguish or alter the obligations of respondent Tropical and the rights of
petitioner Broadway under their lease contract dated 28 November 1980.

In the first place, 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—.” The letter-agreement, as
noted earlier, also contained the following sentence:

“This provisional agreement should not be interpreted as
amendment to the lease contract entered into by us.“

The same letter also referred to the
reduction of rental as a “temporary alteration in rental” which was
“conditioned” upon good faith implementation by Tropical of the six
(6) principal suggestions Broadway had conveyed to Tropical concerning
improvement of the operations of Tropical’s supermarket at the Broadway
Centrum. The non-specification by
Broadway (who had prepared the letter-agreement on which Tropical placed its conforme)
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. There is nothing
in the text of the 20 April 1982 letter-agreement to suggest that the reduced
concessional rental rates could not be terminated by Broadway without the
consent of Tropical.

In the second place, the formal notarized Lease Contract of 28
November 1980 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. That Lease Contract provided,
among other things, as follows:

“32.   NON-WAIVER OF CONDITIONS & COVENANTS –
The failure of the LESSOR to insist upon strict performance of any of the
terms, conditions and stipulations hereof shall not be deemed a relinquishment
or waiver of any right or remedy that said LESSOR may have, nor shall it be
construed as a waiver of any subsequent breach of, or default in the terms,
conditions and covenants hereof, which terms, conditions and covenants shall
continue under this Contract and shall be deemed to have been made unless
expressed in writing and signed by the LESSOR.”^[16]
(Emphases supplied)

In the third place, the course of negotiations between Broadway
and Tropical before the execution of their letter-agreement of 20 April
1982, quite clearly indicated that what they were negotiating was a
temporary and provisional reduction of rentals. Thus, Tropical itself, in its letter to Broadway dated 5 February
1982, quoted earlier, had proposed reduction of rentals from the stipulated
contractual rates to P50,000.00 per month or 2% of monthly sales, whichever is
higher, “up to the end of the third year after which it shall again
subject to renegotiation.” Broadway’s reply dated 4 March 1982 heavily
underscored that:

“Any reduction in rental extended
is merely a temporary suspension of the original rate of rental stipulated in
our contract of lease and not an amendment thereto.“

In the fourth place, the course of discussions between Broadway
and Tropical, as disclosed in their correspondence, after execution of
the 20 April 1982 letter-agreement, shows that the reduction of rentals agreed
upon in the letter-agreement was not to persist for the rest of the life
of the ten (10)-year Contract of Lease. That correspondence is bereft of any’ sign of mutual agreement or
recognition that the reduced rentals had so permanently replaced the contract
stipulations on rentals as to have become immune to change save by common
consent of Tropical and Broadway. Quite
the contrary. In Broadway’s letter to
Tropical dated 15 December 1982, Mrs. Orosa referred to the letter-agreement of
20 April 1982 which “provisionally reduced to P60,000.00 a month or
2% of [Tropical’s] gross receipts, whichever is higher, without waiving any
of our right under our rental agreement.” This 15 December 1982 letter,
quoted earlier, in an obvious effort to be conciliatory, did not try to go back
immediately to the contract stipulation of P120,000.00 monthly rental from 1
February 1981 to 1 February 1984. Instead, Broadway proposed P80,000.00 per month effective January 1983
and P100,000.00 per month effective April 1983 “until further notice.”
In its reply letter of 4 January 1983, Tropical appealed to Broadway to
maintain “our present provisional rates until such time that more
sales are achieved.” In its rejoinder of 13 January 1983, Broadway
stressed that though it had its own share of business set backs, it had
“nevertheless decided to absorb part of [Tropical-Broadway Centrum’s]
losses last year by agreeing to a temporary reduction of the monthly
rental.” At the same time,
Broadway stressed that “this concession” could no longer be
extended “in its present form which continues to be a considerable
reduction on the provisions of our existing long-term contract.”
Finally, in his last letter of 15 April 1983, Mr. Luis Que of Tropical appealed
once more to Broadway to continue the reduction in rental under the 20 April
1982 letter-agreement “until we have somehow recovered” and then, at
the same time, offered to increase that reduced rental by adding to it 20% of
Tropical’s income from concessionaires at its Broadway Centrum
supermarket. Turning down Mr. Que’s
last counter-officer, Mrs. Orosa of Broadway on 22 April 1983 once again
stressed that:

“The temporary arrangement of reducing your monthly
rentals was extended as an assistance. This had caused us to lose P620,000.00 on rental income.”
(Underscoring supplied)

It is thus clear to the Court that Tropical was attempting to
modify its formal Lease Contract with Broadway by implying or inserting terms
into the 20 April 1982 letter-agreement which are not found in that
letter-agreement. Under both the Civil
Code and our case law on novation and as well the express terms of the 28
November 1980 Contract of Lease, only evidence of the clearest and most
explicit kind will suffice for that purpose. Tropical’s theory that Broadway had agreed in the 20 April 1982
letter-agreement to maintain the reduced rental so long as Tropical was
suffering from a “low volume of sales” appears to us as an
afterthought, imaginative and original no doubt, but still an
afterthought. Tropical did not pretend
to have reached agreement with Broadway on what level of sales would constitute
the critical “low volume of sales.” And so, the trial court ended up
with the truly extraordinary recourse of referring to the feasibility study
that Tropical had made on it’s own, before Tropical and Broadway executed
their 28 November 1980 Contract of Lease. That feasibility study was no more than an expression of Tropical’s own
expectations when it entered into the 1980 Contract of Lease; yet the trial
court held that the reduced rentals were to remain in effect until Tropical
achieved its own expectations concerning its sales at the Broadway Centrum,
which presumably were not “low.”

Tropical, in its Memorandum, stressed that Broadway had supplied
the number of customers which Tropical had inputted in its feasibility
study. Whatever number Broadway may
have submitted to Tropical in their pre-contract negotiations was no more than
an estimate or speculation as to the number of customers that might be coming
into the then proposed Tropical Supermarket at the Broadway Centrum. We do not understand Tropical to have
suggested that that number constituted a representation on the part of
Broadway which turned out to be false and which vitiated Tropical’s consent to
the original 1980 Contract of Lease. Neither do we understand Tropical to be suggesting that Broadway had warranted
to Tropical that a certain number of customers would in fact be visiting the
then proposed Tropical Supermarket at Broadway Centrum. The 1980 Contract of Lease itself was
totally silent as to any such estimated or expected number of customers either
as a representation or as a warranty on the part of Broadway. That silence rendered any estimate which
Broadway may have conveyed to Tropical, quite immaterial.^[17]

We turn to the holding of the Court of Appeals that the surrender
of 466.56 square meters of leased space by Tropical to Broadway constituted
valuable consideration, acceptance of which disabled Broadway from insisting on
the original terms of their Contract of Lease. Under the view we have taken above of the legal effects of the 20 April
1982 letter-agreement, this supposed valuable consideration appears quite immaterial. We must, nonetheless, note that comparison
of the lease rentals reduced and the floor space surrendered yields a strong
presumption that Broadway could not have agreed to the supposed partial
novation. The rentals were reduced by
Broadway by 50% (from P120,000.00 to P60,000.00 per month). The floor space was reduced by slightly over
15% only. No substantial relationship
existed between the amount of the reduction of rental and the area of the space
returned by Tropical. Hence, no
reasonable presumption can be indulged that that return of part of the leased
space constituted consideration for the reduction of rental rates. In that Contract of Lease, moreover, the
rentals were stipulated for a specified portion of the Broadway Centrum having
a total floor area of 3,042.19 square meters; the rental rate was not
specified on a per square meter basis.

We conclude that the Court of Appeals fell into reversible error
when it affirmed the decision of the trial court. We believe and so
hold that the letter-agreement of 1982 did not constitute a novation,
whether partial or total, of the 28 November 1980 Contract of Lease between
Broadway and Tropical.

WHEREFORE, for all the foregoing, the Petition for Review
on Certiorari is hereby GIVEN DUE COURSE, and 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:

1.       P80,000.00 per month
from 1 January 1983 up to 30 June 1983;

2.       P100,000.00 per month
from 1 July 1983 up to 31 January 1984;

3.       P140,000.00 per month
from 1 February 1984 to 1 February 1987; and

4.       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 Court’s 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 to petitioner 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.

Bidin, Davide, Jr., and
Melo, JJ., concur.

Romero, J., no part, related to
counsel of petitioner.

^[1]
Record, pp. 6-7.

^[2]
Record, p. 164.

^[3]
TSN 19 July 1984, p. 5.

^[4]
Exhibit “G” for respondent and Exhibit “5” for petitioner;
Record, p. 21.

^[5]
Record, p. 22.

^[6]
Id., p. 39.

^[7]
Id., p. 43.

^[8]
Id., p. 44.

^[9]
Id., p. 45.

^[10]
Id., p. 46.

^[11]
Rollo, pp. 32-33.

^[12]
Young vs. Court of Appeals, 196 SCRA 795 (1991); Caneda vs. Court
of Appeals, 181 SCRA 762 (1990); Cochingyan vs. R&B Surety and
Insurance Co., 151 SCRA 339 (1987); De Cortes vs. Venturanza, 79 SCRA 709 (1977).

^[13]
Cochingyan, Jr. v. R&B Surety and Insurance Company, Inc., supra.

^[14]
Article 1292, Civil Code. Zapanta v.
Rotaeche, 31 Phil. 154, 159 (1912).

^[15]
See, e.g., Goni vs. Court of Appeals, 144 SCRA 222 (1986); Landico vs. Pacquing,
42 SCRA 322 (1971); Asia Banking Corp. vs.
Lacson Co. Inc., 48 Phil 482 (1925); Tui Suico v. Jabana, 45
Phil. 707 (1924); Martinez vs. Cavives
25 Phil 581 (1913).

^[16]
Record, pp. 17-18.

^[17]
Section 34 of the Lease Contract provided:

“This lease agreement renders void any and all agreements and
understanding, oral and/or written previously entered into
between the parties hereto covering the property herein
leased: and this agreement may not hereafter be modified or altered except by instrument in writing duly
signed by the parties hereto.” (Emphases supplied)