GR 177809; (October, 2009) (Digest)
G.R. No. 177809 ; October 16, 2009
SPOUSES OMAR and MOSHIERA LATIP, Petitioners, vs. ROSALIE PALAÑA CHUA, Respondent.
FACTS
Respondent Rosalie Chua, owner of the Roferxane Building, filed an unlawful detainer complaint against petitioners Spouses Latip. She presented a six-year Contract of Lease for two cubicles, commencing December 1999, with a monthly rent of ₱60,000.00 subject to a 10% annual increase. The spouses had occupied the cubicles. Chua demanded payment of alleged back rentals and, upon non-payment, sought their ejectment.
In their defense, the Spouses Latip claimed the lease contract had been novated. They asserted they had purchased the lease rights for ₱2,570,000.00, paid in full to Chua in 1999, as evidenced by three receipts handwritten by her. They argued this substantial upfront payment was for the leasehold rights, not mere advance rent, effectively extinguishing the original lease contract and precluding any further rental obligation.
ISSUE
Whether the Contract of Lease was novated by the subsequent payment of ₱2,570,000.00, thereby extinguishing the Spouses Latip’s obligation to pay monthly rentals.
RULING
The Supreme Court ruled there was no novation. The essential elements of novation—a valid prior obligation, an agreement to create a new one, the extinguishment of the old obligation, and the validity of the new one—were not established. The receipts presented by the spouses, while acknowledging receipt of a large sum, were ambiguous. They did not clearly express an agreement to replace the detailed, notarized lease contract with a simple sale of lease rights. The lease contract itself contained no provision for such a prepayment scheme.
The Court held the payment must be construed as advance rentals. This interpretation aligns with the lease contract remaining in full force, as the spouses continued to occupy the premises under its terms. Chua’s demand for payment only a year after lease commencement further supports that the original agreement was not considered extinguished. Consequently, the Spouses Latip were liable for unpaid rentals per the contract. However, the ₱2,570,000.00 was to be deducted from this total liability as advance payments. The petition was granted, reversing the Court of Appeals and reinstating the RTC decision with modification regarding the application of the advance payment.