G.R. No. 79642 July 5, 1993
Broadway Centrum Condominium Corporation, petitioner, vs. Tropical Hut Food Market, Inc. and The Honorable Court of Appeals, respondents.

FACTS

Petitioner Broadway Centrum Condominium Corporation (Broadway) and private respondent Tropical Hut Food Market, Inc. (Tropical) executed a Contract of Lease on November 28, 1980. The lease was for a portion of the Broadway Centrum Commercial Complex for ten years, from February 1, 1981 to February 1, 1991, with a provision for renewal upon mutual agreement. The contract stipulated a basic monthly rental of P120,000 for the first three years, P140,000 for the next three years, and P165,000 for the final four years.
In 1982, Tropical wrote to Broadway, complaining that the rental was too high relative to its sales and proposing a reduction to P50,000 or 2% of monthly sales, whichever was higher. Broadway responded with a counter-proposal for a conditional, temporary reduction of P20,000 per month for four months, explicitly stating this was not an amendment to the contract. Subsequently, due to business setbacks from a road closure, the parties entered into a “provisional and temporary agreement” dated April 20, 1982, reducing the rental to P60,000 or 2% of gross receipts, whichever was higher. This agreement also stated it should not be interpreted as an amendment to the lease contract.
After the road reopened, Broadway, by letter dated December 15, 1982, advised that the concession could no longer be extended and announced an increase in rental to P100,000 monthly, to be implemented gradually. Tropical appealed to maintain the provisional rates. Broadway reiterated its position that the temporary reduction could not continue and that the matter was no longer negotiable. Tropical then filed a complaint for consignation and specific performance, seeking to compel Broadway to abide by the reduced rental terms of the April 20, 1982 agreement. The trial court ruled in favor of Tropical, ordering Broadway to accept the reduced rentals. The Court of Appeals affirmed this decision.

ISSUE

Whether the “provisional and temporary agreement” dated April 20, 1982 constituted a novation of, or an amendment to, the original Contract of Lease dated November 28, 1980.

RULING

No. The Supreme Court reversed the decisions of the lower courts. The April 20, 1982 agreement was merely a temporary concession or a modus vivendi, not a novation or permanent amendment to the original lease contract. The agreement itself explicitly stated it was “provisional and temporary” and “should not be interpreted as amendment to the lease contract.” The subsequent correspondence between the parties consistently treated the reduction as temporary and conditional. Broadway’s act of later demanding a return to higher rentals, though still below the original contract rates, was a valid exercise of its rights under the original lease. The original contract remained in full force and effect. The Court held that Tropical was bound by the original rental terms, as modified only by the temporary concession which Broadway validly terminated.
The Court entered a new judgment dismissing Tropical’s complaint and ordering Tropical to pay Broadway the following: P80,000 per month from January 1, 1983 to June 30, 1983; P100,000 per month from July 1, 1983 to January 31, 1984; P140,000 per month from February 1, 1984 to February 1, 1987; and P160,000 per month from February 1, 1987 to January 31, 1991. The penalty for unpaid rentals was equitably reduced to 10% per annum, and attorney’s fees were set at 10% of the total amount due.