Wednesday, March 07, 2012

Broadway Centrum Condominium Corporation vs. Tropical Hut Food Market Inc.

Facts: Petitioner and respondent Tropical executed a contract of lease. Subsequently, Tropical insistently requested petitioner to lower the rental cost provided for in the contract as it comprised more than half of the sales Tropical was making. Tropical also reasoned that their low sales were caused by the temporary closure of the street where the store was facing. Broadway then, in a letter-agreement, granted Tropical’s requests by lowering the rental costs accordingly among other things, on certain terms and conditions, and stating that this agreement shall not be an amendment of the original lease contract. When the street abovementioned was reopened, Broadway informed Tropical that it will gradually return the rental costs to the prices stipulated in the lease contract. Tropical resisted, still contending that their sales have not improved, and that they will not pay the original costs and still insists to be given lower costs until sales have picked up. Broadway informed that they will nonetheless impose the original costs, and it will no longer be negotiable. Tropical filed suit against petitioner, contending that the subsequent letter-agreement novated the lease contract. The lower court decided in favor of Tropical, the appellate court affirmed the decision, hence this petition for review on certiorari.

Issue: Whether or not the letter-agreement novated the contract of lease.

Held: It is entirely clear to the court that the letter-agreement did not extinguish or alter the obligations of respondent Tropical and the rights of petitioner Broadway under their lease contract. In the first place, the letter-agreement 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 contract entered into by us. In the second place, the formal notarized Lease Contract 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. In the third place, the course of negotiations between Broadway and Tropical before the execution of their letter-agreement quite clearly indicated that what they were negotiating was a temporary and provisional reduction of rentals. In the fourth place, the course of discussions between Broadway and Tropical, as disclosed in their correspondence, after execution of the 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 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. The decision of the lower court and CA are reversed and set aside, this petition is given due course, the original complaint of Tropical is dismissed.

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