G.R. No.
226088, February 27, 2019
FOOD FEST LAND, INC. AND JOYFOODS
CORPORATION, Petitioners, v. ROMUALDO C. SIAPNO, TEODORO C. SIAPNO, JR.
AND FELIPE C. SIAPNO, Respondents.
DECISION
PERALTA, J.:
At bench is an appeal1 from the Decision2 dated January 6, 2016 and the Resolution3 dated July
22, 2016 of the Court of Appeals (CA) in CA G.R. CV No. 101302, affirming the Decision and
Resolution, dated February 20, 2013 and July 5, 2013, respectively, of the Regional Trial Court
(RTC), Branch 41, Dagupan City in Civil Case No. 2009-0084-D.
The facts.
The Contract of Lease
Respondents Romualdo C. Siapno, Teodoro C. Siapno and Felipe C. Siapno are the registered
owners4 of a 521-square-meter parcel of land (subject land) in Dagupan City.
On April 14, 1997, respondents entered into a Contract of Lease5 involving the subject land with
petitioner Food Fest Land, Inc. (Food Fest), a local corporation who wanted to use such land as
the site of a fastfood restaurant.6 The contract has the following particulars —
1. The term of the lease shall be fifteen (15) years.7 On the third (3rd) year of the lease,
however, Food Fest shall have the right to pre-terminate the lease.8
2. During the subsistence of the lease, Food Fest shall have the right to use the subject land
for such lawful purposes, including but not limited to the operation of a restaurant
business therein.9
3. In consideration therefor, Food Fest shall pay respondents rent in the following
amounts:10
a. For the first year, the rate of rent shall be P43,901.00 per month.11
b. For the succeeding years, however, the rate of monthly rent shall escalate by 10%
annually. They are payable within the first ten (10) days of the following month.
In addition to the foregoing, the Contract of Lease also featured a non- waiver clause:12
16. NON-WAIVER- The failure of the parties to insist upon a strict performance of any of the
terms, conditions and covenants hereof shall not be deemed a relinquishment or waiver of any
rights or remedy that said party may have, nor shall it be construed as a waiver of any subsequent
breach or default of the terms, conditions and covenants hereof which shall continue to be in full
force and effect. No waiver by the parties of any of their rights under this Contract of Lease
shall be deemed to have been made unless expressed in writing and signed by the party
concerned. 13
Pursuant to the Contract of Lease, Food Fest proceeded to build and operate its restaurant within
the subject land.
In October 1998, Food Fest assigned all its rights and obligations under the Contract of Lease
unto one Tuck:y Foods, Inc. (Tucky Foods).14 In September 2001, Tucky Foods assigned all the
said rights and obligations under such contract to petitioner Joyfoods Corporation (Joyfoods).15
Payment of Rentals and Pre-Termination of the Lease
From the first up to the fifth year of the lease,16 Food Fest and its assignees paid rent at the
monthly rate prescribed for under the Contract of Lease.17 The rental escalation clause in the said
contract, which -requires the annual escalation of monthly rent by 10%, was consistently
observed on the second to the fifth year.
Thus, by the fifth year of the lease,18 Joyfoods was paying the respondents a monthly rent of
P64,275.45.
The rental escalation clause, however, was not observed during the sixth up to the tenth year of
the lease. For the sixth up to ninth year of the lease,19 respondents continued to receive rent at the
rate of P64,275.45 per month.20 On the tenth year of the lease,21 on the other hand, respondents
were paid rent at the rate of P68,774.71 per month.22
At the start of the eleventh year of the lease,23 however, respondents called the attention of Food
Fest and Joyfoods regarding its intent to enforce the rental escalation clause of the Contract of
Lease for the said year.24 Accordingly, respondents informed Food Fest and Joyfoods that the
rent for the eleventh year of the lease shall be P113,867.89 per month, unless such amount is
renegotiated.
In reply, Food Fest and Joyfoods, on June 27, 2007, sent to respondents a letter25 wherein they
acknowledged that the applicable rate of rent following the Contract of Lease would indeed be
P113,867.89 per month, but proposed that the same be reduced to only P80,000.00 per month.
The proposal was rejected by the respondents.
On July 4, 2007, Joyfoods sent to respondents another letter26 wherein it proposed the amount of
P85,000.00 as monthly rental for the eleventh and twelfth years of the lease. But this too was met
with rejection by the respondents.
On October 27, 2008, during the lease's twelfth year, Joyfoods sent to respondents a
letter27 conveying its intent to pre-terminate the lease. In the letter, Joyfoods stated that "due to
severe and irreversible business losses" it will cease its operations on the 29th of November 2008
and will turnover the subject land to the respondents on the 131h of December 2008.28
The Complaint and the Rulings of the RTC and the CA
On April 20, 2009, respondents lodged before the RTC of Dagupan City a Complaint29 for sum
of money against Food Fest and Joyfoods. In it, respondents mainly seek payment of the sum of
P988,907.74 from Food Fest and Joyfoods - which sum respondents refer to as the "escalation
for the years 2007 and 2008."30 In essence, the sum P988,907.74 was supposed to represent the
balance between the amount of rent due under the Contract of Lease for the period beginning
from the lease's eleventh year of up to its pre-termination, on one hand, and the amount of rent
that was actually paid by Food Fest and Joyfoods during the said period, on the other (unpaid
balance).
On February 20, 2013, the RTC rendered a Decision31 in favor of respondents, ordering Food
Fest and Joyfoods to, among others, pay respondents the unpaid balance in the amount of
P988,907.74. Food Fest and Joyfoods filed a Motion for Reconsideration, but such motion was
denied by the RTC via a Resolution32 dated July 5, 2013.
Food Fest and Joyfoods appealed to the CA.
On January 6, 2016, the CA rendered a Decision[33 dismissing such appeal and affirming the
decision of the RTC. Food Fest and Joyfoods moved for a reconsideration, but the CA was
steadfast.[34
Hence, this appeal.
The Present Appeal35
In substance, Food Fest and Joyfoods admit the existence of an unpaid balance under the
Contract of Lease. They, however, deviate from the decisions of the RTC and the CA on two (2)
points:
First. Food Fest and Joyfoods challenge with the amount of the unpaid balance awarded by the
RTC and the CA. Instead of the sum of P988,907.74 claimed by the respondents, Food Fest and
Joyfoods assert that the proper award should have been just for P382,055.22.
Food Fest and Joyfoods allege that the rental escalation clause of the Contract of Lease — by
reason of an unwritten agreement between Joyfoods and the respondents — was actually
suspended indefinitely beginning from the sixth year of the lease. Hence, according to Food Fest
and Joyfoods, the monthly rent payable from the sixth year of the lease onwards is no longer
determined by the stipulations of the Contract of Lease, but by negotiation between Joyfoods and
respondents.
For the eleventh and twelfth year of the lease, Food Fest and Joyfoods aver that respondents and
Joyfoods had actually come to an agreement fixing the monthly rentals thereon at P90,000.00 per
month. Such agreement was precipitated, say Food Fest and Joyfoods, by Joyfoods' letter dated
July 4, 2007 to respondents. To recall, it is in such letter that Joyfoods proposed the amount of
P85,000.00 as monthly rental for the eleventh and twelfth year of the lease.
Food Fest and Joyfoods assert that the respondents replied to the July 4, 2007 letter and .made a
counter-proposal of P90,000.00 monthly rent for the eleventh and twelfth years of the lease. The
counter-proposal was supposedly handwritten by the respondents in the July 4, 2007 letter,
which they then sent back via facsimile to Joyfoods. And Joyfoods, apparently, agreed to this
counter-proposal.
Food Fest and Joyfoods point out that when the rate of monthly rent for the eleventh and twelfth
year is reckoned at P90,000.00, the unpaid balance would have amounted only to P382,055.22,
to wit:
P90,000.00 x 18 months
A. Amount of rent rightfully due under for the period beginning from
=
the lease's eleventh year of up to its pre-termination (18 months)
P1,620,000.00
P 68,774.71 x 18
B. Amount of rent actually paid by Food Fest and Joyfoods during the
months=
same period
P1,237,944.78
P1,620,000.00-
UNPAID BALANCE (A-B) P1,237,944.78 =
P382,055.22
Second. Food Fest and Joyfoods also disagree with their respective liabilities for the unpaid
balance as held by the RTC and the CA. Food Fest and Joyfoods submit that both of them cannot
be held liable for the said balance, in light of Food Fest's assigmnent of its rights and obligations
under the Contract of Lease to Tucky Foods in 1998 and of Tucky Foods' assignment of the same
rights and obligations to Joyfoods in 2001. Under such circumstances, it is postulated that the
liability for the unpaid balance now solely rests with Joyfoods.
Our Ruling
We deny the appeal. We affirm the decision of the CA.
We reject the challenge against the amount of the unpaid balance awarded by the RTC and the
CA.
Food Fest and Joyfoods' position pegging the unpaid balance at P382,055.22 is problematic. It
proceeds from a factual assumption that contradicts the actual factual findings of the RTC and
the CA. As is apparent from their arguments, Food Fest and Joyfoods' position is hinged on the
existence of two purported (2) agreements between the respondents and Joyfoods, to wit:
1. An agreement suspending indefinitely the rental escalation clause of the Contract of
Lease (first agreement); and
2. An agreement fixing the rate of rent for the lease's eleventh and twelfth year at P 90,000
per month (second agreement).
Such an assumption, however, was already rebuffed by the RTC and the CA. Both courts did not
consider the first and second agreements as established facts, mainly because they found that the
existence of such agreements is not supported by any credible evidence on record.36
Accordingly, the RTC and the CA found nothing that could bar the respondents from enforcing
and applying the rental escalation clause for the eleventh and twelfth years of the lease.37
We are not inclined to review - much less disturb -the foregoing factual findings of the RTC and
the CA, knowing fully well our limitations as an appellate court and the proper office of appeals
by certiorari.38 This Court, as has often been said, is not a trier of facts.39 In an appeal
by certiorari, such as the instant case, We generally defer to the factual findings of lower courts
and confine our review exclusively to the assigned errors of law. Though this norm is by no
means absolute, it bears to stress that any deviation therefrom is only ever taken under defined
circumstances — such as when the factual finding of the trial court is reversed by the CA on
appeal, or when such finding is "manifestly mistaken, absurd, or impossible" or the same is
otherwise "grounded entirely on speculation, surmises, or conjectures" or in instances where
there has been grave abuse of discretion.40 None of such circumstances, however, affect the
factual determinations in discussion.
All in all, We find no cogent reason to overturn the RTC and the CA's determination
negating the existence of the first and second agreements due to lack of credible proof.
Without such agreements, Food Fest and Joyfoods' challenge against the amount of the
unpaid balance inevitably loses its potency. We, therefore, cannot accept such challenge
and must instead sustain the amount of unpaid balance awarded by the RTC and the CA.
II
We also reject the plea to limit liability for the unpaid balance solely with Joyfoods.
Food Fest and Joyfoods' plea is, in substance, an invocation of the concept of novation -
particularly, novation of an obligation by the substitution of the person of the debtor. Their basic
assertion is that the assignment by Food Fest of its rights and obligations under the Contract of
Lease to Tucky Foods, and the assignment by Tucky Foods of the same rights and obligations to
Joyfoods, ought to have resulted in Food Fest's release from its obligations under the Contract of
Lease and its substitution therein by Joyfoods.
We do not agree.
Novation is the extinguishment of an obligation by its modification and replacement by a
subsequent one. It takes place when an obligation is modified in any of the following ways: (a)
by changing its object or principal conditions, (b) by substituting the person of the debtor, or (c)
by subrogating a third person in the rights of the creditor.41 In such instances, the obligation
ceases to exist as a new one — bearing the modifications agreed upon — takes its place.
Novation is, thus, a juridical act of dual function— for as it extinguishes an obligation, it also
creates a new one in lieu of the old.42
Novation of an obligation by substituting the person of the debtor, as the term suggests, entails
the replacement of the debtor by a third person. When validly made, it releases the debtor from
the obligation which is then assumed by the third person as the new debtor. To validly effect
such kind of novation, however, it is not enough for the debtor to merely assign his debt to a
third person, or for the latter to assume the debt of the former; the consent of the creditor to the
substitution of the debtor is essential and must be had. As Article 1293 of the Civil Code
provides:
ARTICLE 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the latter, but
not without the consent of the creditor. Payment by the new debtor gives him the rights
mentioned in articles 1236 and 1237.43
In De Cortes v. Venturanza,44 We explained the rationale of this requirement:
x x x A personal novation by substitution of another in place of the debtor may be effected with
or without the knowledge of the debtor but not without the consent of the creditor (Art. 1205,
Civil Code [now Art. 1293, New Civil Code]). This is the legal provision applicable to the case
at bar. The reason for the requirement that the creditor give his consent to the substitution is
obvious. The substitution of another in place of the debtor may prevent or delay the fulfillment
or performance of the obligation by reason of the inability or insolvency of the new debtor;
hence, the consent of the creditor is necessary. This kind of substitution may take place without
the knowledge of the debtor when a third party assumes the obligation of the debtor with the
consent of the creditor. The novation effected in this way is called expromision. Substitution may
also take place when the debtor offers and the creditor accepts a third party who assumes the
obligation of the debtor. The novation made in this manner is called delegacion. (Ali. 1206, Civil
Code [now Art. 1295, New Civil Code]). In these two modes of substitution, the consent of the
creditor is always required. x x x."45
The consent of the creditor to the substitution of a debtor, as a rule, may be given expressly or
impliedly.[46 As can be observed, the law does not require that the creditor's consent to the
substitution to come at a particular time or in a particular form.47 What it only demands is that the
consent of the creditor be given one way or another.48 This notwithstanding, there is also
nothing that precludes the parties in an obligation, pursuant to their freedom to
contract,49to agree to a specific form by which the creditor's consent to any potential
novation should be expressed. Once an agreement is reached that subjects the creditor's consent
to certain formal requirements, such requirements naturally become binding upon the parties.50
Going back to the instant case, We find that the established facts do not permit the conclusion
that novation had taken place.
First. The settled facts do not show that respondents had expressly consented in writing to
the substitution of Food Fest by Joyfoods. The consent of respondents to such substitution
has to be in writing, in . light of the non-waiver clause of the Contract of Lease. As can be
recalled, the non waiver clause of the Contract of Lease required the parties thereto to
express any waiver of their rights under said contract in writing lest their waiver be
considered null, viz.:
16. NON-WAIVER - The failure of the parties to insist upon a strict performance of any of the
terms, conditions and covenants hereof shall not be deemed a relinquishment or waiver of any
rights or remedy that said party may have, nor shall it be construed as a waiver of any subsequent
breach or default of the terms, conditions and covenants hereof which shall continue to be in full
force and effect. No waiver by the parties of any of their rights under this Contract of Lease
shall be deemed to have been made unless expressed in writing and signed by the party
concerned.51
Respondents' consent to the substitution of Food Fest falls within the ambit of the foregoing
clause, because a novation by the substitution of the person of the debtor implies a waiver
on the part of the creditor of his right to enforce the obligation as against the original
debtor.52 This correlation has been made in the case of Testate Estate of Lazaro Mota v. Serra:53
It should be noted that in order to give novation its legal effect, the law requires that the creditor
should consent to the substitution of a new debtor. This consent must be given expressly for the
reason that, since novation extinguishes the personality of the first debtor who is to be
substituted by a new one, it implies on the part of the creditor a waiver of the right that he
had before the novation which waiver must be express under the principle that renuntiatio non
praesumitor, recognized by the law in declaring that a waiver of right may not be performed
unless the will to waive is indisputably shown by him who holds the right.54
Verily, without the consent of the respondents — conveyed in the form required under the
Contract of Lease — there can be no substitution of Food Fest by Joyfoods. On this score alone,
Food Fest and Joyfoods' plea is dismissible.
Second. Yet, even if we are to set aside the non-waiver clause of the Contract of Lease, Food
Fest and Joyfoods' claim of novation is still doomed to fail. This is so because the consent of
respondents to the substitution of Food Fest, just the same, cannot be deduced
or implied from any of the established acts of the former. Indeed, under the settled facts,
the respondents did nothing in the way of releasing Food Fest from its obligations other
than, perhaps, its acceptance of rental payments from Joyfoods.
The consent of respondents to the substitution of Food Fest by Joyfoods, however, cannot
be presumed from the sole fact that they accepted payments from Joyfoods. It is well
settled that mere acceptance by a creditor of payments from a third person for the benefit
of the debtor, sans any agreement that the original debtor will also be released from his
obligation, does not result in novation but merely the addition of debtors. As Ajax Marketing
Development Corporation v. Court of Appeals55 instructs:
The well-settled rule is that novation is never presumed. Novation will not be allowed unless
it is clearly shown by express agreement, or by acts of equal import. Thus, to effect an objective
novation, it is imperative that the new obligation expressly declare that the old obligation is
thereby extinguished, or that the new obligation be on every point incompatible with the new
one. In the same vein, to effect a subjective novation by a change in the person of the debtor
it is necessary that the old debtor be released expressly from the obligation, and the third
person or new debtor assumes his place in the relation. There is no novation without such
release as the third person who has assumed the debtor's obligation becomes merely a co-
debtor or surety.56
All things considered, We find no valid reason to overturn the RTC and the CA's ruling holding
both Food Fest and Joyfoods liable for the unpaid balance. Under the limited facts of the instant
ease, no novation by the substitution of the person of debtor can be appreciated. Accordingly, ·
Food Fest cannot be considered as released from its obligations under the Contract of Lease. And
Joyfoods' assumption of the debt of Food Fest only made the former a co-debtor of the latter.57
WHEREFORE, premises considered, the instant: appeal is DENIED. the Decision dated
January 6, 2016 and the Resolution dated July 22, 2016 of the Court of Appeals in CA-G.R. CV
No. 101302 are AFFIRMED.
SO ORDERED.
