Oral Agreements vs Written Contracts: When Verbal Lease Changes Hold Up in Court

In a significant ruling for landlords and tenants alike, the Supreme Court has clarified the limits of verbal agreements in modifying written lease contracts. The case of Modomo v. Spouses Layug (G.R. No. 197722, August 14, 2019) demonstrates that while oral modifications to a written lease can sometimes be enforced, courts will not lightly set aside the clear terms of a written agreement.

The Dispute

Spouses Layug leased their Makati property to Spouses Modomo under a written Contract of Lease dated February 11, 2005. The contract set monthly rent at Php170,000 with escalation clauses (10% in years two and three, 15% in years four and five, 20% in years six and seven) and required the lessees to share real estate tax payments.

When Spouses Modomo fell behind on payments, the lessors filed an ejectment complaint. The tenants countered that the parties had orally agreed to reduce the rent to Php150,000, waive the escalation clause, and remove the real estate tax obligation. They claimed this verbal agreement novated, or modified, the written contract.

The Issue

The central question was whether the parties' alleged subsequent verbal agreement could partially modify the written lease contract, particularly the provisions on rental rate, escalation, and real estate taxes.

The Ruling

The Supreme Court held that a partial novation did occur—but only as to the monthly rental rate. The Court found sufficient evidence that the parties had verbally agreed to lower the rent from Php170,000 to Php150,000. This was confirmed by the lessors' own Statements of Account and demand letters, which consistently computed the tenants' balance based on the lower rate.

However, the Court refused to recognize any verbal modification of the escalation and real estate tax provisions. The parties had executed two written Addenda to modify these very terms, showing they knew how to document changes. Their alleged verbal waiver of these provisions was supported only by the tenants' own assertions.

Key Principles

The Court reiterated that novation is never presumed. Under the Civil Code, obligations may be modified by changing their object or principal conditions, but the intent to novate must appear by express agreement or by acts "too clear and unequivocal to be mistaken." The exact provision on novation—Article 1291 of the Civil Code—was cited in the decision, though the full statutory text is not reproduced in the library materials available.

The burden of proving novation lies on the party alleging it. In this case, the tenants failed to prove that the escalation and tax provisions were verbally modified, especially since the written Addenda reinforced those very obligations.

The Court also rejected the tenants' claim of estoppel in pais, noting that the lessors had sent several letters objecting to the deficient payments. There was no "silence" that could be construed as acquiescence.

Practical Takeaways

• Get it in writing. Verbal modifications to a lease may be recognized, but only where clearly proven. The safest approach is to document any change to rental terms through a written amendment or addendum.
• Consistent conduct matters. The Court relied heavily on the lessors' own statements and computations showing the reduced rent. A party's consistent acceptance of different terms can amount to a modification.
• Novation is hard to prove. Courts presume that written contracts reflect the parties' full agreement. To overcome this, you need clear and convincing evidence—not just your own testimony.
• Written modifications speak louder. If the parties previously used written addenda to change terms, courts will question why a later change was allegedly made orally.
• Improvements are risky. A lessee who demolishes improvements before vacating cannot later claim reimbursement under Article 1678 of the Civil Code, as cited in the decision.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.