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SC resolves multimillion-peso AMA, ICA lease-deal dispute

02/10/2011 [ tribune.net.ph ]
The Supreme Court (SC) has resolved a multimillion-peso suit over the lease-deal of a building between the Immaculate Conception Academy (ICA) and the Ama Computer College Inc. (AMA).
In its decision, the high tribunal through Justice Roberto Abad ordered the building owner ICA to return some P4.07 million in security deposit and advance rentals, plus interest, to AMA when the leased three-story building in DasmariƱas, Cavite turned out to be structurally unsafe.
The SC, however, granted the building owner P150,000 in damages and attorney’s, fees citing he was forced to litigate to protect his interest after the lessee “acted in reckless, wanton, oppressive and malevolent manner in imputing fraud and deceit.”
AMA sought to buy ICA’s building but did not succeed. After inspecting the building, AMA signed a 10-year lease contract. AMA paid ICA P500,000 in earnest money, three months advance rentals and security deposit.
AMA’s workers, however, noted cracks on the floor and walls on the building’s second floor and after inspection by a government agency the latter ruled that “the building is structurally unsafe for human occupancy.”
AMA demanded from ICA the return within 24 hours of all the money it had paid for violation of implied warranty against hidden defects. AMA did not pursue the lease contract and rented another property.
AMA then filed an action before the Dasmarinas regional trial court (RTC), claiming ICA fraudulently entered into a lease agreement, fraudulently breached the same and violated the contract’s warranty against hidden defect.
In its answer, ICA pointed out it never misrepresented the condition of the building and that AMA inspected it before entering into a lease contract.
On April 8, 2003, the RTC ruled in favor of AMA. It directed ICA to return to AMA P4.07 million it received for the contract plus interest and to pay P500,000 in exemplary damages and attorney’s fees.
The trial court ruled that ICA failed to disclose the actual condition of the building that justified the rescission of the lease agreement.
The Court of Appeals (CA) affirmed the trial court’s ruling but deleted the grant of damages and lawyer’s fees. The CA ruled that AMA was justified in rescinding the contract because ICA defaulted in the repair of the defects in the structure.
On appeal, the SC said it is not convinced that AMA was justified in rescinding the contract on account of ICA’s fraudulent representation on the true condition of the building.
The SC said the cracks on the floor and the walls of the building were too obvious to suggest that something was wrong with the structure. AMA, it said, realized that such cracks were manifestations of structural defects when it was inspected for occupancy permit.
Instead of asking ICA to correct the structural defects as stipulated in the lease contract, AMA sought an outright rescission of the contract and the return of the money paid, it said.
The SC pointed out while the Civil Code allowed the outright rescission of the contract if the condition of the leased property poses serious danger this provision “assumes that the defects were irremediable and that the parties had no agreement for rectifying them.”
Had ICA repaired the defects as stipulated in the contact of lease, the right to rescind would have been rendered irrelevant, it said. But since the building was found to be structurally unsafe and defective by proper authorities, ICA has no justification to keep AMA’s deposit and advance rentals.
ICA sought P90 million in exemplary damages and P10 million in attorney’s fees.
“Since AMA acted in a reckless, wanton, oppressive and malevolent manner in imputing fraud and deceit on ICA, this court finds ground for awarding them exemplary damages... and having been compelled to litigate in order to protect their interests, ICA is also entitled to lawyer’s fees,” the SC said.
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