ICA v. AMA (G.R. No. 173575; February 2, 2011)

CASE DIGEST: IMMACULATE CONCEPTION ACADEMY and the late DR. PAULO C. CAMPOS substituted by his heirs, DR. JOSE PAULO E. CAMPOS, ATTY. PAULO E. CAMPOS, JR. and DR. ENRIQUE E. CAMPOS, Petitioners, v. AMA COMPUTER COLLEGE, INCORPORATED, Respondent. (G.R. No. 173575; February 2, 2011).

FACTS: This case is about the rescission of a lease contract on the ground that the building turned out to be structurally unsafe even as the lessee had previously inspected the same.

Immaculate Conception Academy (ICA) owned a three-storey building in Dasmariñas, Cavite which AMA subsequently leased.

AMA wrote ICA demanding the return of all that it paid within 24 hours from notice. AMA cited the building’s structural deficiency, which it regarded as a violation of ICA’s implied warranty against hidden defects.

When its request for reimbursement remained unheeded, AMA filed an action for breach of contract and damages with prayer for the issuance of a writ of preliminary attachment against ICA.

ICA claims that it never misrepresented the condition of the building and that AMA inspected it before entering into the contract of lease.

The RTC ruled that the latter entered into the lease contract without knowing the actual condition of the building. The CA, on the other hand, held that ICA did not violate its implied warranty against hidden defects, misrepresent the building’s condition, or act in bad faith since AMA inspected the building before it entered into the lease agreement. Nevertheless, it maintained the RTC decision that AMA was justified in rescinding the lease contract considering ICA’s default in repairing the defects in the building’s structure.ISSUE: Was AMA justified in rescinding the contract of lease either on account of ICA’s fraudulent representation regarding the condition of its building or on account of its failure to make repairs on the same upon demand?

Are ICA and Dr. Campos entitled to their claims for damages against AMA?

HELD: The fact is that AMA’s representatives inspected the building to determine if it was suitable for their school’s needs. The cracks on the floor and on the walls were too obvious to suggest to them that something was amiss. It was their fault that they did not check the significance of such signs.

Likewise, AMA’s belated claim udner Article 1660 of the Civil Code is misplaced as such provision assumes that the defects were irremediable and that the parties had no agreement for rectifying them. Here, the lease contract implicitly gave ICA the option to repair structural defects at its expense.

To be entitled to moral damages, ICA needed to prove that it had a good reputation and that AMA’s action besmirched the same. Such proof is wanting in this case.

As for Dr. Campos, he has amply proved that he suffered mental anguish, serious anxiety, and social humiliation. However, due to his untimely demise before the finality of this case, his claim for moral damages does not survive as it is personal to him.

However, since AMA acted in a reckless, wanton, oppressive, and malevolent manner in imputing fraud and deceit on ICA and Dr. Campos, the Court finds ground for awarding them exemplary damages. GRANTED.

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