G.R. No. 157684 - Department of Health vs. Camposano

On October 1, 1988, petitioners Jon and Marissa de Ysasi entered into a lease agreement with respondents Arturo and Estela Arceo for premises located at No. 91 East Capitol Drive, Barrio Kapitolyo, Pasig City, Metro Manila.
Petitioners rendered P5,000.00 as goodwill money and P15,000.00 as a deposit for a three‑month period to commence their business of handpainting and finishing services.

Heavy rains caused the roof to leak, leading to flooding of the premises.
The flooding disrupted the delivery schedule of handpainted mouldings to petitioners’ customers.
Despite petitioners’ requests for necessary repairs, respondents only repaired a portion of the premises.

Petitioners ceased paying rent and their share of utility bills (electric, water, and telephone) from December 1988 until they vacated the premises in June 1989.
Respondents filed an ejectment suit in the Metropolitan Trial Court, Branch 71, Pasig City.

The MeTC ruled that petitioners were justified in suspending their rent payments but applied the deposits to cover rentals up to June 1989 and required payment of utility bills.

On appeal, the Regional Trial Court, Branch 156, modified the decision by ordering petitioners to pay an additional P20,000.00 as balance of rentals up to their vacating of the premises.
Subsequently, petitioners filed a complaint in the Regional Trial Court, Branch 67, for specific performance or rescission of the contract with damages, later amended to a claim for damages after the lease’s expiration.

The trial court dismissed the complaint and ordered petitioners to pay respondents attorney’s fees (P5,000.00) and back rentals (P20,000.00) with interest at the legal rate.

The Court of Appeals affirmed the dismissal of petitioners’ amended complaint for damages and the associated order regarding attorney’s fees and back rentals.
Petitioners’ motion for reconsideration on appeal was denied, prompting the current petition for review.

Petitioners argued that the lease agreement impliedly waived the obligation of respondents to make necessary repairs—including those for hidden and unknown defects.
They contended that respondents’ failure to perform complete repairs was the direct and proximate cause of their incurred damages.
Petitioners asserted that respondents should be held liable for damages, including an alleged sum of P20,000.00 for unpaid rentals.
They also sought to recover damages for alleged improvements (tables and chairs) and business losses (P100,000.00) due to cancellations of job orders, though without sufficient evidentiary support.

The MeTC had allowed petitioners to suspend rent payments while ordering the application of deposits toward unpaid rentals and compelled payment of utility bills.
The RTC, however, modified the remedy by ordering additional payment for unpaid rentals, which later became a point of contention on appeal.
Petitioners acknowledged having inspected the leased premises several times before signing the lease, noting visible defects (rotten plywood on the ceiling) which they attributed to water leakage or termite damage.

Whether the contract of lease impliedly waived the lessor’s (respondents’) obligation to make necessary repairs, including those for hidden or unknown defects.
Whether the failure of respondents to fully repair the premises directly and proximately caused the alleged damages suffered by petitioners.
Whether respondents can be held liable for warranty against hidden defects under the applicable provisions of the Civil Code, given that petitioners had prior opportunity to inspect the premises.
Whether the obligation to make necessary repairs, as determined in earlier judicial proceedings (MeTC and RTC decisions), was conclusive and binding on the parties.
Whether the trial court’s order for petitioners to pay P20,000.00 as unpaid rentals (with interest) exceeds its jurisdiction, since this issue had been previously adjudicated in the ejectment case.
Whether petitioners’ claim for attorney’s fees, not previously raised in the Court of Appeals, can be entertained at this stage.