G.R. No. L-19383 - United States Lines Co. vs. San Miguel Brewery, Inc.

United States Lines Company (petitioner) is a foreign corporation duly licensed to do business in the Philippines and the agent for the S/S "Peter J. McGuire".
San Miguel Brewery, Inc. (respondent) operates the Insular Ice and Cold Storage Plant in Manila.
The petitioner entered into an agreement to lease a compartment (Compartment A in Room I-B on the ground floor) of the respondent’s cold storage plant.
The agreed daily rental for the compartment was P19.00.

On November 1, 1951, while the S/S "Peter J. McGuire" was anchored in Manila Bay, its refrigeration facilities malfunctioned.
Mr. Finch, an officer of the petitioner, sought assistance and through a recommendation by Chua Seng (Manager of the People’s Food Supply), arrangements were made to store the vessel’s perishable foodstuffs at the respondent’s cold storage plant.
The food provisions were deposited in the leased compartment on November 1, 1951, and withdrawn on November 6, 1951 for transfer onto the vessel.

Upon withdrawal of the foodstuffs, the petitioner discovered that they were gnawed, soiled, and generally damaged by rodents.
The petitioner reported the incident to the Bureau of Quarantine, prompting Dr. Isagani Chanco to inspect the provisions.
Dr. Chanco’s examination revealed “evidence of rat bites and gnawings” as well as “several pieces of rat excrete,” leading to the order that the contaminated foodstuffs be discarded.
From November 19 to December 15, 1951, employees of the Rodent Control Section of the Bureau of Quarantine caught a total of 66 rats in Room I-B, providing material evidence of rodent infestation.

The petitioner initiated an action in the Court of First Instance of Manila seeking recovery of P2,262.38 for damages and an additional P600.00 for attorney’s fees.
In its decision, the Court of First Instance ordered the respondent to pay the petitioner the amount for damages (P2,262.38), attorney’s fees (P500.00), and the costs of the suit, while dismissing the respondent’s counterclaim for damages of P4,000.00.
The respondent appealed the decision; the Court of Appeals reversed the lower court’s ruling insofar as it favored the petitioner on the issue of damages, but it upheld the dismissal of the respondent’s counterclaim.
The petitioner elevated the case to the Supreme Court, contesting the reversal on the grounds that a lessor of a cold storage plant should be held responsible for deterioration of stored foodstuffs caused by rodent infestation.

Whether a lessor of a cold storage plant may be held responsible for the deterioration of foodstuffs stored by a lessee due to a rat infestation.
Whether the presence of rats in the leased premises constitutes a defect or latent condition for which the lessor has provided an implied warranty.

The application of Article 1653 of the Civil Code regarding the warranty in lease contracts.
The relevance of Article 1566 of the Civil Code, which imposes liability on the vendor for hidden defects, and by analogy, on the lessor.
Whether the lessor can be absolved from liability on the basis of the absence of fraud or bad faith, as argued through the misconstrued case of Yap Kim Chuan vs. Tiaoqui.