Case Summary (G.R. No. 197022)
Lease Agreement and Background
On July 17, 2002, the petitioner leased two apartment units from respondent for ₱15,000.00 each, with a lease term from August 1, 2002, to August 1, 2003. A security deposit of ₱45,000.00 per unit, totaling ₱90,000.00, was required to secure faithful compliance with the lease obligations. The lease contract stipulated the deposit could not be applied to rental payments and was refundable only after termination, subject to no outstanding liabilities related to the apartment use.
Occupancy and Dispute Over Security Deposit
Although the lease expired on August 1, 2003, petitioner continued to occupy the units until October 31, 2003. Upon vacating, petitioner requested the return of the ₱90,000.00 security deposit, asserting it had no liabilities under the lease. Respondent, however, counterclaimed that petitioner failed to fulfill maintenance obligations specified in the lease, including keeping the units in good and tenantable condition and properly maintaining lawns and hedges. Respondent alleged the leased premises were damaged beyond ordinary wear and tear and that repairs amounting to ₱79,534.00 were necessary due to petitioner’s negligent use, supported by receipts for labor and materials. Respondent claimed the right to withhold the security deposit to cover these damages.
Lower Courts’ Decisions
- MTCC Ruling: The Municipal Trial Court found for the petitioner, ordering respondent to refund the full security deposit with interest and attorney’s fees. It held respondent could not outrightly withhold the deposit for alleged violations without judicial determination of breach.
- RTC Ruling: The Regional Trial Court reversed the MTCC decision, ruling that the security deposit was rightly withheld to cover repair costs caused by petitioner’s breach. The RTC awarded respondent P79,534.00 for actual damages and an additional ₱11,464.00 as nominal damages, offsetting these against the deposit and dismissing further claims between parties.
- CA Ruling: The Court of Appeals held that the action was essentially for breach of contract requiring specific performance and thus not capable of pecuniary estimation, placing jurisdiction with the RTC. Consequently, it dismissed the case for lack of jurisdiction of the MTCC, setting aside previous rulings.
Issues Presented
- Whether the Municipal Trial Court has jurisdiction over petitioner’s complaint for the return of the security deposit.
- Whether the RTC was correct in offsetting the security deposit against repair costs and awarding nominal damages to respondent.
Supreme Court’s Analysis on Jurisdiction
The determination of jurisdiction depends on whether the action is capable of pecuniary estimation. If the principal relief sought is recovery of a sum of money, jurisdiction lies with the Municipal Trial Court (if within monetary thresholds). However, if the money claim is incidental to another relief (e.g., specific performance), jurisdiction lies with the Regional Trial Court. Contrary to the CA, the Supreme Court found the complaint was an action for collection of money (return of the security deposit), not breach of contract or specific performance, as the lease had already expired at the time of filing, thus no existing contract was breached. Therefore, the MTCC had jurisdiction.
Supreme Court’s Ruling on Merits of Security Deposit and Offset
Respondent was entitled to withhold the security deposit to offset the proven damages resulting from petitioner’s negligent and damaging use of the apartment units. Petitioner had agreed to return the units in good and tenantable condition except for ordinary wear and tear but left them in disrepair, necessitating repai
...continue readingCase Syllabus (G.R. No. 197022)
Case Background and Parties Involved
- The petitioner, Philippine-Japan Active Carbon Corporation, entered into two lease contracts with respondent Habib Borgaily on July 17, 2002, for two apartment units at P15,000.00 each per month.
- The lease period was from August 1, 2002, to August 1, 2003.
- To secure faithful compliance with the lease obligations, petitioner paid a security deposit amounting to P90,000.00 (P45,000.00 per unit).
- The lease contracts explicitly stated that the security deposit was not to be applied to rentals but held as security for obligations and liabilities arising from the use of the premises.
- After the lease expiration, petitioner remained in occupation until October 31, 2003.
- Upon vacating the premises, petitioner demanded the return of the full security deposit, asserting no outstanding liabilities.
- Respondent counterclaimed, alleging breach of obligations by petitioner such as failure to maintain the units and the lawns.
- Respondent contended that the apartments were left in a damaged and uninhabitable condition requiring costly repairs totaling P79,534.00.
- Respondent justified withholding the security deposit to cover these repair costs and claimed entitlement to apply the deposit for damages due to misuse and negligent occupancy by petitioner’s staff instead of executives as initially presented.
Lower Courts’ Rulings and Findings
Municipal Trial Court Cities (MTCC)
- The MTCC ruled on May 20, 2005, that respondent was obliged to return the security deposit.
- The court emphasized the lease provision that the deposit must be returned after lease expiration.
- It held that the lessor cannot withhold the deposit outright based on claim of breach without proper judicial determination.
- Consequently, the MTCC ordered respondent to refund the P90,000.00 with 12% interest plus attorney’s fees and costs.
Regional Trial Court (RTC)
- The RTC reversed the MTCC on August 16, 2006.
- It held that respondent had the right to withhold the security deposit because it covered faithful performance of lease obligations.
- The court found credible evidence that the premises required major repairs due to petitioner’s neglect and misuse, supported by photographic evidence and repair receipts.
- The RTC ordered an offsetting of the security deposit against the repair expenses (P79,534.00) plus awarded nominal damages (P11,464.00) to respondent.
- It declared that both parties had no remaining claims against each other after the offset.
Court of Appeals (CA)
- Upon petitioner’s appeal, the CA did not address the damage claims directly but instead ruled on jurisdiction on February 25, 2011.
- The CA held that petitioner’s complaint was effectively a breach of contract case seeking spe