G.R. No. 136586 ; November 22, 2001
JON AND MARISSA DE YSASI, petitioners, vs. ARTURO AND ESTELA ARCEO, respondents.

FACTS

Petitioners Jon and Marissa de Ysasi leased business premises from respondents Arturo and Estela Arceo. After moving in, the premises experienced roof leaks and flooding due to heavy rains, disrupting the petitioners’ handpainting business. Petitioners demanded repairs. Respondents performed some repairs, but petitioners deemed them insufficient and subsequently stopped paying rent and utility shares from December 1988 until they vacated in June 1989. Respondents filed an ejectment suit. The Metropolitan Trial Court ruled petitioners were justified in suspending rent but applied their deposits to cover rentals and ordered payment of utility bills. On appeal, the Regional Trial Court modified this, ordering petitioners to pay a P20,000 rental balance.
Subsequently, petitioners filed a separate complaint for damages against respondents in the RTC, alleging breach of the lessor’s duty to repair under Article 1654 of the Civil Code. The trial court dismissed their complaint and instead ordered petitioners to pay respondents P20,000 in back rentals and P5,000 in attorney’s fees. The Court of Appeals affirmed this decision. Petitioners elevated the case to the Supreme Court.

ISSUE

The core issues were: (1) whether respondents were liable for damages due to alleged breach of warranty against hidden defects and failure to make necessary repairs; and (2) whether petitioners were liable for unpaid rentals and attorney’s fees.

RULING

The Supreme Court affirmed the Court of Appeals’ dismissal of the complaint for damages but deleted the order for payment of unpaid rentals. On the first issue, the Court held respondents were not liable for damages. Petitioners’ reliance on the warranty against hidden defects was misplaced. Petitioner Jon de Ysasi admitted inspecting the premises multiple times before leasing and noticed visible defects like rotten plywood on the ceiling. Following Article 1561 in relation to Article 1653, a lessor is not liable for patent or visible defects. The defect was not hidden.
Furthermore, while the lessor has a duty to make repairs under Article 1654, the Court found petitioners failed to prove that the respondents’ incomplete repairs were the direct and proximate cause of their alleged business losses. The claim for damages was not sufficiently substantiated. On the second issue, the Court deleted the award for unpaid rentals. It noted that the prior ejectment case’s RTC decision, which had become final, already adjudicated the rental obligations. The principle of conclusiveness of judgment barred re-litigation of this specific matter in the subsequent damage suit. However, the award of attorney’s fees to respondents was upheld, as petitioners did not contest this award in the Court of Appeals and could not raise it for the first time on appeal.