G.R. No. L-47695 May 7, 1987
CERTIFIED CLUBS, INC., petitioner, vs. COURT OF APPEALS, INSTITUTIONAL FOOD SERVICES, INC., respondents.

FACTS

Petitioner Certified Clubs, Inc., as sub-lessor, entered into two sub-lease agreements with private respondent Institutional Food Services, Inc., for the sixth and seventh floors of the VIP Building to operate a restaurant. The agreements obligated the petitioner to provide premises with complete air conditioning equipment and stipulated that the sub-lessee could terminate the contract with two months’ written notice. Critical provisions placed the duty of repairs and maintenance on the sub-lessee “as if the sub-lessee is owner,” and contained an indemnity clause stating no rent abatement for failures in services like air conditioning, except when such failure arose from the sub-lessor’s negligence, in which case repairs were to be made “as soon as possible.”
Private respondent terminated the lease in April 1970 and filed a complaint for damages. It alleged petitioner’s failure to provide an adequate air conditioning system and to repair defective construction causing water leaks, which damaged property and drove away customers, forcing the premature termination of the lease. The trial court awarded damages to private respondent, which was affirmed with modification by the Court of Appeals.

ISSUE

Whether the Court of Appeals erred in affirming the award of damages to the sub-lessee and in reducing the unpaid rentals, despite contractual provisions placing repair obligations and risks on the sub-lessee and stating no rent abatement for service failures.

RULING

The Supreme Court affirmed the Court of Appeals’ decision. The legal logic centered on the petitioner’s breach of its fundamental obligation as a lessor under Article 1654 of the Civil Code to maintain the lessee in peaceful and adequate enjoyment of the lease. While the contract allocated repair duties to the sub-lessee, this did not absolve the sub-lessor from its primary legal duty to ensure the premises were suitable for their intended use as a restaurant. The persistent failures of the air conditioning system and the water leaks, coupled with the petitioner’s negligence in making necessary repairs “as soon as possible” as required by the exception in the indemnity clause, constituted a breach. This breach justified the sub-lessee’s act of rescinding the contract under Article 1659 of the Civil Code and claiming indemnification for damages. The reduction of unpaid rentals by twenty-five percent was deemed proper based on equity and the finding of the sub-lessor’s negligence, which prevented adequate enjoyment, making full payment unjust. The contractual provision on improvements becoming property of the lessor was correctly held inapplicable as the sub-lessee was compelled to terminate prematurely due to the lessor’s breach, not through its own volition.