Justified award

Security deposits in lease contracts are usually given to ensure that lessee (or sub-lessee) will vacate at the end of the contract and to answer for any delinquencies or damages. It is supposed to be returned at the end of the lease. If it is not returned without justifiable reason, the lessor (or sub lessor) shall also pay interest on the amount by way of damages. This is illustrated in this case of ATI vs. MPP.

ATI was the lessee of a factory/office building from Ecozone Properties located at the Light Industry and Science Park in Laguna. On January 14, 1999 it sub-leased a portion of said premises to MPP for a period of one year. The sub-lease contract provided for a security deposit which was to be returned within 30 days from the expiration of the sub-lease contract.

The sub-lease was renewed in 2000. But in June 2000, Ecozone Properties pre-terminated its lease with ATI for failure of the latter to pay rent, so MPP was directed to pay its rentals directly to Ecozone. While the sub-lease was again renewed in 2001, it was pre-terminated on June 1, 2001. So on August 2001 MPP vacated the premises and demanded for the return of the security deposit amounting to P642,000 plus interest.

ATI however refused allegedly because of tampered electric sub-meter that resulted in electric bills underpayment. In fact there was previous electric meter tampering which MPP already settled. For this purpose, ATI requested the electric company to conduct an investigation. After the investigation which reported that there could be a big possibility of tampering, ATI concluded that MPP tampered with the sub-meter and unilaterally valued the under-payment at P911,250. And since MPP did not immediately vacate the premises, ATI was also claiming for the electric consumption for June, July and August, 2001 amounting to P236,250. So ATI said that minus the security deposit MPP was still liable for P505,494.

Because of ATI’s refusal to return its deposit, MPP filed a suit before the Regional Trial Court (RTC) to recover said amount. It denied the tampering and claimed that it previously paid for the alleged electric bills under payment only to avert trouble. It also contended that the purported second tampering was a mere afterthought of ATI because it raised the issue only when MPP already claimed for the deposit.

While the RTC ruled in favor of ATI, the Court of Appeals (CA) reversed the RTC and ordered the ATI to return the security deposit plus damages in the form of interest on the deposit at the rate of 12% per annum until fully paid and also attorney’s fees.

ATI questioned this CA decision awarding damages and attorney’s fees. It claimed that none of the circumstances are present that would justify the award of the same obtained in this case. Was ATI correct?

No. The CA’s imposition of interest on the security deposit and the grant of attorney’s fees in favor of MPP is proper and valid. An award of interest on security deposit is warranted in view of ATI’s failure to return the same within the stipulated period of 30 days from the termination of the lease contract; while an award of P50,000 as attorney’s fees is fair and reasonable because MPP was compelled to litigate to protect its rights against ATI (ATP Technologies etc. vs. Micron Precision Phils. Inc. G.R. 171102, November 24, 2006).

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