CIVIL LAW

CASE #1:

G.R. No. L-4811             July 31, 1953

CHARLES F. WOODHOUSE, plaintiff-appellant,
vs.
FORTUNATO F. HALILI, defendant-appellant.

Tañada, Pelaez & Teehankee for defendant and appellant.

Gibbs, Gibbs, Chuidian & Quasha for plaintiff and appellant.

LABRADOR, J.:

On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A, with the defendant, the most important
provisions of which are (1) that they shall organize a partnership for the bottling and distribution of Mision soft drinks, plaintiff
to act as industrial partner or manager, and the defendant as a capitalist, furnishing the capital necessary therefor; (2) that the
defendant was to decide matters of general policy regarding the business, while the plaintiff was to attend to the operation and
development of the bottling plant; (3) that the plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the
proposed partnership; and (4) that the plaintiff was to receive 30 per cent of the net profits of the business. The above
agreement was arrived at after various conferences and consultations by and between them, with the assistance of their
respective attorneys. Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los Angeles,
California, U.S.A., manufacturers of the bases and ingridients of the beverages bearing its name, that he had interested a
prominent financier (defendant herein) in the business, who was willing to invest half a million dollars in the bottling and
distribution of the said beverages, and requested, in order that he may close the deal with him, that the right to bottle and
distribute be granted him for a limited time under the condition that it will finally be transferred to the corporation (Exhibit H).
Pursuant for this request, plaintiff was given "a thirty-days" option on exclusive bottling and distribution rights for the
Philippines" (Exhibit J). Formal negotiations between plaintiff and defendant began at a meeting on November 27, 1947, at the
Manila Hotel, with their lawyers attending. Before this meeting plaintiff's lawyer had prepared the draft of the agreement,
Exhibit II or OO, but this was not satisfactory because a partnership, instead of a corporation, was desired. Defendant's lawyer
prepared after the meeting his own draft, Exhibit HH. This last draft appears to be the main basis of the agreement, Exhibit A.

The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the United States without the
agreement being not first signed. On that day plaintiff and defendant went to the United States, and on December 10, 1947, a
franchise agreement (Exhibit V) was entered into the Mission Dry Corporation and Fortunato F. Halili and/or Charles F.
Woodhouse, granted defendant the exclusive right, license, and authority to produce, bottle, distribute, and sell Mision
beverages in the Philippines. The plaintiff and the defendant thereafter returned to the Philippines. Plaintiff reported for duty in
January, 1948, but operations were not begun until the first week of February, 1948. In January plaintiff was given as advance,
on account of profits, the sum of P2,000, besides the use of a car; in February, 1948, also P2,000, and in March only P1,000. The
car was withdrawn from plaintiff on March 9, 1948.

When the bottling plant was already on operation, plaintiff demanded of defendant that the partnership papers be executed. At
first defendant executed himself, saying there was no hurry. Then he promised to do so after the sales of the product had been
increased to P50,000. As nothing definite was forthcoming, after this condition was attained, and as defendant refused to give
further allowances to plaintiff, the latter caused his attorneys to take up the matter with the defendant with a view to a possible
settlement. as none could be arrived at, the present action was instituted.

In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of the profits, and a share thereof
of 30 per cent, as well as damages in the amount of P200,000. In his answer defendant alleges by way of defense (1) that
defendant's consent to the agreement, Exhibit A, was secured by the representation of plaintiff that he was the owner, or was
about to become owner of an exclusive bottling franchise, which representation was false, and plaintiff did not secure the
franchise, but was given to defendant himself; (2) that defendant did not fail to carry out his undertakings, but that it was
plaintiff who failed; (3) that plaintiff agreed to contribute the exclusive franchise to the partnership, but plaintiff failed to do so.
He also presented a counter-claim for P200,000 as damages. On these issues the parties went to trial, and thereafter the Court
of First Instance rendered judgment ordering defendant to render an accounting of the profits of the bottling and distribution
business, subject of the action, and to pay plaintiff 15 percent thereof. it held that the execution of the contract of partnership
could not be enforced upon the parties, but it also held that the defense of fraud was not proved. Against this judgment both
parties have appealed.

The most important question of fact to be determined is whether defendant had falsely represented that he had an exclusive
franchise to bottle Mission beverages, and whether this false representation or fraud, if it existed, annuls the agreement to form
the partnership. The trial court found that it is improbable that defendant was never shown the letter, Exhibit J, granting plaintiff
had; that the drafts of the contract prior to the final one can not be considered for the purpose of determining the issue, as they
are presumed to have been already integrated into the final agreement; that fraud is never presumed and must be proved; that
the parties were represented by attorneys, and that if any party thereto got the worse part of the bargain, this fact alone would
not invalidate the agreement. On this appeal the defendant, as appellant, insists that plaintiff did represent to the defendant
that he had an exclusive franchise, when as a matter of fact, at the time of its execution, he no longer had it as the same had
expired, and that, therefore, the consent of the defendant to the contract was vitiated by fraud and it is, consequently, null and
void.

Our study of the record and a consideration of all the surrounding circumstances lead us to believe that defendant's contention
is not without merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse presented himself as being the exclusive grantee
of a franchise, thus:

A. I don't recall any discussion about that matter. I took along with me the file of the office with regards to this matter. I
notice from the first draft of the document which I prepared which calls for the organization of a corporation, that the
manager, that is, Mr. Woodhouse, is represented as being the exclusive grantee of a franchise from the Mission Dry
Corporation. . . . (t.s.n., p.518)

As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila Hotel conference on November
27th, expressly states that plaintiff had the exclusive franchise. Thus, the first paragraph states:

Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry Corporation San Francisco,
California, for the bottling of Mission products and their sale to the public throughout the Philippines; . . . .

3. The manager, upon the organization of the said corporation, shall forthwith transfer to the said corporation his
exclusive right to bottle Mission products and to sell them throughout the Philippines. . . . .

(Exhibit II; emphasis ours)

The trial court did not consider this draft on the principle of integration of jural acts. We find that the principle invoked is
inapplicable, since the purpose of considering the prior draft is not to vary, alter, or modify the agreement, but to discover the
intent of the parties thereto and the circumstances surrounding the execution of the contract. The issue of fact is: Did plaintiff
represent to defendant that he had an exclusive franchise? Certainly, his acts or statements prior to the agreement are essential
and relevant to the determination of said issue. The act or statement of the plaintiff was not sought to be introduced to change
or alter the terms of the agreement, but to prove how he induced the defendant to enter into it — to prove the representations
or inducements, or fraud, with which or by which he secured the other party's consent thereto. These are expressly excluded
from the parol evidence rule. (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil., 209; port Banga Lumber Co. vs. Export &
Import Lumber Co., 26 Phil., 602; III Moran 221,1952 rev. ed.) Fraud and false representation are an incident to the creation of a
jural act, not to its integration, and are not governed by the rules on integration. Were parties prohibited from proving said
representations or inducements, on the ground that the agreement had already been entered into, it would be impossible to
prove misrepresentation or fraud. Furthermore, the parol evidence rule expressly allows the evidence to be introduced when
the validity of an instrument is put in issue by the pleadings (section 22, par. (a), Rule 123, Rules of Court),as in this case.

That plaintiff did make the representation can also be easily gleaned from his own letters and his own testimony. In his letter to
Mission Dry Corporation, Exhibit H, he said:.

. . . He told me to come back to him when I was able to speak with authority so that we could come to terms as far as
he and I were concerned. That is the reason why the cable was sent. Without this authority, I am in a poor bargaining
position. . .

I would propose that you grant me the exclusive bottling and distributing rights for a limited period of time, during
which I may consummate my plants. . . .

By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14, 1947. (See Exhibit J.) If this option
for an exclusive franchise was intended by plaintiff as an instrument with which to bargain with defendant and close the deal
with him, he must have used his said option for the above-indicated purpose, especially as it appears that he was able to secure,
through its use, what he wanted.

Plaintiff's own version of the preliminary conversation he had with defendant is to the effect that when plaintiff called on the
latter, the latter answered, "Well, come back to me when you have the authority to operate. I am definitely interested in the
bottling business." (t. s. n., pp. 60-61.) When after the elections of 1949 plaintiff went to see the defendant (and at that time he
had already the option), he must have exultantly told defendant that he had the authority already. It is improbable and
incredible for him to have disclosed the fact that he had only an option  to the exclusive franchise, which was to last thirty days
only, and still more improbable for him to have disclosed that, at the time of the signing of the formal agreement, his option had
already expired. Had he done so, he would have destroyed all his bargaining power and authority, and in all probability lost the
deal itself.

The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement "to secure the
Mission Dry franchise for and in behalf of the proposed partnership." The existence of this provision in the final agreement does
not militate against plaintiff having represented that he had the exclusive franchise; it rather strengthens belief that he did
actually make the representation. How could plaintiff assure defendant that he would get the franchise for the latter if he had
not actually obtained it for himself? Defendant would not have gone into the business unless the franchise was raised in his
name, or at least in the name of the partnership. Plaintiff assured defendant he could get the franchise. Thus, in the draft
prepared by defendant's attorney, Exhibit HH, the above provision is inserted, with the difference that instead of securing the
franchise for the defendant, plaintiff was to secure it for the partnership. To show that the insertion of the above provision does
not eliminate the probability of plaintiff representing himself as the exclusive grantee of the franchise, the final agreement
contains in its third paragraph the following:

. . . and the manager is ready and willing to allow the capitalists to use the exclusive franchise . . .

and in paragraph 11 it also expressly states:

1. In the event of the dissolution or termination of the partnership, . . . the franchise from Mission Dry Corporation shall
be reassigned to the manager.

These statements confirm the conclusion that defendant believed, or was made to believe, that plaintiff was the grantee of an
exclusive franchise. Thus it is that it was also agreed upon that the franchise was to be transferred to the name of the
partnership, and that, upon its dissolution or termination, the same shall be reassigned to the plaintiff.

Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the exclusive franchise, was
to reduce, as he himself testified, plaintiff's participation in the net profits to one half of that agreed upon. He could not have
had such a feeling had not plaintiff actually made him believe that he (plaintiff) was the exclusive grantee of the franchise.

The learned trial judge reasons in his decision that the assistance of counsel in the making of the contract made fraud
improbable. Not necessarily, because the alleged representation took place before the conferences were had, in other words,
plaintiff had already represented to defendant, and the latter had already believed in, the existence of plaintiff's exclusive
franchise before the formal negotiations, and they were assisted by their lawyers only when said formal negotiations actually
took place. Furthermore, plaintiff's attorney testified that plaintiff had said that he had the exclusive franchise; and defendant's
lawyer testified that plaintiff explained to him, upon being asked for the franchise, that he had left the papers evidencing it.
(t.s.n., p. 266.)

We conclude from all the foregoing that plaintiff did actually represent to defendant that he was the holder of the exclusive
franchise. The defendant was made to believe, and he actually believed, that plaintiff had the exclusive franchise. Defendant
would not perhaps have gone to California and incurred expenses for the trip, unless he believed that plaintiff did have that
exclusive privilege, and that the latter would be able to get the same from the Mission Dry Corporation itself. Plaintiff knew what
defendant believed about his (plaintiff's) exclusive franchise, as he induced him to that belief, and he may not be allowed to
deny that defendant was induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of Court.)

We now come to the legal aspect of the false representation. Does it amount to a fraud that would vitiate the contract? It must
be noted that fraud is manifested in illimitable number of degrees or gradations, from the innocent praises of a salesman about
the excellence of his wares to those malicious machinations and representations that the law punishes as a crime. In
consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be a
ground for the annulment of a contract, and the incidental deceit, which only renders the party who employs it liable for
damages. This Court had held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the
incidental (dolo causante), inducement to the making of the contract. (Article 1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil.
160.) The record abounds with circumstances indicative that the fact that the principal consideration, the main cause that
induced defendant to enter into the partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive
franchise to bottle and distribute for the defendant or for the partnership. The original draft prepared by defendant's counsel
was to the effect that plaintiff obligated himself to secure a franchise for the defendant. Correction appears in this same original
draft, but the change is made not as to the said obligation but as to the grantee. In the corrected draft the word
"capitalist"(grantee) is changed to "partnership." The contract in its final form retains the substituted term "partnership." The
defendant was, therefore, led to the belief that plaintiff had the exclusive franchise, but that the same was to be secured for or
transferred to the partnership. The plaintiff no longer had the exclusive franchise, or the option thereto, at the time the contract
was perfected. But while he had already lost his option thereto (when the contract was entered into), the principal obligation
that he assumed or undertook was to secure said franchise for the partnership, as the bottler and distributor for the Mission Dry
Corporation. We declare, therefore, that if he was guilty of a false representation, this was not the causal consideration, or the
principal inducement, that led plaintiff to enter into the partnership agreement.

But, on the other hand, this supposed ownership of an exclusive franchise was actually the consideration or price plaintiff gave
in exchange for the share of 30 percent granted him in the net profits of the partnership business. Defendant agreed to give
plaintiff 30 per cent share in the net profits because he was transferring his exclusive franchise to the partnership. Thus, in the
draft prepared by plaintiff's lawyer, Exhibit II, the following provision exists:

3. That the MANAGER, upon the organization of the said corporation, shall forthwith transfer  to the said
corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. As a
consideration for such transfer, the CAPITALIST shall transfer to the Manager fully paid non assessable shares of the
said corporation . . . twenty-five per centum of the capital stock of the said corporation. (Par. 3, Exhibit II; emphasis
ours.)

Plaintiff had never been a bottler or a chemist; he never had experience in the production or distribution of beverages. As a
matter of fact, when the bottling plant being built, all that he suggested was about the toilet facilities for the laborers.

We conclude from the above that while the representation that plaintiff had the exclusive franchise did not vitiate defendant's
consent to the contract, it was used by plaintiff to get from defendant a share of 30 per cent of the net profits; in other words,
by pretending that he had the exclusive franchise and promising to transfer it to defendant, he obtained the consent of the
latter to give him (plaintiff) a big slice in the net profits. This is the dolo incidente  defined in article 1270 of the Spanish Civil
Code, because it was used to get the other party's consent to a big share in the profits, an incidental matter in the agreement.

El dolo incidental no es el que puede producirse en el cumplimiento del contrato sino que significa aqui, el que
concurriendoen el consentimiento, o precediendolo, no influyo para arrancar porsi solo el consentimiento ni en la
totalidad de la obligacion, sinoen algun extremo o accidente de esta, dando lugar tan solo a una accion para reclamar
indemnizacion de perjuicios. (8 Manresa 602.)

Having arrived at the conclusion that the agreement may not be declared null and void, the question that next comes before us
is, May the agreement be carried out or executed? We find no merit in the claim of plaintiff that the partnership was already
a  fait accompli from the time of the operation of the plant, as it is evident from the very language of the agreement that the
parties intended that the execution of the agreement to form a partnership was to be carried out at a later date. They expressly
agreed that they shall form a partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the time that the franchise from the
Mission Dry Corporation was obtained in California, plaintiff himself had been demanding that defendant comply with the
agreement. And plaintiff's present action seeks the enforcement of this agreement. Plaintiff's claim, therefore, is both
inconsistent with their intention and incompatible with his own conduct and suit.

As the trial court correctly concluded, the defendant may not be compelled against his will to carry out the agreement nor
execute the partnership papers. Under the Spanish Civil Code, the defendant has an obligation to do, not to give. The law
recognizes the individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases. It falls within
what Spanish commentators call a very personal  act (acto personalismo), of which courts may not compel compliance, as it is
considered an act of violence to do so.

Efectos de las obligaciones consistentes en hechos personalismo.—Tratamos de la ejecucion de las obligaciones de

hacer en el solocaso de su incumplimiento por parte del deudor, ya sean los hechos personalisimos, ya se hallen en la
facultad de un tercero; porque el complimiento espontaneo de las mismas esta regido por los preceptos relativos al
pago, y en nada les afectan las disposiciones del art. 1.098.

Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor puede ser precisado a realizar el hecho
y porque medios.

Se tiene por corriente entre los autores, y se traslada generalmente sin observacion el principio romano nemo potest
precise cogi ad factum. Nadie puede ser obligado violentamente a haceruna cosa. Los que perciben la posibilidad de la
destruccion deeste principio, añaden que, aun cuando se pudiera obligar al deudor, no deberia hacerse, porque esto
constituiria una violencia, y noes la violenciamodo propio de cumplir las obligaciones (Bigot, Rolland, etc.). El maestro
Antonio Gomez opinaba lo mismo cuandodecia que obligar por la violencia seria infrigir la libertad eimponer una
especie de esclavitud.
 xxx     xxx     xxx

En efecto; las obligaciones contractuales no se acomodan biencon el empleo de la fuerza fisica, no ya precisamente
porque seconstituya de este modo una especie de esclavitud, segun el dichode Antonio Gomez, sino porque se supone
que el acreedor tuvo encuenta el caracter personalisimo del hecho ofrecido, y calculo sobre laposibilidad de que por
alguna razon no se realizase. Repugna,ademas, a la conciencia social el empleo de la fuerza publica, mediante coaccion
sobre las personas, en las relaciones puramente particulares; porque la evolucion de las ideas ha ido poniendo masde
relieve cada dia el respeto a la personalidad humana, y nose admite bien la violencia sobre el individuo la cual tiene
caracter visiblemente penal, sino por motivos que interesen a la colectividad de ciudadanos. Es, pues, posible y licita
esta violencia cuando setrata de las obligaciones que hemos llamado ex lege, que afectanal orden social y a la entidad
de Estado, y aparecen impuestas sinconsideracion a las conveniencias particulares, y sin que por estemotivo puedan
tampoco ser modificadas; pero no debe serlo cuandola obligacion reviste un interes puramente particular, como
sucedeen las contractuales, y cuando, por consecuencia, paraceria salirseel Estado de su esfera propia, entrado a
dirimir, con apoyo dela fuerza colectiva, las diferencias producidas entre los ciudadanos. (19 Scaevola 428, 431-432.)

The last question for us to decide is that of damages,damages that plaintiff is entitled to receive because of defendant's refusal
to form the partnership, and damages that defendant is also entitled to collect because of the falsity of plaintiff's representation.
(Article 1101, Spanish Civil Code.) Under article 1106 of the Spanish Civil Code the measure of damages is the actual loss suffered
and the profits reasonably expected to be received, embraced in the terms daño emergente  and lucro cesante. Plaintiff is
entitled under the terms of the agreement to 30 per cent of the net profits of the business. Against this amount of damages, we
must set off the damage defendant suffered by plaintiff's misrepresentation that he had obtained a very high percentage of
share in the profits. We can do no better than follow the appraisal that the parties themselves had adopted.

When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which he pretended he had and which
he had agreed to transfer to the partnership, his spontaneous reaction was to reduce plaintiff's share form 30 per cent to 15 per
cent only, to which reduction defendant appears to have readily given his assent. It was under this understanding, which
amounts to a virtual modification of the contract, that the bottling plant was established and plaintiff worked as Manager for the
first three months. If the contract may not be considered modified as to plaintiff's share in the profits, by the decision of
defendant to reduce the same to one-half and the assent thereto of plaintiff, then we may consider the said amount as a fair
estimate of the damages plaintiff is entitled to under the principle enunciated in the case of Varadero de Manila vs. Insular
Lumber Co., 46 Phil. 176. Defendant's decision to reduce plaintiff's share and plaintiff's consent thereto amount to an admission
on the part of each of the reasonableness of this amount as plaintiff's share. This same amount was fixed by the trial court. The
agreement contains the stipulation that upon the termination of the partnership, defendant was to convey the franchise back to
plaintiff (Par. 11, Exhibit A). The judgment of the trial court does not fix the period within which these damages shall be paid to
plaintiff. In view of paragraph 11 of Exhibit A, we declare that plaintiff's share of 15 per cent of the net profits shall continue to
be paid while defendant uses the franchise from the Mission Dry Corporation.

With the modification above indicated, the judgment appealed from is hereby affirmed. Without costs.

Paras, C.J., Pablo, Bengzon, Tuason, Montemayor, Reyes, Jugo and Bautista Angelo, JJ., concur.
CASE #2:

G.R. No. L-10394           December 13, 1958

CLAUDINA VDA. DE VILLARUEL, ET AL., plaintiffs-appellees,

vs.
MANILA MOTOR CO., INC. and ARTURO COLMENARES, defendants-appellants.

Hilado and Hilado for appellees.

Ozaeta, Gibbs and Ozaeta for appellant company.
Jose L. Gamboa and Napoleon Garcia for appellant Arturo Colmenares.

REYES, J. B. L., J.:

Manila Motor Co., Inc., and Arturo Colmenares interpose this appeal against the decision of the Court of First Instance of Negros
Occidental, in its Civil Case No. 648, ordering the defendant Manila Motor Co., Inc. to pay to the plaintiffs Villaruel the sum of (a)
P11,900 with legal rest from May 18, 1953, on which date, the court below declared invalid the continued operation of the Debt
Moratorium, under the first cause of action; (b) P38,395 with legal interest from the date of filing of the original complaint on
April 26, 1947, on the second cause of action; and against both the Manila Motor Co., Inc. and its co-defendant, Arturo
Colmenares, the sum of P30,000 to be paid, jointly and severally, with respect to the third cause of action.

On May 31, 1940, the plaintiffs Villaruel and the defendant Manila Motor Co., Inc. entered into a contract (Exhibit "A") whereby,
the former agreed to convey by way of lease to the latter the following described premises;

(a) Five hundred (500) square meters of floor space of a building of strong materials for automobile showroom, offices,
and store room for automobile spare parts;

(b) Another building of strong materials for automobile repair shop; and

(c) A 5-bedroom house of strong materials for residence of the Bacolod Branch Manager of the defendant company.

The term of the lease was five (5) years, to commence from the time that the building were delivered and placed at the disposal
of the lessee company, ready for immediate occupancy. The contract was renewable for an additional period of five (5) years.
The Manila Motor Company, in consideration of the above covenants, agreed to pay to the lessors, or their duly authorized
representative, a monthly rental of Three Hundred (P300) pesos payable in advance before the fifth day of each month, and for
the residential house of its branch manager, a monthly rental not to exceed Fifty (P50) pesos "payable separately by the
Manager".

The leased premises were placed in the possession of the lessee on the 31st day of October, 1940, from which date, the period
of the lease started to run under their agreement.

This situation, the Manila Motor Co., Inc. and its branch manager enjoying the premises, and the lessors receiving the
corresponding rentals as stipulated, continued until the invasion of 1941; and shortly after the Japanese military occupation of
the Provincial Capital of Bacolod the enemy forces held and used the properties leased as part of their quarters from June 1,
1942 to March 29, 1945, ousting the lessee therefrom. No payment of rentals were made at any time during the said period.

Immediately upon the liberation of the said city in 1945, the American Forces occupied the same buildings that were vacated by
the Japanese, including those leased by the plaintiffs, until October 31, 1945. Monthly rentals were paid by the said occupants to
the owners during the time that they were in possession, as the same rate that the defendant company used to pay.

Thereafter, when the United States Army finally gave up the occupancy the premises, the Manila Motor Co., Inc., through their
branch manager, Rafael B. Grey, decided to exercise their option to renew the contract for the additional period of five (5) years,
and the parties, agreed that the seven months occupancy by the U. S. Army would not be counted as part of the new 5-year
term. Simultaneously with such renewal, the company sublet the same buildings, except that used for the residence of the
branch manager, to the other defendant, Arturo Colmenares.

However, before resuming the collection of rentals, Dr. Alfredo Villaruel, who was entrusted with the same, consulted Atty. Luis
Hilado on whether they (the lessors) had the right to collect, from the defendant company, rentals corresponding to the time
during which the Japanese military forces had control over the leased premises. Upon being advised that they had such a right,
Dr. Villaruel demanded payment thereof, but the defendant company refused to pay. As a result, Dr. Villaruel gave notice
seeking the rescission of the contract of lease and the payment of rentals from June 1, 1942 to March 31, 1945 totalling P11,900.
This was also rejected by the defendant company in its letter to Villaruel, dated July 27, 1946.

Sometime on that same month of July, Rafael B. Grey offered to pay to Dr. Villaruel the sum of P350, for which, tenderer
requested a receipt that would state that it was in full payment for the said month. The latter expressed willingness to accept
the tendered amount provided, however, that his acceptance should be understood to be without prejudice to their demand for
the rescission of the contract, and for increased rentals until their buildings were returned to them. Later, Dr. Villaruel indicated
his willingness to limit the condition of his acceptance to be that "neither the lessee nor the lessors admit the contention of the
other by the mere fact of payment". As no accord could still be reached between the parties as to the context of the receipt, no
payment was thereafter tendered until the end of November, 1946. On December 4, 1946 (the day after the defendant company
notified Dr. Villaruel by telegram, that it cancelled the power of attorney given to Grey, and that it now authorized Arturo
Colmenares, instead, to pay the rent of P350 each month), the Manila Motor Co., Inc. remitted to Dr. Villaruel by letter, the sum
of P350.00. For this payment, the latter issued a receipt stating that it was "without prejudice" to their demand for rents in
arrears and for the rescission of the contract of lease.

After it had become evident that the parties could not settle their case amicably, the lessors commenced this action on April 26,
1947 with the Court of First Instance of Negros Occidental against the appellants herein. During the pendency of the case, a fire
originating from the projection room of the City Theatre, into which Arturo Colmenares, (the sublessee) had converted the
former repair shop of the Manila Motor Co. Inc., completely razed the building, engulfing also the main building where
Colmenares had opened a soda fountain and refreshment parlor, and made partitions for store spaces which he rented to other
persons.

Because of the aforesaid occurrence, plaintiffs demanded reimbursement from the defendants, but having been refused, they
filed a supplemental complaint to include as their third cause of action, the recovery of the value of the burned buildings.

Defendants filed their amended answer and also moved for the dismissal of the plaintiffs' first and second causes of action
invoking the Debt Moratorium that was then in force. The dismissal was granted by the trial court on February 5, 1951, but
hearing was set as regards the third cause of action.

On August 11, 1952, the defendant company filed a motion for summary judgment dismissing the plaintiffs, third cause of
action, to which plaintiffs registered objection coupled with a petition for reconsideration of the order of the court dismissing
the first and second causes of action. Pending the resolution of this incident, plaintiffs, on October 2, 1953, called the court's
attention to the decision in the case of Rutter vs. Esteban (93 Phil., 68; 49 Off. Gaz. [5] 1807) invalidating the continued
effectivity of the Moratorium Law (R. A. 342). On November 25, 1953, the trial court denied the defendant company's motion for
summary judgment and set aside its previous order dismissing the first and second causes of action. The case was accordingly
heard and thereafter, judgment was rendered in plaintiffs' favor in the terms set in the opening paragraph of this decision.
Thereafter, the defendants regularly appealed to this Court.

The defendants-appellants raise a number of procedural points. The first of these relates to their contention that the
supplemental complaint which included a third cause of action, should not have been admitted, as it brought about a change in
the original theory of the case and that it raised new issues not theretofore considered. This argument cannot be sustained
under the circumstances. This action was inceptionally instituted for the rescission of the contract of lease and for the recovery
of unpaid rentals before and after liberation. When the leased buildings were destroyed, the plaintiffs-lessors demanded from
the defendants-lessees, instead, the value of the burned premises, basing their right to do so on defendants' alleged default in
the payment of post-liberation rentals (which was also their basis in formerly seeking for rescission). This cannot be considered
as already altering the theory of the case which is merely a change in the relief prayed for, brought about by circumstances
occurring during the pendency of the action, and is not improper. (Southern Pacific Co. vs. Conway, 115 F. 2d 746; Suburban
Improvement Company vs. Scott Lumber Co., 87 A.L.R. 555, 59 F. 2d 711). The filing of the supplements complaint can well be
justified also under section 2, Rule 17 of the Rules of Court (on amendments) "to the end that the real matter in dispute and all
matters in the action in dispute between the parties may, as far as possible be completely determined in a single proceedings". It
is to be noted furthermore, that the admission or rejection of this kind of pleadings is within the sound discretion of the court
that will not be disturbed on appeal in the absence of abuse thereof (see Sec. 5, Rule 17, Rules of Court), especially so, as in this
case, where no substantial procedural prejudice is caused to the adverse party.

It is urged that the dismissal of the first and second causes of action on February 5, 1951 had the effect of a dismissal "with
prejudice" as the court did not make any qualification in its dismissal order. Appellants, apparently, lost sight of the fact that the
dismissal was premised on the existence of the "Debt Moratorium" which suspended the enforcement of the obligation up to a
certain time. The reference thereto by the lower court amounted to a dismissal "without prejudice", since in effect it ruled that
the plaintiffs could not, at the time they sought it, enforce their right of action against the defendants, but plaintiffs must wait
until the moratorium was lifted. In this way, the court qualified its dismissal.

Taking up the case on its merits, it is readily seen that the key to the entire dispute is the question whether the defendant-
appellant Manila Motor Co., Inc. should be held liable for the rentals of the premises leased corresponding to the lapse of time
that they were occupied as quarters or barracks by the invading Japanese army, and whether said appellant was placed in
default by its refusal to comply with the demand to pay such rents. For if the Motor Company was not so liable, then it never
was in default nor was it chargeable for the accidental lose of the buildings, nor for any damages except the rental at the
contract rate from its reoccupation of the premises leased until the same were accidentally destroyed by fire on March 2, 1948.

The appellees contended, and the court below has held, that the ouster of the least company by the Japanese occupation forces
from 1942 until liberation, while operating to deprive the lessee of the enjoyment of the thing leased, was, nevertheless, a mere
act of trespass ("perturbacion de mero hecho") that, under the Spanish Civil Code of 1889 (in force here until 1950), did not
exempt the lessee from the duty to pay rent. We find that contention and ruling erroneous and untenable.

The pertinent articles of the Civil Code of Spain of 1889 provide:

ART. 1554. It shall be the duty of the lessor;

1. To deliver to the lessee the thing which is the subject matter of the contract;
 2. To make thereon, during the lease, all repairs necessary in order to keep it in serviceable condition for the purpose
for which it was intended;

3. To maintain the lessee in the peaceful enjoyment of the lease during the entire term of the contract.

ART. 1560. The lessor shall not be liable for any act of mere disturbance of a third person of the use of the leased
property; but the lessee shall have a direct action against the trespasser.

It the third person, be it the Government or a private individual, has acted in reliance upon a right, such action shall not
be deemed a mere act of disturbance. (Emphasis supplied)

Under the first paragraph of article 1560 the lessor does not answer for a mere act of trespass ( perturbacion de mero hecho) as
distinguished from trespass under color of title (  perturbacion de derecho). As to what would constitute a mere act of trespass,
this Court in the case of Goldstein vs. Roces (34 Phil. 562), made this pronouncement:

Si el hecho perturbador no va acompañado ni precedido de nada que revele una intencion propiamente  juridica en el
que lo realiza, de tal suerte que el arrendatario solo pueda apreciar el hecho material desnudo de toda forma o
motivacion de derecho, entendemos que se trata de una perturbacion de mero hecho.

Upon the basis of the distinction thus established between the perturbacion de hecho and the perturbacion de derecho, it is
demonstrable that the ouster of the appellant by the Japanese occupying forces belongs to the second class of disturbances, de
derecho. For under the generally accepted principles of international law (and it must be remembered that those principles are
made by our Constitution a part of the law of our nation 1) a belligerent occupant (like the Japanese in 1942-1945) may
legitimately billet or quarter its troops in privately owned land and buildings for the duration of its military operations, or as
military necessity should demand. The well known writer Oppenheim, discoursing on the laws of war on land, says upon this
topic;

Immovable private enemy property may under no circumstances or conditions be appropriated by an invading
belligerent. Should he confiscate and sell private land or buildings, the buyer would acquire no right whatever to the
property. Article 46 of the Hague Regulations expressly enacts that "private property may not be confiscated." But
confiscation differs from the temporary use of private land and building for all kinds of purposes demanded by the
necessities of war. What has been said above with regard to utilization of public buildings applied equally to private
buildings. If necessary, they maybe converted into hospital barracks, and stables without compensation for the
proprietors, and they may also be converted into fortifications. A humane belligerent will not drive the wretched
inhabitants into the street if he can help it. But under the pressure of necessity he may be obliged to do this, and he is
certainly not prohibited from doing it. (Emphasis supplied) (Oppenheim & Lauterpach, International Law, Vol. II, p. 312,
1944 Ed.)

The view thus expressed is concurred in by other writers. Hyde (International Law, Vol. 3, p. 1893, 2nd Rev. Ed.) quotes the U. S.
War Department 1940 Rules of Land Warfare (Rule No. 324) to the effect that —

The measure of permissible devastation is found in the strict necessities of war. As an end in itself, as a separate
measure of war, devastation is not sanctioned by the law of war. There must be some reasonably close connection
between the destruction of property and the overcoming of the enemy's army. Thus the rule requiring respect for
private property is not violated through damage resulting from operations, movements, or combats of the army; that is,
real estate may be utilized for marches, camp sites, construction of trenches, etc. Buildings may be used for shelter for
troops, the sick and wounded, for animals, for reconnaissance, cover defense, etc. Fence, woods, crops, buildings, etc.,
may be demolished, cut down, and removed to clear a field of fire, to construct bridges, to furnish fuel if imperatively
needed for the army. (Emphasis supplied)

Reference may also be made to Rule 336:

What may be requisitioned. — Practically everything may be requisitioned under this article (art. LII of the regulations
above quoted) that is necessary for the maintenance of the army and not of direct military use, such as fuel, food,
forage, clothing, tobacco, printing presses, type, leather, cloth, etc. Billeting of troops for quarters and subsistence is
also authorized. (Emphasis supplied)

And Forest and Tucker state:

The billegerent occupant may destroy or appropriate public property which may have a hostile purpose, as forts, arms,
armories, etc. The occupying force may enjoy the income from the public sources. Strictly private property should be
 inviolable, except so far as the necessity of war requires contrary action. (Forest and Tucker, International Law, 9th Ed.,
p. 277) (Emphasis supplied)

The distinction between confiscation and temporary sequestration of private property by a belligerent occupant was also passed
upon by this Court in Haw Pia vs. China Banking Corporation, 80 Phil. 604, wherein the right of Japan to sequester or take
temporary control over enemy private property in the interest of its military effort was expressly recognized.

We are thus forced to conclude that in evicting the lessee, Manila Motor Co., Inc. from the leased buildings and occupying the
same as quarters for troops, the Japanese authorities acted pursuant to a right recognized by international and domestic law. Its
act of dispossession, therefore, did not constitute perturbacion de hecho but a  perturbacion de derecho  for which the lessors
Villaruel (and not the appellants lessees) were liable (Art. 1560, supra) and for the consequences of which said lessors must
respond, since the result of the disturbance was the deprivation of the lessee of the peaceful use and enjoyment of the property
leased. Wherefore, the latter's corresponding obligation to pay rentals ceased during such deprivation.

The Supreme Court of Spain, in its Sentencia of 6 December 1944, squarely declared the resolutory effect of the military
sequestration of properties under lease upon the lessee's obligation to pay rent (Jurisprudencia Civil, Segunda Serie, Tomo 8, pp.
583, 608):.

Considerando que para resolver acerca de la procedencia del presente recurso es preciso partir de las bases de hecho
sentadas en la sentencia recurrida, y no impugnadas al amparo del numero 7. del articulo 1.692 de la Ley de
Enjuiciamiento civil, es decir, de que hallandose vigente el contrato de arrendamiento celebrado entre actor y
demandada, en fecha que no se precisa, entre los dias del 18 al 31 de julio de 1936, los locales objeto de dicho contrato
de arrendamiento, y en los que no funcionaba de tiempo anterior la industria para cuyo ejercicio se arrendaron, fueron
requisados por el Ejercito Nacional, con motivo de la guerra civil, para que se instalara en los mismos la Junta de
Donativos al Ejercito del Sur, aun cundo en dicha incautacion, que se hizo a la propiedad de la finca, no se observaron
las formalidades legales, a causa de las circunstancias extraordinarias por que a la sazon atravesaba Sevilla, hecho que
no consta se hiciera saber por los arrendatarios demandados al actor, pero que fue notorio en aquella capital, donde
residia el actor, que de el debio tener conocimiento. Se estima igualmente por la Sala que el hecho de que la industria
no funcionara en el local no tuvo influencia alguna sobre su incautacion por el Ejercito.

Considerando que sobre tales bases de hecho es de desestimar el primer motivo del recurso: violacion de los articulos
1.254, 1.278 y 1.091 del Codigo civil, que sancionan, en terminos generales, la eficacia de los contratos, puesto que en
el presente caso de los que se trata en definitiva es de determinar si por virtud de fuerza mayor, la requisa a que se
hace referencia, ajena, por lo tanto, a culpa, asi del arrendatario como del arrendador, se vio aquel privado del posible
disfrute de la finca arrendada, y de si por virtud de esta circunstancia esta o no exento de la obligacion de abonar la
renta pactada durante el tiempo que subsistio la incautacion; y es indudable la afirmativa en cuanto al primer extremo,
puesto que la sentencia recurrida establece que el hecho de que no funcionase la industria y estuvieran los locales
cerrados no actuo como causa de la requisa de estos por el Ejercito.

Considerando que la sentencia recurrida, en cuanto no da lugar al pago de las rentas correspondientes al tiempo que
duro la incautacion, lejos de infringir, por aplicacion indebida, el art. 1.568 del Codigo civil, se ajusta la orientacion
marcada en el mismo, puesto que este precepto legal dispone que el arrendatario tiene accion contra el tercero
perturbador de mero hecho en la posesion de la finca arrendada, pero no contra la Administracion o contra los que
obran en virtud de un derecho que les corresponde; y aqui la perturbacion que experimento el arrendador en su
posesion, como consecuencia de la requisa, no puede calificarse como de mero hecho, conforme al citado articulo,
puesto que la finca fue requisada por la autoridad militar para fines de guerra, de donde se sigue que el arrendatario
tenia que soportar la privacion de su tenencia material a traves del arrendador, con quien ha de entenderse la requisa
de la cosa arrendada.

In addition, the text of Art. 1560, in its first paragraph ( jam quot.) assumes that in case of mere disturbance (  perturbacion de
mero hecho) "the lessee shall have a direct action against the trespasser." This assumption evidently does not contemplate the
case of dispossession of the lessee by a military occupant, as pointed out by Mr. Chief Justice Paras in his dissenting opinion
in Reyes vs. Caltex (Phil.) Inc., 84 Phil. 669; for the reason that the lessee could not have a direct action against the military
occupant. It would be most unrealistic to expect that the occupation courts, place under the authority of the occupying
belligerent, should entertain at the time a suit for forcible entry against the Japanese army. The plaintiffs, their lawyers, and in
all probability, the Judge and court personnel, would face "severest penalties" for such defiance of the invader.

The present case is distinguishable from Lo Ching vs. Archbishop of Manila (81 Phil., 601) in that the act of the Japanese military
involved in the latter case clearly went beyond the limits set by the Hague Conventions, in seizing the property and delivering it
to another private party; and from Reyes vs. Caltex (Phil.) Inc., 84 Phil. 654, in that the rights of the military occupant under
international law were not raised or put in issue in said case; and moreover, the lessee there, by failing to rescind the lease upon
seizure of the premises by the Japanese military, despite the stipulated power to do so, resumed business and decided to hold
unto the long term lease for the balance of its 20-year period, starting from December 23, 1940. In the case before us, the
occupation of the leased property by the Japanese army covered the major portion of the five-year contractual period, without
any option to rescind by the lessee.

The lessor's position is not improved by regarding the military seizure of the property under lease as a case of  force majeure or
fortuitous event. Ordinarily, a party may not be held responsible therefor, despite the fact that it prevented compliance of its
obligations. But lease being a contract that calls for prestations that are both reciprocal and repetitive (tractum successivum),
the obligations of either party are not discharged at any given moment, but must be fulfilled all throughout the term of the
contract. As a result, any substantial failure by one party to fulfill its commitments at any time during the contract period gives
rise to a failure of consideration (causa) for the obligations of the other party and excuses the latter from the correlative
performance, because the causa in lease must exist not only at the perfection but throughout the term of the contract. No
lessee would agree to pay rent for premises he could not enjoy. As expressed by Marcel Planiol (quoted in 4 Castan, Derecho
Civil, 7th Edition, p. 264) —

Como la obligacion del arrendador es sucesiva y se renueva todos los dias, la subsistencia del arrendamiento se hace
imposible cuando, por cualquier razon, el arrendador no puede ya procurar al arrendatario el disfrute de la cosa.

This effect of the failure of reciprocity appears whether the failure is due to fault or to fortuitous event; the only difference being
that in case of fault, the other party is entitled to rescind the contract in toto, and collect damages, while in casual non-
performance it becomes entitled only to a suspension  pro tanto of its own commitments. This rule is recognized in par. 2 of Art.
1558, authorizing the lessee to demand reduction of the rent in case of repairs depriving him of the possession of part of the
property; and in Art. 1575, enabling the lessee of rural property to demand reduction of the rent if more than one-half of the
fruits are lost by extraordinary fortuitous event. Of course, where it becomes immediately apparent that the loss of possession
or enjoyment will be permanent, as in the case of accidental destruction of a leased building, the lease contract terminates.

Applying these principles, the Sentencia of December 1944, already adverted to, ruled as follows:

Considerando que privado el arrendador, por tal hecho, del disfrute de esta, es manifiesta la imposibilidad en que se vio
de cumplir la tercera de las obligaciones que el impone el articulo 1.554 del Codigo Civil, obligacion (la de mantener al
arrendatario en el disfrute de la cosa arrendada) que ha de entenderse reciproca de la de pago de renta pactada, que
impone al arrendatario el numero primero del art. 1.555 de dicho Cuerpo legal, y por ello no puede ser exigida.

Considerando que, aunque no sean estrictamente aplicables al caso los articulos 1.124, 1.556 y 1.568, que se citan
como infringidos por el recurrente, suponiendo que a ellos ha entendido referirse la Audiencia (lo que impediria, en
todo caso, la estimacion del recurso por este motivo, ya que dichos articulos no se citan en la sentencia de instancia), es
evidente que ellos proclaman la reciprocidad de las obligaciones entre arrendatario y arrendador, y en este sentido,
tratandose de un incumplimiento inculpable decontrato, pueden servir, como tambien el 1.558, en cuanto preven la
reduccion de rentas o posible restriccion del contrato cuando el arrendatario se ve privado, por obras realizadas en la
finca arrendada, del disfrute de este, de fundamento, con los demas preceptos invocados, a una extencion de renta
mientras subsiste la imposibilidad de utilizar la cosa arrendada, sobre todo cuando los articulos 157 y 158 del
Reglamento de Requisas de 13 de enero de 1921 estatuyen claramente que las requisas de edificio se hacen a la
propiedad, y es el propietario el que puede pedir indemnization, uno de cuyos elementos es el precio del alquiler que le
sea satisfecho por el inmueble incautado.

We are aware that the rule in the common law is otherwise, due to its regarding a lease as a conveyance to the lessee of a
temporary estate or title to the leased property so that loss of possession due to war or other fortuitous event leaves the tenant
liable for the rent in the absence of stipulation. The fundamental difference between the common law and the civil law concepts
has been outlined by the United States in Viterbo vs. Friedlander, 30 L. Ed. (U.S.) pp. 776, 778, in this wise:

But as to the nature and effect of a lease for years, at a certain rent which the lessee agrees to pay, and containing no
express covenant on the part of the lessor, the two systems differ materially. The common law regards such a lease as
the grant of an estate for years, which the lessee takes a title in, and is bound to pay the stipulated rent for,
notwithstanding any injury by flood, fire or external violence, at least unless the injury is such a destruction of the land
as to amount to an eviction; and by that law the lessor is under no implied covenant to repair, or even that the
premises shall be fit for the purpose for which they are leased. Fowler vs. Bott, 6 Mass. 63; 3 Kent, Com. 465, 466;
Broom, Legal Maxims, 3d ed. 213, 214; Doupe vs. Genin, 45 N. Y. 119; Kingbury vs. Westfall, 61 N. Y. 356. Naumberg vs.
Young, 15 Vroom, 331; Bowe vs. Hunking, 135 Mass. 380; Manchester Warehouse Co. vs. Carr, L.R. 5 C.P.D. 507.

The civil law, on the other hand, regards a lease for years as a mere transfer of the use and enjoyment of the property;
and holds the landlord bound, without any express covenant, to keep it in repair and otherwise fit for use and
 enjoyment for the purpose for which it is leased, even when the need of repair or the unfitness is caused by an
inevitable accident, and if he does not do so, the tenant may have the lease annulled, or the rent abated. Dig. 19, 2, 9,
2; 19, 2, 15, 1, 2; 19, 2, 25, 2; 19, 2, 39; 2 Gomez, Variae Resolutiones c. 3, secs. 1-3, 18, 19: Gregorio Lopez in 5 Partidas,
tit. 8, 11. 8, 22; Domat, Droit Civil, pt. 1, lib. 1, tit. 4, sec. 1, no. 1; sec. 3 nos. 1, 3, 6, Pothier, Contract de Louage, nos. 3,
6, 11, 22, 53, 103, 106, 139-155.

It is accordingly laid down in the Pandects, on the authority of Julian, "If anyone has let an estate, that, even if anything
happens by vis major, he must make it good, he must stand by his contract," si quis fundum locaverit, ut, etiamsi quid vi
majore accidisset, hoc ei praestaretur, pacto standum esse; Dig. 19, 2, 9, 2; and on the authority of Ulpian, that "A lease
does not change the ownership," non solet locatio dominiun mutare; Dig. 19, 2, 39; and that the lessee has a right of
action, if he cannot enjoy the thing which he has hired, si re quam conduxit frui non liceat, whether because his
possession, either of the whole or of part of the field, is not made good, or a house, or stable or sheepfold, is not
repaired; and the landlord ought to warrant the tenant, dominum colono praestare debere, against every irresistible
force, omnim vim cui resisti non potest, such as floods, flocks of birds, or any like cause, or invasion of enemies; and if
the whole crop should be destroyed by a heavy rainfall, or the olives should be spoiled by blight, or by extraordinary
heat of the sun, solis fervore non assueto, it would be the loss of the landlord, damnum domini futurum; and so if the
field falls in by an earthquake, for there must be made good to the tenant a field that he can enjoy, oportere enim
agrum praestari conductori, ut frui possit; but if any loss arises from defects in the thing itself, si qua tamen vitia ex ipsa
re oriantur, as if wine turns sour, or standing corn is spoiled by worms or weeds, or if nothing extraordinary happens, si
vero nihil extra consuetudinem acciderit, it is the loss of the tenant, damnum coloni esse. Dig. 19, 2; 15, 1, 2. (Emphasis
supplied)

In short, the law applies to leases the rule enunciated by the Canonists and the Bartolist School of Post glossatorse, that
"contractus qui tractum successivum habent et dependentiam de futuro, sub conditione rebus sic stantibus intelliguntur," they
are understood entered subject to the condition that things will remain as they are, without material change.

It is also worthy of note that the lessors, through Dr. Javier Villaruel, agreed after liberation to a renewal of the contract of lease
for another five years (from June 1, 1946 to May 31 of 1951) without making any reservation regarding the alleged liability of the
lessee company for the rentals corresponding to the period of occupancy of the premises by the Japanese army, and without
insisting that the non-payment of such rental was a breach of the contract of lease. This passivity of the lessors strongly supports
the claim of the lessees that the rentals in question were verbally waived. The proffered explanation is that the lessors could not
refuse to renew the lease, because the privilege of renewal had been granted to the lessees in the original contract. Such excuse
is untenable: if the lessors deemed that the contract had been breached by the lessee's non-payment of the occupation rents
how could they admit the lessee's right to renew a contract that the lessee itself had violated?

But this is not all. The lessors accepted payment of current rentals from October 1945 to June 1946. It was only in July 1946 that
they insisted upon collecting also the 1942-1945 rents, and refused to accept further payments tendered by the lessee unless
their right to collect the occupation rental was recognized or reserved. After refusing the rents from July to November 1946,
unless the lessee recognized their right to occupation rentals, the appellees (lessors) demanded rescission of the contract and a
rental of P1,740 monthly in lieu of the stipulated P350 per month. (Exhibit "C").

This attitude of the lessors was doubly wrongful: first, because as already shown, the dispossession by the Japanese army
exempted the lessee from his obligation to pay rent for the period of its ouster; and second, because even if the lessee had been
liable for that rent, its collection in 1946 was barred by the moratorium order, Executive Order No. 32, that remained in force
until replaced by Rep. Act 342 in 1948. To apply the current rentals to the occupation obligations would amount to enforcing
them contrary to the moratorium decreed by the government.

Clearly, then, the lessor' insistence upon collecting the occupation rentals for 1942-1945 was unwarranted in law. Hence, their
refusal to accept the current rentals without qualification placed them in default (mora creditoris or accipiendi) with the result
that thereafter, they had to bear all supervening risks of accidental injury or destruction of the leased premises. While not
expressly declared by the Code of 1889, this result is clearly inferable from the nature and effects of mora, and from Articles
1185, 1452 [par. 3] and 1589).

ART. 1185. When the obligation to deliver a certain and determinate thing arises from the commission of a crime or
misdemeanor the obligor shall not be exempted from the payment of its value, whatever the cause of its loss may have
been, unless, having offered the thing to the person entitled to receive it, the latter should have refused without reason
to accept it.

Art. 1452. . . . .
 If fungible things should be sold for a price fixed with relation to weight, number, or measure, they shall not be at the
purchaser's risk until they have been weighed, counted, or measured, unless the purchaser should be in default.

ART. 1589. If the person who contracted to do the work bound himself to furnish the materials, he shall bear the loss in
case of the destruction of the work before it is delivered, unless its acceptance has been delayed by the default of the
other party.

While there is a presumption that the loss of the thing leased is due to the fault of the lessee (Civil Code of 1889, Art. 1563), it is
noteworthy that the lessor have not invoked that presumption either here or in the court below. On the contrary, the parties
and the trial court have all proceeded and discussed the issues taking for granted that the destruction of the leased buildings
was purely fortuitous. We see no reason for departing from that assumption and further prolonging this litigation..

That the lessee and sublessee did not consign or deposit in court the rentals tendered to and improperly rejected by the lessors,
did not render the debtor liable for default (mora solvendi) nor answerable for fortuitous events because, as explained by the
Supreme Court of Spain in its Sentencia of 5 June 1944 —

Al exigir el art. 1176 del Codigo Civil la consignacion para liberar al deudor no quiere decir que necesariamente haya de
practicarse, y no baste el ofrecimiento de pago que de aquella no fuere seguido, a efectos de exclusion de las consecuencias de
la mora solvendi. (8 Manresa, Comentarios, 5th Ed., Vol. 1, p. 136).

In other words, the only effect of the failure to consign the rentals in court was that the obligation to pay them subsisted
(P.N.B. vs. Relativo, 92 Phil., 203) and the lessee remained liable for the amount of the unpaid contract rent, corresponding to
the period from July to November, 1946; it being undisputed that, from December 1946 up to March 2, 1948, when the
commercial buildings were burned, the defendants-appellants have paid the contract rentals at the rate of P350 per month. But
the failure to consign did not eradicate the default (mora) of the lessors nor the risk of loss that lay upon them. (3 Castan, Der.
Civ., 8th Ed., p. 145; 4 Puig Peña, Der. Civ., part. 1, p. 234; Diaz Pairo, Teoria Gen. de las Obligaciones [3rd Ed.], Vol. 1, pp. 192-
193).

In view of the foregoing, we hold:lawphil.net

(a) That the dispossession of the lessee from the premises by the Japanese army of occupation was not an act of mere trespass
( perturbacion de mero hecho) but one de derecho chargeable to the lessors;

(b) That such dispossession, though not due to fault of lessors or lessee, nevertheless resulted in the exemption of the lessee
from its obligation to pay rent during the period that it was deprived of the possession and enjoyment of the premises leased;

(c) That the insistence of the lessors to collect such rentals was unwarranted;

(d) That the lessors were not justified in refusing to accept the tender of current rentals unless the lessee should recognize their
right to the rents corresponding to the period that the lessee was not in possession;

(e) That by their improper refusal to accept the current rents tendered by the lessee, the lessors incurred in default (mora) and
they must shoulder the subsequent accidental loss of the premises leased;

(f) That the mora of the lessors was not cured by the failure of the lessee to make the consignation of the rejected payments,
but the lessee remained obligated to pay the amounts tendered and not consigned by it in court.

Consequently, it was reversible error to sentence the appellants to pay P2,165 a month as reasonable value of the occupation of
the premises from July 1946, and the value of the destroyed buildings amounting to P30,000.

Wherefore, the decision appealed from is modified in the sense that the appellant Manila Motor Company should pay to the
appellees Villaruel only the rents for the leased premises corresponding to the period from July up to November 1946, at the
rate of P350 a month, or a total of P1,750. Costs against appellees in both instances. So ordered.

Paras, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion and Endencia, JJ., concur.

CASE #3:
G.R. No. L-2827   October 3, 1907
MARIA LOPEZ Y VILLANUEVA,Plaintiff-Appellant, vs. TAN TIOCO,Defendant-Appellee.
Ruperto Montinola for appellant.
Smith & Hargis for appellee.
CARSON, J.:
This is an action to recover 22,684.94 pesos, Mexican currency, balance due on account. The only item of the account in dispute
is the price at which 7,718.99 piculs of sugar should be charged to the defendant and appellee, and credited to the plaintiff and
appellant.chanroblesvirtualawlibrary chanrobles virtual law library
Maria Lopez, the plaintiff, alleges that she entered into a verbal contract which the defendant to deliver to him certain sugar,
which he obligated himself to store in Iloilo until he received instructions from her to sell, whereupon he was to credit her
account with its market value in Iloilo on the day upon which such instructions were communicated to him; that in accordance
with the terms of the agreement she delivered to the defendant 7,713.99 piculs of sugar; that she gave instructions to sell on
the 29th of September, 1904; that on the 29th day of September, 1904, the market value of the sugar she thus delivered was as
follows: 1,085.13 piculs of No. 1, at 5.35 pesos, Mexican currency; 1,741.56 piculs of No. 2, at 5.12 pesos, Mexican currency;
4,823.67 piculs of No. 3. at 4.87 pesos, Mexican currency; 16.23 piculs of la clase humeda, at 3.37 at 3 pesos, Mexican currency;
and 47.40 piculs of coriente, at 3 pesos, Mexican currency; that had the sugar been sold on the 1st of December, 1904, the date
on which the complaint was filed, it would have brought a still higher price, and that crediting her with the market value of the
sugar on the 1st day of December, 1904, the balance due on account would be 22,638.94 pesos, Mexican currency.
The defendant, Tan Tioco, admits the truth of the foregoing, allegations, but insists that he received authority to sell the sugar
on the 26th of March, 1904, when the market price in Iloilo was much lower than on the 29th of September, 1904, or the 1st of
December, 1904, and that crediting the plaintiff with the market value of the sugar as of the 26th of March, 1904, the balance
due the plaintiff would amount to but 1,082.95 pesos, Mexican currency, which he admits he is indebted to her in accordance
with the terms of their agreement.
The trial court was of opinion that the evidence sustained the contention of the defendant, and gave judgment in favor of the
plaintiff for 1,082.95 which the defendant admitted to be due on account. From this judgment the plaintiff appeals and prays
that the judgment of the trial court be served and that judgment be rendered in her favor for the balance due, after crediting
the plaintiff with the market value of the sugar of the day of the filing of the complaint.
The plaintiff positively denies the defendant's allegation that she had given him authority to sell the sugar on the 26th of March,
1904. There is a direct conflict in the testimony as to this point. The defendant affirms, the plaintiff denies, and, other than their
contradictory, statements, there is no satisfactory evidence in the record upon which to base a
finding.chanroblesvirtualawlibrary chanrobles virtual law library
The defendant, in corroboration of his statements, called a witness who declared that on the 26th day of March, 1904, he was
an employee of the firm of Smith, Bell & Co., in whose godown the sugar was stored; that he was sent by his employer to tell
Tan Tioco "to come to the office to fix up his account;" that Maria Lopez was in Tan Tioco's office when he arrived; that he hears
Tan Tioco tell her in Visayan that he, the witness, was an employee of Smith, Bell & Co., who had come to hurry the defendant in
the settlement of his accounts; that he waited for Tan Tioco, and in their conversation heard Maria Lopez say, "Very well, I leave
it to you;" that thereupon Tan Tioco said to the witness, "Go back and tell them that I will come up today;" that this was the only
part of the conversation which he overheard. It is somewhat remarkable that this witness was able to overhear or understand
no more that half a dozen words, which the defendant, who called him, appears to imagine were the vital words necessary to
corroborate his statement; but granting that he did, in fact, overhear the plaintiff say what he says she said, it is impossible for
us to say that these words were used in reference to the sugar in question, that they conveyed authority to the defendant to sell
the sugar, unless we believe the statement of the defendant, whose veracity is in
question.chanroblesvirtualawlibrary chanrobles virtual law library
The defendant also called Silverio Hinojales, one of his employees, who stated that in the month of February, 1904, he "went to
the house of Maria Lopez by order of Tan Tioco, and told her that Tan Tioco was asking for an agreement of her accounts;" that
late in the month informed her "the sugar to the house of Maria Lopez and had been sold 5 to Smith, Bell & Co, at the rate of
4.375 pesos per picul for No. 1, and 4.12 � pesos per picul for No. 2;" that when he informed her of that "she didn't say
anything; she said she would go down to the office of Tan Tioco." while it may be true, as claimed by the defendant, that he was
anxious to have the sugar sold on the 26th day of March, and that he requested the plaintiff on various occasions to authorize
into to make such sale, and that he pointed her that the sale had actually been made, these facts in no wise tend to prove that
Maria Lopez did, in fact, grant him to authorization which, as he alleges, he so urgently
importuned.chanroblesvirtualawlibrary chanrobles virtual law library
The plaintiff, in support of her contention, produced the receipts issued by the defendant for the delivery of the sugar, and her
counsel insists that the mere fact that there receipt were in her hands at the time of the trial, and had not been delivered to the
defendant, was sufficient to establish her contention that she had never given the defendant authority to sell. Since the
defendant alleges that this authority was granted verbally, and that it was understood that after the sale had been made there
was to be a settlement of accounts which did not take place because the plaintiff refused to come to the office for that purpose,
we do not think that the possession of these receipts casts very much light upon the disputed
point.chanroblesvirtualawlibrary chanrobles virtual law library
As stated before, the relevant testimony in this case substantially amounts to the unsupported statement of the defendant that
authority was granted him to sell the sugar on the 26th day of March, 1904, and the unsupported denial of the plaintiff. It
becomes important, therefore, to ascertain upon whom rests the burden of proof as to this
point.chanroblesvirtualawlibrary chanrobles virtual law library
Section 297 of the Code of Civil Procedure is as follows:
Each party must prove his own affirmative allegations. Evidence need not be given in support of a negative allegation except
when such negative allegation is an essential part of the statement of the right or title on which the cause of action or defense is
founded, nor even in such case when the allegation is a denial of the existence of a document the custody of which belongs to
the opposite party.
This provision is partially the same as the rule embodied in the maximum semper necessitas probandi incumbit illi qui
agit. chanrobles virtual law library
Under the terms of the agreement the plaintiff would be entitled to a judgment upon proof of the allegations in her complaint.
The defendant practically admits the truth of these allegations, but in his defense sets up new matter by way of an affirmative
allegation, and it is therefore his duty to support this allegations by a preponderance of evidence.
The reason that he who alleges to be the creditor of another is obliged to prove fact of agreement upon which his claims
founded, when it is contested; and that, on the other hand, when the obligation is proved, the debtor who alleges that he has
discharged it is obliged to prove the payment, is clearly one of those propositions in which every system of jurisprudence must
concur in general, whatever particular rules may be adopted, as to the mode and form of the allegations by which the necessity
of such proof is to be determined. (2 Evans' Pothier, 143, 144.)
We are of opinion that here is not a preponderance of proof in the record in support of the defendant's affirmative allegation,
and that the judgment of the trial court should be reversed.chanroblesvirtualawlibrary chanrobles virtual law library
Counsel for the plaintiff and appellant contend that the sugar in question should be credited, at its market value on the day
when the complaint in this action was filed, and not at this market value on the day when instructions to sell were first
communicated to the defendant.chanroblesvirtualawlibrary chanrobles virtual law library
This contention is not well founded. Article 1100 of the Civil Code, in which counsel appears to rely, prescribes that:
Person obliged to deliver or to do something are in default from the moment when the creditor demands the fulfillment of their
obligation, judicially or extrajudicially.
Under the terms of the contract, when is the basis of the plaintiff's cause of action, her account was to be credited with the
market value of the sugar on the day when the authority to sell was first communicated to the defendant. Neither the law for
the contract imposed the obligation upon the plaintiff to make judicial rather than extrajudicial demand for the sale of the sugar.
She did, in fact, make an extrajudicial demand, and it is the defendant's default in complying with this demand which entitles her
to relief in this action.chanroblesvirtualawlibrary chanrobles virtual law library
The market value of the 7,713.99 piculs of sugar in question on the 29th day of September, 1904, estimated upon the basis
alleged in the complaint and proven at the trial, was 38,470.43 pesos, Mexican currency, and this, together with the sum of
12,000 pesos, Mexican currency, on the credit side of the plaintiff's account, which is not in controversy, amount to 50,470.43
pesos, Mexican currency; deducting therefrom 41,757.90 pesos, Mexican currency; the amount of the advances made by the
defendant to the plaintiff, the balance in favor of the plaintiff and for which judgment should be given amounts to 8,712.53
pesos, Mexican currency.chanroblesvirtualawlibrary chanrobles virtual law library
After twenty days let judgment be entered reversing the judgment of the trial court, and ten days thereafter let the record be
turned to the trial court, where judgment will be entered in favor of the plaintiff for the equivalent in Philippine currency of
8,712.53 pesos, Mexican currency, with interest at the legal rate from the date of the filing of the complaint as prayed therein,
and without special condemnation of costs in this instance. So ordered.chanroblesvirtualawlibrary chanrobles virtual law library
Torres, Willard, and Tracey, JJ., concur.
Arellano, C.J., and Johnson, J., dissent.
CASE #4:

G.R. No. L-22359             November 28, 1924

JULIO DE LA ROSA, plaintiff-appellant,
vs.
THE BANK OF THE PHILIPPINE ISLANDS, defendant-appellant.
Ramon Sotelo for plaintiff-appellant.
Araneta and Zaragoza for defendant-appellant.

ROMUALDEZ, J.:

This action was instituted on June 11, 1923, by means of a complaint on the ground that the defendant bank started a contest of
designs and plans for the construction of a building, announcing that the prizes would be awarded not later that on November
30, 1921; that the plaintiff took part in said contest, having performed work and incurred expenses for that purpose; that said
bank refrained from naming judges and awarding the prizes in accordance with the conditions stipulated. The plaintiff prays that
judgment be rendered in his favor for the sum of P30,000 as damages, with interest and the costs.

The defendant bank answered denying the facts contained in the second and following paragraphs of the complaint.

After the trial, the court rendered judgment ordering the defendant bank to pay the plaintiff an indemnity of P4,000 and the
costs.

Both parties appealed from this judgment, the plaintiff assigning the following errors as committed by the trial court:

1. In holding that the sum of P4,000 was a just and reasonable indemnity to the plaintiff.

2. In not ordering the defendant bank to pay the P30,000 prayed for in the complaint.

The defendant bank, in turn, assigned the following errors as committed by the trial court:

1. In holding that the date set for the award of prizes is essential in the contract.

2. In ordering that the sum of P4,000 be paid to the plaintiff.

The fundamental question on which the plaintiff's action depends is raised in the first assignment of error made by the
defendant bank, or, whether or not the date set for the award of the prizes was essential in the contract and, therefore,
whether or not the failure to award the prizes on said date was breach of contract on the part of the defendant.

First of all, we find that due to the fact that the bank started and advertised the said contest, offering prizes under certain
conditions, and the plaintiff prepared, by labor and expense, and took part in said contest, the bank is bound to comply with the
promise made in the rules and conditions prepared and advertised by it.

A binding obligation may even originate in advertisements addressed to the general public. (6 R. C. L., 600.)

It is an elementary principle that where a party publishes an offer to the world, and before it is withdrawn another acts
upon it, the party making the offer is bound to perform his promise. This principle is frequently applied in cases of the
offer of rewards, . . . (6 R. C. L., 607.)

What is to be determined is whether or not the defendant bank was in default in not awarding the prizes on November, 30,
1921.

The plaintiff contends that it was, according to paragraph 2 of article 1100 of the Civil Code, the complete text of which is as
follows:

Persons obliged to deliver or to do something are in default from the moment the creditor demands of them judicially
or extrajudicially the fulfillment of their obligation.

Nevertheless, the demand of the creditor shall not be necessary in order that the default may arise —

1. When the obligator or the law expressly so provides;

2. When by reason of the nature and circumstances of the obligation it shall appear that the designation of the
time at which the thing was to be delivered or the service rendered was the principal inducement to the
creation of the obligation.
 In reciprocal obligations neither of the obligators shall be in default if the other does not fulfill or does not submit to the
fulfillment of that which is incumbent upon him. From the time on the obliges performs his obligation the default
begins for the other party.

And the party plaintiff contends that the said date was the principal inducement because the current cost of concrete buildings
at the time was fixed. The fixation of said price cannot be considered as the principal inducement of the contract, but
undoubtedly only for the uniformity of the designs to be presented and to secure greater justice in the appreciation of the
relative merits of each work submitted.

Such fixation of price, naturally, was not the principal inducement for the contestants. Neither was it for the bank which could
not certain that said price would continue to be current price when it desired to construct the building designed.

We do not find sufficient reason for considering that the date set for the reward of the prizes was the principal inducement to
the creation of the obligation. And, taking into consideration the criterion that must be followed in order to judge whether or
not the time for the performance of the obligation is the principal inducement in a given case, we hold that it was not in the
instant case.

The distinguished Manresa explains the matter in the following terms: 1awphi1.net

These words ("principal inducement" in paragraph 2 of article 1100 of the Civil Code) whose special meaning in
connection with this article and the circumstances of each obligation does not permit of their being confused with the
permanent general idea, and the distinct clearness of consideration of contracts, may give rise to serious doubts by
reason of the breadth of expression, and must be judged in each particular case, it being impossible to give a general
rule to explain them. It will for instance, be unquestionable that the hypothesis implied in this exception is affected
when the matter, for instance, is the delivery of things of the rendition of services to be employed in agricultural work,
and the time of said work has been designated as the date for the fulfillment of the obligation; it will also exist when,
for instance, fruits or any objects are to be delivered which might be used by the creditor in industrial operations having
a determinate period for carrying them out and designated for their delivery; and, finally, it will also assist whenever, as
in these cases, it appears that the obligation would not have been created for a date other than that fixed.

The defendant bank cannot be held to have been in default through the mere lapse of time. For this judicial or extrajudicial
demand was necessary for the performance of the obligation, and it was not alleged here, nor does it appear that before
bringing this action the plaintiff had ever demanded it from the defendant bank in any manner whatsoever. The defendant bank,
therefore, was not in default.

The plaintiff's allegation that the defendant bank abstained from continuing the contest was not proven. On the contrary, it was
proved, and so stated in the decision appealed from, that during the trial of this case in the Court of First Instance the designs
were on the way to New York where they were sent to a technical committee.

This committee, according to the new evidence before us presented by the defendant bank and which we now hold admissibe
and admit, was appointed by the defendant bank for the study and determination of the designs presented and entitled to the
prizes advertised, and which rendered its report and awarded the prizes in accordance with the rules and conditions of the
contract, except in regard to the date of such award of prizes which, as we have found, is not essential to the contract in
question.

It appearing that the defendant bank was not in default it is needles to discuss the other questions raised, all depending upon
the existence of said default.

We find the plaintiff has no cause of action in this case,

The judgment appealed from is reversed and the defendant is entirely absolved from the complaint, without any express finding
as to costs. So ordered.

Johnson, Street, Malcolm, Villamor, Ostrand and Johns, JJ., concur.

CRIMINAL LAW
CASE #3:

G.R. No. 129609            November 29, 2001

RODIL ENTERPRISES, INC., petitioner,
vs.
COURT OF APPEALS, CARMEN BONDOC, TERESITA BONDOC-ESTO, DIVISORIA FOOTWEAR and CHUA HUAY
SOON, respondents.

x---------------------------------------------------------x

G.R. No. 135537 November 29, 2001

RODIL ENTERPRISES, INC., petitioner,

vs.
IDES O'RACCA BUILDING TENANTS ASSOCIATION, INC., respondent.

BELLOSILLO, J.:

These twin petitions filed under Rule 45 seek to set aside the Decisions of the Court of Appeals in CA-G.R. Nos. 39919, 36381 and
37243.

Petitioner Rodil Enterprises Inc. (RODIL) is the lessee of the Ides O'Racca Building (O'RACCA) since 1959.1 It was a "former alien
property" over which the Republic of the Philippines acquired ownership by virtue of RA 477, as amended.2

Sometime in 1980 RODIL entered into a sublease contract with respondents Carmen Bondoc, Teresita Bondoc-Esto, Divisoria
Footwear and Chua Huay Soon,3 members of the Ides O'Racca Building Tenants Association Inc. (ASSOCIATION).

On 4 September 1972 the lease contract between RODIL and the REPUBLIC was renewed for another fifteen (15) years.4 At that
time the O'RACCA was under the administration of the Building Services and Real Property Management Office (BSRPMO) then
headed by Director Jesus R. Factora.5

On 12 September 1982 BP 2336 was enacted. It authorized the sale of "former alien properties" classified as commercial and
industrial, and the O'RACCA building was classified as commercial property.7

On 8 January 1987 RODIL offered to purchase the subject property conformably with BP 233 and the REPUBLIC responded that
its offer to purchase would be acted upon once the Committee on Appraisal shall have determined the market value of the
property.8

On 22 July 1997 the ASSOCIATION also offered to lease the same building through the Department of General Services and Real
Estate Property Management (DGSREPM).9

Pending action on the offer of RODIL to purchase the property, Director Factora of the BSRPMO granted RODIL's request for
another renewal of the lease contract on 23 September 1987 for another five (5) years from 1 September 1987.10 The renewal
contract was forwarded to then Secretary Jose de Jesus of DGSREPM for approval.

On 25 September 1987 Undersecretary of DGSREPM Rufino B. Banas recommended to Secretary De Jesus the suspension of the
approval of the renewal contract because the offer of the ASSOCIATION was more beneficial to the REPUBLIC.

Resultantly, on 30 September 1987 Secretary De Jesus issued another memorandum to Director Factora disapproving the
renewal contract in favor of RODIL, at the same time recalling all papers signed by him regarding the subject. Secretary De Jesus
likewise directed RODIL to pay its realty tax delinquency and ordered the issuance of a temporary occupancy permit to the
ASSOCIATION.11

On 6 October 1987 RODIL filed an action for specific performance, damages and injunction with prayer for temporary restraining
order before the Regional Trial Court of Manila against the REPUBLIC, De Jesus, Banas, Factora and the ASSOCIATION.12 RODIL
prayed that a restraining order be issued enjoining the ASSOCIATION or any person acting under it from collecting rentals from
the occupants or sub-lessees of O'RACCA. On 26 October 1987 the trial court granted the writ of preliminary injunction.13 On
appeal, the Court of Appeals upheld the issuance of the writ of preliminary injunction and ordered the deposit of the monthly
rentals with the lower court pendente lite.

On 20 November 1987 the REPUBLIC, De Jesus, Banas and Factora filed their Answer with Counterclaim for damages. On 21
December 1987 the ASSOCIATION also filed its Answer with Counterclaim for damages.
De Jesus, Banas and Factora were later substituted by Secretary Fulgencio Factoran of the Department of Environment and
Natural Resources (DENR) in the action for specific performance. On 31 May 1988 Factoran issued Order No. 1 designating the
Land Management Bureau represented by Director Abelardo Palad, Jr. as custodian of all "former alien properties" owned by the
REPUBLIC.

On 18 May 1992 RODIL signed a renewal contract with Director Palad which was approved by Secretary Factoran.14 The renewal
contract would extend the lease for ten (10) years from 1 September 1987. A supplement to the renewal contract was
subsequently entered into on 25 May 1992 where rentals on the previous lease contract were increased.15

On 14 August 1972 the action for specific performance was dismissed by the trial court upon joint motion to dismiss by RODIL
and the Solicitor General. The order of dismissal however was appealed by the ASSOCIATION to the Court of Appeals.16

On 25 September 1992 the spouses Saturnino Alvarez and Epifania Alvarez, sublessees of RODIL, filed with the Office of the
President a letter-appeal assailing the authority of Factoran to enter into the renewal contract of 18 May 1992 with RODIL, and
claiming the right to purchase the subject property.17

While the appeal of the ASSOCIATION from the order of dismissal and the letter-appeal of the spouses Alvarez were pending,
the ASSOCIATION instituted Civil Case No. 92-63833 with the Regional Trial Court of Manila 18 praying for the setting aside of
the renewal contract of18 May 1992 as well as the supplementary contract of 25 May 1992, and further praying for the issuance
of a writ of preliminary injunction. On 3 May 1993 the trial court denied the prayer for preliminary injunction.

On 30 July 1993 RODIL filed an action for unlawful detainer against Divisoria Footwear,19 and on 4 August 1993, a similar action
against Chua Huay Soon.20

On 10 September 1993 the trial court dismissed the action for declaration of nullity of the lease contract filed by the
ASSOCIATION on the ground of litis pendentia.21 The Order stated that the action for declaration of nullity and the action for
specific performance filed by RODIL were practically between the same parties and for the same causes of action.22 This Order
was appealed by the ASSOCIATION to the Court of Appeals.23

On 19 January 1994 RODIL filed an action for unlawful detainer against respondent Teresita Bondoc-Esto,24 and on 1 February
1994 filed another action against respondent Carmen Bondoc,25 both with the Metropolitan Trial Court of Manila.

On 8 February 1994 the Office of the President through Executive Secretary Teofisto Guingona Jr. denied the letter-appeal of the
spouses Alvarez, but nullified the renewal contract of 18 May 1992 and the supplementary contract of 25 May 1992.26

Meanwhile, the Metropolitan Trial Court of Manila upheld RODIL's right to eject respondents Bondoc, Bondoc-Esto, Divisoria
Footwear and Chua Huay Soon,27 as promulgated in separate decisions the dispositive portions of which read —

IN CIVIL CASE NO. 143301 —

WHEREFORE, IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff [RODIL ENTERPRISES,
INC.] and against the defendant [CARMEN BONDOC], to wit: 1. Ordering the defendant and all those claiming title
under her to vacate the subleased portion of the O'Racca Building, corner Folgueras and M. de los Santos Streets,
Binondo, Manila; 2. Ordering the defendant to pay plaintiff the back rentals from October 1987 to August 1992 at the
rate of P2,665.00 per month and from September 1992 at the rate of P2,665.00 per month plus a yearly increase of
20% per month up to the time that she vacates the premises; 3. Ordering the defendant to pay the amount of
P10,000.00 as attorney's fees and to pay the cost of suit.

IN CIVIL CASE NO. 143216 —

WHEREFORE, judgment is hereby rendered in favor of the plaintiff [RODIL ENTERPRISES, INC.] as against the defendant
[TERESITA BONDOC ESTO] ordering the defendant and all persons claiming rights under her to vacate the premises at
O'Racca Building located at corner Folgueras and M. de los Santos Streets, Binondo, Manila, and turn over the
possession thereof to plaintiff; ordering the defendant to pay plaintiff the amount of P29,700.00 as rental in arrears for
the period from September 1992 plus legal rate of interest less whatever amount deposited with the Court; ordering
defendant to pay the sum of P3,000.00 as reasonable compensation for the use and occupancy of the premises from
January 1994 until defendant shall have finally vacated the premises minus whatever amount deposited with the Court
as rental; ordering defendant to pay reasonable attorney's fees in the amount of P2,000.00 and the costs of suit.

IN CIVIL CASE NO. 142258 —

 WHEREFORE, judgment is hereby rendered in favor of plaintiff [RODIL ENTERPRISES, INC.], ordering defendant
[DIVISORIA FOOTWEAR], its representatives, agents, employees and/or assigns to vacate the leased premises or portion
of the Ides O'Racca Building presently occupied by said defendant and to pay plaintiff the following: a) Rentals in
arrears from October 1987 to June 1993 in the amount of P521,000.00; b) Rentals in the amount of P9,000.00 a month
from July, 1993 until defendant will have vacated the premises; c) Attorney's fees in the amount of P15,000.00; d) Costs
of suit.

IN CIVIL CASE NO. 142282-CV —

IN VIEW THEREOF, judgment is hereby rendered ordering: 1. defendant CHUA HUAY SOON and all persons claiming
rights through him, to vacate the premises occupied by him at O'RACCA Building, located at the corner of Folgueras and
M. delos Santos Street, Binondo, Manila, and turn over possession thereof to plaintiff RODIL ENTERPRISES, INC.; 2.
defendant to pay rentals in arrears from October 1987 up to June 1993 at the rate of P6,175.00 a month, representing
the rentals in arrears; 3. defendant to pay P6,175.00 per month from July 1993 until he vacates the premises, as
reasonable compensation for the use of the premises; 4. defendant to pay the sum of P20,000.00 as attorney's fees; 5.
defendant to pay interests on the amounts mentioned in Nos. 2 and 3 above at ten (10%) percent per annum from the
date of the filing of the complaint until said amounts are fully paid; and, 6. defendant to pay the costs.

The Regional Trial Court affirmed the Metropolitan Trial Court28 in all the four (4) decisions above quoted. Thus, respondents
Bondoc, Bondoc-Esto and Divisoria Footwear subsequently filed a Petition for Review with the Court of Appeals,29 followed by
respondent Chua Huay Soon.30

While the consolidated appeals from the unlawful detainer cases were pending, the Second Division of the Court of Appeals
promulgated its decision on 12 April 1996 with regard to CA-G.R. No. 39919 declaring the renewal contract between RODIL and
the REPUBLIC null and void.31 RODIL moved for reconsideration but its motion was denied.32 Hence, this petition for review on
certiorari under Rule 45.33

On 29 November 1996 the Special Fourth Division of the Court of Appeals promulgated its Decision in CA-G.R. No. 36381 and CA-
G.R. No. 37243 setting aside the decisions of the Regional Trial Court, which sustained the Metropolitan Trial Court, and
dismissing the action for unlawful detainer filed by RODIL against its lessees.34 RODIL moved for reconsideration but the motion
was denied.35 Hence, this petition for review on certiorari.36

On respondents' motion, G.R. Nos. 129609 and 135537 were consolidated.

RODIL now contends that the Court of Appeals erred in annulling its renewal contract with the REPUBLIC and in dismissing its
actions for unlawful detainer against respondents Bondoc, Bondoc-Esto, Divisoria Footwear and Chua. RODIL claims that the
assailed contracts are neither void nor voidable as the facts show they do not fall within the enumerations under Arts. 1305 and
1409, and an implied new lease still exists by virtue of Art. 1670. As a result, the right to eject respondents properly belongs to
it.37

With regard to CA-G.R. No. 39919, RODIL argues that the REPUBLIC, the only defendant who is a real party in interest, signified
its assent to having the action dismissed. Assuming arguendo that the ASSOCIATION was a real party in interest, its counterclaim
was nonetheless unmeritorious.38

On the other hand, respondents Bondoc, Bondoc-Esto, Divisoria Footwear and Chua contend that the lease contract which the
lease contract of 18 May 1992 was to renew, never came into existence. Therefore, since there was no contract to "renew," the
renewal contract had no leg to stand on, hence, is also void.39 Respondents then conclude that since there was no lease contract
to speak of, RODIL had no right to relief in its action for unlawful detainer. The ASSOCIATION, for its part, argues that the
counterclaim it filed against RODIL cannot be dismissed because the trial court has not passed upon it.40

We rule for RODIL. The owner has the right to enjoy and dispose of a thing, without other limitations than those established by
law.41 Every owner has the freedom of disposition over his property. It is an attribute of ownership, and this rule has no
exception. The REPUBLIC being the owner of the disputed property enjoys the prerogative to enter into a lease contract with
RODIL in the exercise of its jus disponendi. Hence, as lessor, the REPUBLIC has the right to eject usurpers of the leased property
where the factual elements required for relief in an action for unlawful detainer are present.

Private respondents claim that the agreements of 23 September 1987, 18 May 1992 and 25 May 1992 did not give rise to valid
contracts.42 This is true only of the Contract of Lease entered into on 23 September 1987 which the REPUBLIC did not approve.
RODIL neither alleged nor proved that such approval was made known to it. The so-called approval of the lease contract was
merely stated in an internal memorandum of Secretary De Jesus addressed to Director Factora.43 This is evident from the fact
that Secretary De Jesus, in his letter, asked Factora to duly execute a lease contract and forward it to his office for
approval.44 The consequences of this fact are clear. The Civil Code provides that no contract shall arise unless acceptance of the
contract is communicated to the offeror.45 Until that moment, there is no real meeting of the minds, no concurrence of offer and
acceptance, hence, no contract.46

However, the same is not true of the contracts of 18 May 1992 and 25 May 1992. As argued by RODIL, these contracts are not
proscribed by law; neither is there a law prohibiting the execution of a contract with provisions that are retroactive. Where
there is nothing in a contract that is contrary to law, morals, good customs, public policy or public order, the validity of the
contract must be sustained.47

The Court of Appeals invalidated the contracts because they were supposedly executed in violation of a temporary restraining
order issued by the Regional Trial Court.48 The appellate court however failed to note that the order restrains the REPUBLIC from
awarding the lease contract only as regards respondent ASSOCIATION but not petitioner RODIL. While a temporary restraining
order was indeed issued against RODIL, it was issued only on 25 May 1992 or after the assailed contracts were entered into. As
correctly stated by petitioner, one cannot enjoin an act already fait accompli.49

Private respondents argue that the "renewal contract" cannot "renew" a void contract. However, they could cite no legal basis
for this assertion. It would seem that respondents consider the renewal contract to be a novation of the earlier lease contract of
23 September 1987. However, novation is never presumed.50 Also, the title of a contract does not determine its nature. On the
contrary, it is the specific provisions of the contract which dictate its nature.51 Furthermore, where a contract is susceptible of
two (2) interpretations, one that would make it valid and another that would make it invalid, the latter interpretation is to be
adopted.52 The assailed agreement of 18 May 1992, "Renewal of Contract of Lease," merely states that the term of the contract
would be for ten (10) years starting 1 September 1987. This is hardly conclusive of the existence of an intention by the parties to
notate the contract of 23 September 1987. Nor can it be argued that there is an implied novation for the requisite
incompatibility between the original contract and the subsequent one is not present.53 Based on this factual milieu, the
presumption of validity of contract cannot be said to have been overturned.

Respondent ASSOCIATION claims that the Decision of the Office of the President declaring null and void the lease contracts of 18
May 1992 and 25 May 1992 should be counted in its favor.

We do not agree. The contention does not hold water. It is well-settled that a court's judgment in a case shall not adversely
affect persons who were not parties thereto.

Respondent ASSOCIATION finally argues that the 18 May 1992 and 25 May 1992 contracts can be considered rescissible because
they concern property under litigation and were entered into without the knowledge and approval of the litigants or of
competent judicial authority.54 Civil Case No. 87-42323 involved an action for specific performance and damages filed by RODIL
against the REPUBLIC and the ASSOCIATION. The right to file the action for rescission arises in favor of the plaintiff when the
defendant enters into a contract over the thing under litigation without the knowledge and approval of the plaintiff or the court.
The right of action therefore arose in favor of petitioner RODIL and not respondent ASSOCIATION.

Having preliminarily dealt with the validity of the lease contracts, we now proceed to resolve the issue raised by respondent
ASSOCIATION with regard to its counterclaim.

The ASSOCIATION argues that its counterclaim should not have been dismissed. On this point, we agree. The requisites for the
application of Rule 17 of the Rules of Civil Procedure are clearly present.55 The counterclaim is necessarily connected with the
transaction that is the subject matter of the claim. In malicious prosecution, there must be proof that the prosecution was
prompted by a sinister design to vex and humiliate a person, and that it was initiated deliberately by the defendant knowing that
his charge was false and groundless.56 A determination of whether the charge is groundless would necessarily involve an analysis
of whether the action instituted by RODIL is meritorious. The counterclaim did not require the presence of third parties over
which the court could not acquire jurisdiction, and that the court had jurisdiction over the subject matter of the counterclaim
since the amount of damages claimed by the ASSOCIATION in its counterclaim amounted to P3,500,000.00, clearly within the
jurisdictional amount for the Regional Trial Court under BP 129.

However, in the interest of making a final adjudication on an issue which has been pending for fourteen (14) years, we will rule
on the issues raised by the ASSOCIATION in its counterclaim, and accordingly deny the same, dispensing with any discussion
regarding the merits of RODIL's cause of action which is clearly neither "false" nor "groundless." Therefore, the elements of
malicious prosecution are absent.

As regards the action for unlawful detainer, respondents Bondoc, Bondoc-Esto, Divisoria Footwear and Chua argue that this
should not prosper because RODIL is not in actual possession of the property and because they are not its sublessees.57 Their
arguments do not convince.
In an action for unlawful detainer the plaintiff need not have been in prior physical possession. Respondents have admitted that
they have not entered into any lease contract with the REPUBLIC and that their continued occupation of the subject property
was merely by virtue of acquiescence.58 The records clearly show this to be the case. The REPUBLIC merely issued a "temporary
occupancy permit" which was not even in the name of the respondents Bondoc, Bondoc-Esto, Divisoria Footwear or Chua but of
respondent ASSOCIATION. Since the occupation of respondents was merely tolerated by the REPUBLIC, the right of possession of
the latter remained uninterrupted. It could therefore alienate the same to anyone it chose. Unfortunately for respondents, the
REPUBLIC chose to alienate the subject premises to RODIL by virtue of a contract of lease entered into on 18 May 1992.
Resultantly, petitioner had the right to file the action for unlawful detainer against respondents as one from whom possession of
property has been unlawfully withheld.

Respondents finally argue that petitioner failed to comply with the mandatory provisions of Rule 45 so that its petition must be
dismissed. They allege that petitioner failed to state in its petition that a motion for reconsideration was filed, the date of filing,
when the motion was denied, and the date when the resolution denying the motion was received.

A cursory review of RODIL's petition belies respondents' assertion. All dates required under Rule 45, Sec. 4, are properly
indicated except when the motion for reconsideration was filed. Procedural rules are required to be followed as a general rule,
but they may be relaxed to relieve a litigant of an injustice not commensurate with the degree of his noncompliance with the
procedure required. Dismissal of appeals purely on technical grounds is frowned upon and the rules of procedure ought not to
be applied in a very rigid, technical sense, for they are adopted to help secure, not override, substantial justice, and thereby
defeat their very aims. The rules have been drafted with the primary objective of enhancing fair trials and expediting the proper
dispensation of justice. As a corollary, if their application and operation tend to subvert and defeat, instead of promote and
enhance its objective, suspension of the rules is justified.59 Petitioner did not repeat its error in its later petition filed under G.R.
No. 135537. The oversight must be fashioned with leniency.

WHEREFORE, the consolidated petitions are GRANTED. The assailed Decisions of the Court of Appeals in CA-G.R. Nos. 36381,
37243 and 39919 are REVERSED and SET ASIDE. Accordingly, the Decisions of the Regional Trial Court, Br. 39, in Civil Cases Nos.
94-70776, 94-71122 and 94-71123 as well as the Decision of the Regional Trial Court, Br. 23, in Civil Case No. 94-72209 affirming
in toto the Decisions of the MeTC — Br. 28 in Civil Case No. 143301, MeTC — Br. 15 in Civil Case No. 143216, MeTC — Br. 7 in
Civil Case No. 142258, and MeTC — Br. 24 in Civil Case No. 142282-CV, as herein quoted, and the Orders dated 14 August 1992
and 6 November 1992 of the Regional Trial Court, Br. 8 in Civil Case No. 87-42323, recognizing the validity and legality of the
Renewal of the Lease Contract dated 18 May 1992 and the Supplemental Contract dated 25 May 1992, are REINSTATED,
AFFIRMED and ADOPTED. Costs against private respondents in both cases.

SO ORDERED.

Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.