PEDRO A. FELICEN SR.

(Deceased), substituted by his widow, BEATRIZ

LANUEVO and his children, ELEUTERIO, PEDRO, JR., CLARITA, FERNANDO and
JOSE MARIA, all surnamed FELICEN petitioners,
vs.
SEVERINO ORIAS, MILAGROS ORIAS DE LIM, and the COURT OF APPEALS

FACTS: This appeal on certiorari involves Article 1606 of the Civil Code. the third and
last paragraph and it is this which is directly relevant to the case at bar reads as
follows:
However, the vendor may still exercise the right to repurchase within thirty days from
the time final judgment was rendered in a civil action on the basis that the contract was
a true sale with right to repurchase.
Under a "Deed of Sale With Right to Repurchase," the spouses Severino Orias and
Milagros O. Lim (private respondents herein) sold to Pedro A. Felicen, Sr. (petitioner) a
parcel of land in the Municipality of Salcedo, Province of Samar at the price of P
3,000.00. The deed expressly reserved to the vendors the right to redeem within two (2)
years. That period expired without any offer having been made by the vendors a retro to
repurchase the land.
Eight (8) years afterwards" the vendors a retro filed suit against the vendees to compel
the latter to resell and reconvey the property to them. After due proceedings, the Trial
Court rendered judgment, finding that the contract between the parties was in truth one
of sale with pacto de retro, and that the period stipulated for the repurchase had already
expired; but this notwithstanding, the vendors a retro still had the right to repurchase the
property within thirty (30) days from the time the judgment becomes final, in accordance
with the third paragraph of Article 1606 of the Civil Code, by complying with the
requirements of Article 1616.

ISSUE: W/N the interpretation Art 1606 par 3 is correct

HELD: NO. The application of the third paragraph of Article 1606 is predicated upon the
bona fides of the vendor a retro. It must appear that there was a belief on his part,
founded on facts attendant upon the execution of the sale withpacto de retro, honestly
and sincerely entertained, that the agreement was in reality a mortgage, one not
intended to affect the title to the property ostensibly sold, but merely to give it as
security for a loan or other obligation. In that event, if the matter of the real nature of the
contract is submitted for judicial resolution, the application of the rule is meet and
proper: that the vendor a retro be allowed to repurchase the property sold within 30
days from rendition of final judgment
Conversely, if it should appear that the parties' agreement was really one of sale
transferring ownership to the vendee, but accompanied by a reservation to the vendor
of the right to repurchase the property and there are no circumstances that may
reasonably be accepted as generating some honest doubt as to the parties' intention,
the proviso is inapplicable. The reason is quite obvious. If the rule were otherwise, it
would be within the power of every vendor a retro to set at naught a pacto de retro, or
resurrect an expired right of repurchase, by simply instituting an action to reform the
contract known to him to be in truth a sale with pacto de retro into an equitable
mortgage.

De macoy vs ca

Facts:
Dominga Tabora Vda. de Macoy was the owner of a rice land in Camarines Norte. Her
ownership thereof was evidenced by TCT No. T-7520. On December 28, 1970, she
executed or sale with a right to repurchase in favor of private respondents spouses
Jesus F. Redillas and Anatalia Elon; the period of repurchase is between December 29,
1973 and December 29, 1975.

Dominga Tabora Vda. de Macoy died in February, 1972, leaving as heirs petitioners.
Alleging failure of petitioners to repurchase the land, private respondent Jesus F.
Redillas executed an Affidavit of Consolidation of Ownership. On July 21, 1977, he and
his wife filed a petition for Recording of Consolidation of Ownership.

private respondents obtained a favorable decision. petitioners filed a motion alleging

that the document executed by the late Dominga Tabora Vda. de Macoy was not a sale
with a right to repurchase but an equitable mortgage or a contract of antichresis. They
alleged further that even assuming it to be a sale with a right to repurchase they
nevertheless had thirty (30) days from final judgment under Article 1606 of the Civil
Code within which to redeem the land. During the trial, the trial court, upon motion of
petitioners, ordered the Register of Deeds to immediately restore TCT No. T-7520 in the
Registry office.

Issue: can petitioners avail of article 1606?

Held:
Article 1606, paragraph 3, of the Civil Code provides that:

However, the vendor may still exercise the right to repurchase within thirty days from
the time final judgment was rendered in a civil action on the basis that the contract was
a true sale with the right to repurchase.

Petitioners invoke this provision as an alternative legal remedy in the event that the
document be finally declared a pacto de retro sale.
J
But The application of the third paragraph of Article 1606 is predicated upon the bona
fides of the vendor a retro. It must appear that there was a belief on his part, founded on
facts attendant upon the execution of the sale with pacto de retro, honestly and
sincerely entertained, that the agreement was in reality a mortgage, one not intended to
affect the title to the property ostensibly sold, but merely to give it as security for a loan
or other obligation. If it should appear that the parties' agreement was really one of sale
transferring ownership to the vendee, but accompanied by a reservation to the
vendor of the right to repurchase the property and there are no circumstances that
may reasonably be accepted as generating some honest doubt as to the parties'
intention, the proviso is inapplicable.

The reason is quite obvious. If the rule were otherwise, it would be within the power of
every vendor a retro to set at naught a pacto de retro, or resurrect an expired right of
repurchase, by simply instituting an action to reform the contract known to him to be
in truth a sale with pacto de retro into an equitable mortgage.

Paez vs Magno

Facts:
On October 1943, plaintiffs and appellants borrowed from defendant and appellee
P4,000 in Japanese Military notes, with the promise to pay within a period of five years.
As a security, a parcel of land was mortgaged in favor of the creditor. On September
1944, payment of this debt was offered and tendered, but was rejected by the creditor.
For that reason, an action was filed on November 18, 1945 asking that the obligation be
declared as already paid and the deed of mortgage be cancelled. Defendant filed a
motion to dismiss upon the ground that plaintiffs have no cause of action, there being no
allegation that the thing due was consigned in court, as provided by law. The motion
was granted, hence, this appeal by the plaintiffs.
Issue:won vendor is relieved from obligation?
Held:
Tender does not in itself relieve the vendor from his obligation to pay the price when
redemption is allowed by the court. In other words, tender of payment is sufficient to
compel redemption but is not in itself a payment that relieves the vendor from his liability
to pay the redemption price.

Cachola vs ca

Facts: the respondent spouses Federico Briones and Trinidad Encinas, as the
registered owners of the above-named property mortgaged to Benjamin Ocampo as a
security for a loan of P15,000.00. For failure of the spouses to pay the loan, Ocampo
caused the foreclosure of the real estate mortgage and the subsequent sale of the
property at public auction. Ocampo being the highest bidder, purchased the property at
the auction. A certificate of sale was executed in his favor.

The respondents were able to exercise their right of redemption within the one-year
period from the auction sale by paying through a loan of P40,000.00 obtained from
petitioner, the late Mauricio Cachola.

The Kasunduan recognized the full ownership by the respondents. There was also a
stipulation that after the properties shall have been redeemed from Ocampo, the title
should be placed in the hands of Cachola for the purpose of securing the loan. The
respondent spouses failed to pay any amount within the stipulated six month period and
even afterwards so a deed of absolute sale was executed by the parties.
Sometime in 1977, the petitioner filed an unlawful detainer suit against the respondents-
spouses. In June 1979, the respondents filed a suit for annulment of the deed of
absolute sale and annulment of the unlawful detainer judgment.

Issue: whether there is contract of sale or equitable mortgage?

Held: sale
An equitable mortgage is "one which although it lacks some formality, form of words or
other requisites prescribed by a statute, show(s) the intention of the parties to charge a
real property as security for a debt and contains nothing impossible or contrary to law."

The plain terms of the Deed of Absolute Sale and the circumstances of the case do not
suggest an unequivocal intention to make the property answerable for the P40,000.00
debt after the lapse of the six-month period from March 13, 1975 to September 13, 1975
within which the respondent spouses were expected to pay their obligation. There was
nothing to show an agreement that the parties recognized the continued ownership of
the spouses Briones.

The words of the contract are clear and leave no doubt as to the desire of the spouses
to transfer the property by way of sale to the petitioner. No other meaning could be
given to the terms and stipulations of the contract but their literal meaning. (Article 1370,
New Civil Code).

The Court holds that none of the circumstances in Article 1602 of the Civil Code which
would raise the presumption of equitable mortgage, in relation to Article 1604 of the
same Code pertaining to a contract purporting to be an absolute sale, exists in the case
at bar.

PRIMARY STRUCTURES CORP. vs. SPS. VALENCIA

August 19, 2003

Facts: Petitioner is a private corporation based in Cebu City and the registered owner of
Lot 4523 situated in Liloan, Cebu, with an area of 22,214 square meters. Adjacent to the
lot of petitioner are parcels of land, identified to be Lot 4527, Lot 4528, and Lot 4529
with a total combined area of 3,751 square meters. The three lots, aforenumbered, have
been sold by Hermogenes Mendoza to respondent spouses sometime in December
1994. Petitioner learned of the sale of the lots only in January, 1996, when Hermogenes
Mendoza sold to petitioner Lot No. 4820, a parcel also adjacent to Lot 4523 belonging
to the latter. Forthwith, it sent a letter to respondents, on 30 January 1996,
signifying its intention to redeem the three lots. On 30 May 1996, petitioner sent
another letter to respondents tendering payment of the price paid to Mendoza by
respondents for the lots. Respondents, in response, informed petitioner that they had no
intention of selling the parcels. Thereupon, invoking the provisions of Articles 1621 and
1623, petitioner filed an action against respondents to compel the latter to allow the
legal redemption. Petitioner claimed that neither Mendoza, the previous owner, nor
respondents gave formal or even just a verbal notice of the sale of the lots as so
required by Article 1623 of the Civil Code.

Issue: W/N petitioner can compel respondents to allow legal redemption

Held: ART. 1621. The owners of adjoining lands shall also have the right of redemption
when a piece of rural land, the area of which does not exceed one hectare, is alienated
unless the grantee does not own any rural land.
This right is not applicable to adjacent lands which are separated by brooks, drains,
ravines, roads and other apparent servitudes for the benefit of other estates.
If two or more adjoining owners desire to exercise the right of redemption at the same
time, the owner of the adjoining land of smaller area shall be preferred; and should both
lands have the same area, the one who first requested the redemption.
ART. 1623. The right of legal pre-emption or redemption shall not be exercised except
within thirty days from the notice in writing by the prospective vendor, or by the vendor,
as the case may be. The deed of sale shall not be recorded in the Registry of Property,
unless accompanied by an affidavit of the vendor that he has given written notice
thereof to all possible redemptioners.

The right of redemption of co-owners excludes that of adjoining owners.

Whenever a piece of rural land not exceeding one hectare is alienated, the law grants to
the adjoining owners a right of redemption except when the grantee or buyer does not
own any other rural land.[1] In order that the right may arise, the land sought to be
redeemed and the adjacent property belonging to the person exercising the right of
redemption must both be rural lands. If one or both are urban lands, the right cannot be
invoked.

The trial court found the lots involved to be rural lands. Unlike the case of Fabia vs.
Intermediate Appellate Court (which ruled, on the issue of whether a piece of land was
rural or not, that the use of the property for agricultural purpose would be essential in
order that the land might be characterized as rural land for purposes of legal
redemption), respondents in the instant case, however, did not dispute before the Court
of Appeals the holding of the trial court that the lots in question are rural lands. In failing
to assail this factual finding on appeal, respondents would be hardput to now belatedly
question such finding and to ask the Court to still entertain that issue.

Article 1621 of the Civil Code expresses that the right of redemption it grants to
an adjoining owner of the property conveyed may be defeated if it can be shown
that the buyer or grantee does not own any other rural land. The appellate court,
sustaining the trial court, has said that there has been no evidence proffered to
show that respondents are not themselves owners of rural lands for the
exclusionary clause of the law to apply.

With respect to the second issue, Article 1623 of the Civil Code provides that the right of
legal pre-emption or redemption shall not be exercised except within thirty days from
notice in writing by the prospective vendor, or by the vendor, as the case may be. In
stressing the mandatory character of the requirement, the law states that the deed of
sale shall not be recorded in the Registry of Property unless the same is accompanied
by an affidavit of the vendor that he has given notice thereof to all possible
redemptioners.

The Court of Appeals has equated the statement in the deed of sale to the effect that
the vendors have complied with the provisions of Article 1623 of the Civil Code, as
being the written affirmation under oath, as well as the evidence, that the required
written notice to petitioner under Article 1623 has been met. Respondents, like the
appellate court, overlook the fact that petitioner is not a party to the deed of sale
between respondents and Mendoza and has had no hand in the preparation and
execution of the deed of sale. It could not thus be considered a binding equivalent of the
obligatory written notice prescribed by the Code.

Etcuban vs. Court of Appeals, and Songalia

March 1987

FACTS:

Petitioner Dominico Etcuban (petitioner) inherited a piece of land together with his co-
heirs (the spouse of the deceased, Demetria Initan, and Pedro, Vicente, Felicitas,
Anastacio, Froilan, Alfonso. Advincula, Anunciacion, Jesus, Aguinaldo, all surnamed
Etcuban) from their deceased father. Said piece of land was declared in their names as
the heirs of Eleuterio Etcuban under Tax Declaration No. 06837. Thereafter the eleven
co-heirs executed in favor of Jesus C. Songalia and Guadalupe S. Songalia (private
respondents Songalia) eleven deeds of sale of their respective shares in the co-
ownership for the total sum of P26,340.00. The earliest of the eleven deeds of sale was
made on December 9, 1963 and the last one in December 1967.

In his complaint before the trial court, petitioner alleged that his coowners leased and /
or sold their respective shares without giving due notice to him as a co-owner
notwithstanding his intimations to them that he was willing to buy all their respective
shares. Private respondents Songalia, in denying the material allegations of the
complaint, argued that petitioner came to know of the sale of the subject property to
them in August 1968 or sometime earlier; that acting on this knowledge, petitioner thru
his lawyers wrote private respondents Songalia on August 15, 1968 about the matter;
that Jesus Songalia personally went to the office of Atty. Vicente Faelner or counsel for
petitioner to inform him of the sale of the subject property; that petitioner took no action
despite the information he received from private respondents Songalia thru his counsel;
and that, consequently, petitioner lost his right to redeem under Art. 1623 of the new
Civil Code because the right of redemption may be exercised only within 30 days from
notice of sale and petitioner was definitely notified of the sale years ago as shown by
the records.

The trial court allowed petitioner his right of redemption over the subject property and
ordered the private respondents Songalia to accept the redemption price of P26,340.00.
The Court of Appeals, on the other hand, ruled that petitioner is barred from redeeming
the subject property for his failure to make a valid tender of the sale price of the land
paid by the defendants within the period fixed by Art. 1623 of the Civil Code.

Issue: Who has the right of redemption over the subject property?

Held: The Supreme Court dismissed herein petition and affirmed the decision of the
appellate court. Petitioner contends that vendors (his co-heirs) should be the ones to
give him written notice and not the vendees (defendants or private respondent herein).
However, while it is true that written notice is required by the law (Art. 1623), it is equally
true that the same Art. 1623 does not prescribe any particular form of notice, nor any
distinctive method for notifying the redemptioner. So long therefore, as the latter is
informed in writing of the sale and the particulars thereof, the 30 days for redemption
start running, and the redemptioner has no real cause to complain.

In the case at bar, where the vendors or co-owners of petitioner stated under oath in the
deeds of sale that notice of sale had been given to prospective redemptioners in
accordance with Article 1623 of the Civil Code. "A sworn statement or clause in a deed
of sale to the effect that a written notice of sale was given to possible redemptioners or
co-owners might be used to determine whether an offer to redeem was made on or out
of time, or whether there was substantial compliance with the requirement of said Art.
1623."

BARTER
ACT 3952: BULK SALES LAW
Purpose of the Law
meant to protect creditors of businessmen against preferential or fraudulent
transfers
Coverage of the Law
The law covers all transactions, whether done in good faith or not, or whether or
not the seller is in a state of insolvency, that fall within the description of what is a bulk
sale.

Types of transactions which are treated as bulk sales:

1. Sale, transfer, mortgage or assignments of a stock of goods, wares,
merchandise, provisions, or materials otherwise than in the ordinary
course of trade;- ---extra ordinary sales of good
 2. Sale transfer, mortgage or assignments of all, or substantially all, of the
business or trade of the vendor, mortgagor, transferor, or assignor;-
ordinary sale of business

3. Sale, transfer, mortgage, or assignment of all, or substantially all, of the

fixtures and equipment used in the business of the vendor, mortgagor,
transferor, or assignor.- extra ordinary sales of equipment.

Note: Only creditors at the time of the sale in violation of the law are within
the protection of the laws and creditors subsequent to the sale are not
covered.

Even if the transaction falls within the definition of bulk sale, the
following are not deemed covered by the law:

1. If the vendor, mortgagor, transferor or assignor produces and delivers a

written waiver of the provisions of the law from his creditors as shown by
verified statements;

2. The law does not apply to executors, administrators, receivers, assignees

in insolvency, or public officers, acting under process.

Obligations when transaction is a bulk sale:

1. The vendor must deliver to such vendee a written statement of:

a. names and addresses of all creditors to whom said vendor or

mortgagor may be indebted;
b. amount of indebtedness due or owing to each of said creditors

2. The vendor must apply the purchase money to the pro-rata payment of bona fide
claims of the creditors as shown in the verified statement.
3. The seller, at least 10 days before the sale, shall:
a. make a full detailed inventory of the goods, merchandise, etc., cost
price of each article to be included in the sale
b. notify every creditor at least 10 days before transferring
possession of the goods, of the price, terms and conditions of the
sale

Consequences of Violation of Requirements under #6 above stated:

1. When 6(a) above is not complied with, the sale itself is void; the seller will
be criminally liable.
 2. When 6(b) above is not complied with, the sale itself is also void; seller is
also criminally liable.

3. When 6(c) is not complied with, the sale is not void; no criminal liability on
the seller.

RETAIL TRADE LIBERAIZATION ACT

RETAIL TRADE LIBERALIZATION ACT (source: Board of Investments) Republic Act
8762, otherwise known as the Retail Trade Liberalization Act, is a law that intends to
promote both Filipino and foreign investors to forge efficient and competitive retail trade
in the interest of empowering the Filipino consumer through lower prices, higher quality
goods, better services and wider choices.
Retail Trade is the act, occupation or calling of habitually selling direct to the general
public merchandise, commodities or goods for consumption.
Under Section 4 of the said law, a natural born citizen of the Philippines who has lost his
Philippine citizenship but who resides in the Philippines shall be granted the same rights
as Filipino citizens. In addition, the following are sales that are not considered as retail:
1. Sales by a manufacturer, processor, laborer or worker, to the general public of
products manufactured, processed or produced by him if his capital does not exceed
One Hundred Thousand Pesos (P100,000);
2. Sales by a farmer or agriculturist selling the products of his farm, regardless of
capital;
3. Sales arising from restaurant operations by a hotel owner or inn-keeper irrespective
of the amount of capital, provided, that the restaurant is incidental to the hotel business;
4. Sales through a single outlet owned by a manufacturer of products manufactured,
processed or assembled in the Philippines, irrespective of capitalization;
5. Sales to industrial and commercial users or consumers who use the products bought
by them to render service to the general public and/or produce or manufacture of goods
which are in turn sold by them; or
6. Sales to the government and/or its agencies and government-owned and controlled
corporations.
For foreign retailers, the qualifications to engage in retailing are the following:
A request for pre-qualification duly signed and acknowledged under oath by an
authorized officer of the foreign retailer must be submitted to the Board of Investments
accompanied by the following documents:
1. Latest audited annual financial statements incorporating an income statement and a
balance sheet or their equivalents
a. For Category B minimum of US$200M net worth
b. For Category D minimum of US$50M net worth
2. Certification by a responsible officer of the applicant-foreign retailer duly
authenticated by the Philippine Embassy/Consulate stating that:
i. it has been engaged in retailing for the past five years;
ii. has at least five (5) retailing branches anywhere in the world, or at least one branch is
capitalized at a minimum of Twenty-five million US dollars (US$25,000,000.00);
iii. copies of franchise or licensing agreements between the applicant and its
franchisee/licensee if the applicant fails to meet the preceding requirement of at least
five (5) retailing branches; and
2. Certification by the proper official of the home state of the applicant-foreign
retailer to the effect that the laws of such state allows or permits reciprocal rights
to the Philippine citizens and enterprises together with the extent of participation
allowed.
3. Foreign equity requirement: Category B Enterprises with a minimum paid-up
capital of Two million five hundred thousand US dollars (US$2,500,000.00) The
opening of branches by a foreign retailer is allowed, provided that the
investments of each store/branch established under Category B must be no less
that the peso equivalent of $830,000.00 Category D Enterprises specializing in
high-end or luxury products with a paid-up capital of Two hundred fifty thousand
US dollars (US$250,000.00) per store may be wholly owned by foreigners.

LEASE
MELENCIO vs. DY TIAO LAY
Parcel of land in Cabanatuan, Nueva Ecija was originally owned by one Julain Melencio
who died before the 1905, leaving his widow Ruperta Garcia and 5 children. Ruperta held
nothing but a widow's usufruct in the land. Contract of lease in favor of Yap Kui Chin.
Term of Lease: 20 years, for the establishment of a rice mill with necessary buildings for
warehouses and quarters for employees. Document evidencing lease acknowledged but
never recorded with the Register of Deeds. Lessee took possession of the land and
erected the mill and other necessary buildings. lease was transferred to Uy Eng Jui who
transferred it to Uy Eng Jui & Co.(unregistered partnership); until the lease finally came
to Dy Tiao Lay. Land was registered under the Torrens system in 1913 but the lease was
not mentioned in the title, though it was mentioned that one house and 3 warehouses
were owned by Yap Kui Chin. 1920 - heirs of Julian Melencio made an extrajudicial
partition of parts of the inheritance. After Mrs. Macapagal, wife of one the heirs of Julian,
Ramon, demanded an increase of the lease from P20 per mo. to P300/mo., she was
informed by Dy Tiao Lay that a written lease existed and that according to its terms, Dy
Tiao was entitled to an extension of the lease at the original rental. Plaintiffs insisted they
had no knowledge of it and in such case the lease was executed without their consent
and was thus void.
The power of the majority (of co-owners of an indivisible property) would be confied to
decisions touching the management and enjoyment of the common property and would
not include acts of ownership, such as a lease of 12 years w/c gives rise to a real right,
which must be recorded and which can be performed only by owners of the property
leased. Where the contract of lease may give rise to a real right in favor of the lessee
(constituting a sundering of the ownership which transcends mere management) then the
part owners representing the greater portion of the property held in common have no
power to lease the property for a period longer than 6 years w/o the consent of all co-
owners. In this case, the fact that the lease was for 20 years amounted to an act of
rigorous alienation and NOT a mere act of management, thus necessitation the consent
of ALL co-owners.

W.H. Tipton, Chief of the Bureau of Lands and Administrator of the Estate of the
San Lazaro Hospital vs. Roman Martinez Y Andueza G.R. No. 2070. January 2,
1906 Mapa, J.:

FACTS: Vicente Aguirre, as administrator of the San Lazaro Hospital, leased to the
defendant in this case a tract of land belonging to the hospital. It was stipulated in the
contract that the lease should run for a period of ten years from the 1st day of January,
1899. Aguirre, the administrator, was duly authorized to execute such contracts, but his
power was general in terms and contained no provision specially authorizing him to
make leases with respect to the hospital property for a period of ten years or any other
specific term.

W.H. Tipton, as the present administrator of the hospital property, claims that the
contract made by his predecessor, Aguirre, was null and void for want of power on his
part to make such contract, basing his contention upon the provisions of article 1548 of
the Civil Code stating that ...the administrator of property without a special power giving
him such authority, cannot execute a lease for a period exceeding six years.

ISSUE: Whether the contract is null and void in its entirety when it was executed for a
period longer than six (6) years as prescribed in Article 1548, when the administrator
has no special power of attorney.

HELD: This provision plainly shows that Aguirre could not, as administrator, have validly
executed a lease of the land in question for a period of ten years in the absence of
special authority to that effect. This, in our opinion, vitiated the contract. This defect,
however, did not affect the contract in its entirety, but only in so far as it exceeded the
six-year limit fixed by law as the maximum period for which an administrator can
execute a lease without special power. The contract in question was perfectly valid in so
far as it did not exceed that limit, it having been executed by the administrator, Aguirre,
within the scope of the legal authority he had under his general power to lease. That
general power carried with it, under the article above quoted, the authority to lease the
property for a period not exceeding six years. There was no excess of authority and
consequently no cause for nullification arising therefrom, as to the first six years of the
lease. As to the last four, the contract was, however, void, the administrator having
acted beyond the scope of his powers.

Claudina vda. de Villaruel, Et Al. v. Manila Motor Co., Inc. and Arturo
Colmenares G.R. No. L-10394, December 13, 1958

FACTS: On May 31, 1940, the plaintiffs Villaruel and the defendant Manila Motor Co.,
Inc. entered into a contract 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.

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.

ISSUE: 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

HELD: 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).

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 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.