Villaruel vs. Manila Motor Co., Inc.

The Court held that where a lessee is dispossessed of leased premises by a belligerent occupant acting pursuant to a right recognized under international law, the dispossession constitutes a "perturbacion de derecho" (disturbance under color of right) under Article 1560 of the Spanish Civil Code, not a mere act of trespass; consequently, the lessor fails in the obligation to maintain the lessee in peaceful enjoyment, and the lessee's duty to pay rent is suspended for the duration of the deprivation. Additionally, where lessors improperly refuse to accept current rentals tendered by the lessee unless the lessee recognizes a disputed claim for past rents, the lessors are in mora creditoris, and the risk of accidental destruction of the premises shifts to the lessors.

On May 31, 1940, the plaintiffs (spouses Villaruel) entered into a contract of lease with defendant Manila Motor Co., Inc. for immovable properties in Bacolod, Negros Occidental, consisting of floor space for an automobile showroom and offices, a repair shop building, and a five-bedroom residential house for the company's branch manager. The five-year lease term commenced on October 31, 1940, with a monthly rental of P300 for the commercial premises and P50 for the residential quarters. Following the outbreak of war and the Japanese occupation of Bacolod, the Imperial Japanese Army seized the premises from June 1, 1942 to March 29, 1945, ousting the lessee and using the buildings as military quarters without paying rent. Upon liberation in 1945, American forces occupied the same buildings until October 31, 1945, paying rent to the owners at the contract rate. The lessee subsequently renewed the lease for an additional five years and sublet the commercial portions to defendant Arturo Colmenares.

• On May 31, 1940, plaintiffs (the Villaruel spouses) and defendant Manila Motor Co., Inc. executed a contract of lease for commercial and residential premises for a term of five years commencing October 31, 1940, renewable for an additional five years, at a monthly rental of P300 for the commercial space and P50 for the residential house.
• From June 1, 1942 to March 29, 1945, during the Japanese military occupation of Bacolod, the premises were seized and used as quarters by Japanese forces, ousting the lessee; no rentals were paid to the plaintiffs during this period.
• Upon liberation in 1945, American forces occupied the buildings until October 31, 1945, paying monthly rentals to the plaintiffs at the contract rate.
• Following the American withdrawal, the lessee exercised its option to renew the lease for five years and sublet the commercial portions to defendant Arturo Colmenares, with the parties agreeing that the seven-month American occupation would not count toward the renewed term.
• In July 1946, plaintiffs demanded payment of rents for the Japanese occupation period totaling P11,900 and sought rescission of the lease; the lessee refused, contending that the ouster by enemy forces relieved it of rental obligations.
• From July to November 1946, the lessee tendered current monthly rentals of P350, but plaintiffs refused acceptance unless the lessee recognized their right to the occupation rents; in December 1946, plaintiffs accepted a payment of P350 "without prejudice" to their claims for rescission and arrears.
• On April 26, 1947, plaintiffs instituted the present action.
• On March 2, 1948, a fire originating from the projection room of the City Theatre (operated by Colmenares in the former repair shop) destroyed the leased buildings.
• Plaintiffs filed a supplemental complaint to recover the value of the burned buildings (P30,000).

• The ouster of the lessee by Japanese occupation forces constituted merely a "perturbacion de mero hecho" (mere act of trespass) under Article 1560 of the Spanish Civil Code, which does not exempt the lessee from the duty to pay rent because the lessor is not liable for such disturbances.
• The lessee was in default in the payment of post-liberation rentals, entitling the lessors to rescission and making the lessee liable for the accidental loss of the buildings under the principle that defaulting debtors bear the risk of fortuitous events.
• The supplemental complaint was proper as it merely changed the relief prayed for due to a supervening event (the fire) without altering the theory of the case, which remained centered on the lessee's default.
• The dismissal of the first and second causes of action in 1951 was without prejudice, as it was predicated solely on the Debt Moratorium which merely suspended enforcement of the obligation temporarily.

• The supplemental complaint should not have been admitted because it changed the theory of the case from rescission based on breach of contract to recovery of damages for destruction of property, thereby raising new issues.
• The dismissal of the first and second causes of action on February 5, 1951 was with prejudice because the trial court did not qualify its dismissal order, thereby barring refiling.
• The ouster by Japanese military forces was a "perturbacion de derecho" (disturbance under color of right) pursuant to international law principles recognizing a belligerent occupant's right to requisition private property for military necessity, thereby suspending the lessee's obligation to pay rent during the occupation.
• The lessors were in default (mora creditoris) in refusing to accept current rentals without prejudice to their disputed claim for occupation rents, thereby bearing the risk of the subsequent accidental destruction of the buildings under Articles 1185, 1452, and 1589 of the Civil Code.

• Procedural Issues:
  • Whether the trial court erred in admitting the supplemental complaint seeking recovery of the value of the burned buildings.
  • Whether the February 5, 1951 dismissal of the first and second causes of action was with prejudice, thereby barring their subsequent revival.
• Substantive Issues:
  • Whether the lessee is liable for rentals corresponding to the period when the premises were occupied by Japanese military forces.
  • Whether the lessee and sublessee are liable for the value of the buildings destroyed by fire.

• Procedural: The Court held that the supplemental complaint was properly admitted. The filing did not alter the theory of the case—which remained the lessee's alleged default in rental payments—but merely changed the relief prayed for due to the supervening fortuitous event (the fire). This is permitted under Section 2, Rule 17 of the Rules of Court to enable complete determination of all matters in dispute in a single proceeding. The Court also held that the February 5, 1951 dismissal was without prejudice because it was expressly predicated on the existence of the Debt Moratorium, which suspended enforcement of the obligation temporarily; the trial court's reference thereto amounted to a qualification that plaintiffs must wait until the moratorium was lifted.
• Substantive: The Court ruled that the lessee is not liable for rents during the Japanese occupation. Under Article 1560 of the Spanish Civil Code, a lessor is not liable for mere acts of trespass (perturbacion de mero hecho), but is liable for disturbances by third persons acting under color of right (perturbacion de derecho). Applying principles of international law (Hague Regulations), a belligerent occupant has the right to requisition private property for military use. The Japanese forces acted pursuant to this recognized right, making their occupation a "perturbacion de derecho" for which the lessors were responsible, and which deprived the lessee of peaceful enjoyment of the premises, thereby suspending the rental obligation. The Court further ruled that the lessors' refusal to accept current rentals unless the lessee recognized their claim for occupation rents constituted mora creditoris (default of the creditor). Under Articles 1185, 1452, and 1589 of the Civil Code, and the principle of reciprocity in lease contracts (tractum successivum), the risk of fortuitous loss shifted to the lessors, absolving the lessee of liability for the destroyed buildings. The failure to consign the rejected rentals did not cure the lessors' default but merely preserved the obligation to pay the tendered amounts. Accordingly, the Court modified the judgment to limit recovery to P1,750 representing unpaid rents from July to November 1946.

• Perturbacion de mero hecho vs. Perturbacion de derecho — Under Article 1560 of the Spanish Civil Code, a lessor is not liable for mere acts of trespass by third parties (perturbacion de mero hecho), but is liable for disturbances committed by third persons acting under color of title or right (perturbacion de derecho). The Court applied this distinction to hold that occupation by a belligerent force pursuant to international law constitutes a disturbance under color of right, for which the lessor must answer and which excuses the lessee from paying rent during the deprivation of possession.
• Belligerent Occupant's Rights under International Law — Pursuant to Article II, Section 3 of the Constitution adopting generally accepted principles of international law as part of the law of the nation, and the Hague Regulations, a belligerent occupant may temporarily use private property for military necessities (billeting, hospitals, etc.) without confiscating title. This right distinguishes temporary military requisition from mere trespass.
• Mora creditoris (Default of Creditor) — Where a creditor refuses to accept performance tendered by the debtor without just cause, the creditor is in default (mora accipiendi). The Court held that lessors who refuse current rentals to coerce recognition of a disputed past debt are in mora, with the consequence that they bear the risk of fortuitous loss of the subject matter.
• Reciprocal Obligations in Lease (Tractum successivum) — Lease contracts involve reciprocal and successive obligations. The lessor's obligation to maintain the lessee in peaceful enjoyment is correlative to the lessee's obligation to pay rent. Failure of consideration on the lessor's part, whether due to fault or fortuitous event, excuses the lessee from performance pro tanto, or permits rescission if due to fault.

• "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."
• "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."
• "Clearly, then, the lessors' 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."

• Rutter vs. Esteban — Cited by plaintiffs below and noted by the Court as the decision invalidating Republic Act 342 (Debt Moratorium), which led to the trial court setting aside its previous dismissal order.
• Goldstein vs. Roces, 34 Phil. 562 — Cited for the definition of "perturbacion de mero hecho" as a disturbance not accompanied by any juridical intention, revealing merely a naked material fact devoid of legal form or motivation.
• Haw Pia vs. China Banking Corporation, 80 Phil. 604 — Cited for the recognition of a belligerent occupant's right to sequester or take temporary control over enemy private property for military purposes.
• Reyes vs. Caltex (Phil.) Inc., 84 Phil. 654 — Distinguished by the Court; noted that the rights of the military occupant under international law were not raised in that case, and the lessee there had resumed business after the seizure.
• Lo Ching vs. Archbishop of Manila, 81 Phil. 601 — Distinguished; the Japanese military act in that case went beyond Hague Convention limits by seizing property and delivering it to another private party.
• Southern Pacific Co. vs. Conway, 115 F. 2d 746 — Cited for the proposition that a change in relief prayed for due to supervening circumstances does not alter the theory of the case.
• Viterbo vs. Friedlander, 30 L. Ed. (U.S.) pp. 776, 778 — Cited for the distinction between common law and civil law concepts of lease, particularly regarding the lessor's implied obligations and the effect of vis major.

• Article 1554, Spanish Civil Code — Imposes on the lessor the duty to maintain the lessee in peaceful enjoyment of the lease during the entire term.
• Article 1560, Spanish Civil Code — Provides that the lessor is not liable for mere disturbance by third persons, but the lessee has a direct action against the trespasser; if the third person acted in reliance upon a right, the action is not deemed a mere act of disturbance.
• Article 1558, Spanish Civil Code (paragraph 2) — Authorizes the lessee to demand reduction of rent if repairs deprive him of possession of part of the property.
• Article 1575, Spanish Civil Code — Entitles the lessee of rural property to reduction of rent if more than half of the fruits are lost by extraordinary fortuitous event.
• Article 1185, Spanish Civil Code — Provides that an obligor is not exempt from payment of value of a thing lost due to fortuitous event if the person entitled to receive it refused without reason to accept it.
• Article 1452 (paragraph 3), Spanish Civil Code — Provides that fungible things sold for a fixed price are not at the purchaser's risk until weighed, counted, or measured, unless the purchaser is in default.
• Article 1589, Spanish Civil Code — Provides that a contractor who furnishes materials bears the loss if the work is destroyed before delivery, unless acceptance was delayed by the other party's default.
• Article 1563, Spanish Civil Code — Creates a presumption that loss of the thing leased is due to the fault of the lessee.
• Section 2, Rule 17, Rules of Court — Allows amendments to pleadings to conform to evidence or to raise issues not originally alleged but necessarily involved in the matters raised.
• Section 5, Rule 17, Rules of Court — States that the admission or rejection of amended pleadings is within the sound discretion of the court.
• Article II, Section 3, Philippine Constitution — Adopts generally accepted principles of international law as part of the law of the nation.