SANTIAGO BANAAG, PETITIONER AND APPELLEE, VS. VICENTE SINGSON ENCARNACION, IN HIS CAPACITY AS SECRETARY OF AGRICULTURE AND COMMERCE, AND THE MUNICIPALITIES OF TAAL AND LEMERY, R…

Santiago Banaag prayed for a declaratory judgment under the
provisions of Rule 66, upholding validity of a contract of lease executed in his
favor on June 3, 1943, which reads as follows:

“June 3, 1943

“LEASE FOR THE EXCLUSIVE PRIVILEGE CF ERECTING FISH CORRAL IN
PANSIPIT RIVER, TAAL AND LEMERY, BATANGAS.

“Pursuant to sections 1 and 4 of Executive, Order No. 127, Mr.
Santiago Banaag, of Taal, Batangas, is hereby granted the exclusive privilege of
erecting one (1) fish corral, locally known as “Baklad”, in Pansipit River,
outlet of Taal Lake, Municipalities of Taal and Lemery, Province of
Batangas.

“This lease for the exclusive privilege of erecting such fish
corral is subject to all laws, orders and regulations of the military or naval
authorities, the Philippine Executive Commission, and the Bureau of Forestry and
Fishery, Department of Agriculture and Commerce on fisheries and fishing.

“The fish corral should be so constructed so as to leave at
least one-third of the width of the river entirely upon for free navigation and
the migration of fishes; and the lessee will abide by all existing rules and
regulations for the conservation and protection of the fisheries in Lake Taal
and its outlet.

“The lessee shall not transfer or sublet the privilege, or any
rights required therein, without the previous approval of the Director of
Forestry and Fishery.

“All fish caught under this lease, whether they be for military
or civilian use, shall be sold or marketed thru the Manila Fisherman’s
Association, in case the fish are to be brought to Manila, pursuant to Executive
Order No. 81.

“The daily record of fish caught should be presented monthly
and the required fee P1 per ton gross of fish caught), paid to the Cashier and
Disbursing Officer of the Bureau of Forestry and Fishery, Manila, or to the
Municipal Treasurers of Taal or Lemery, Batangas, not later than the 10th day of
the month. Payments made thereafter shall be subject to surcharge of 100 per
cent.

“The annual rental of P8,501 which was the highest bid offered
in a public auction conducted in the Bureau of Forestry and Fishery on May 29,
1943, was paid to the Cashier and Disbursing Officer of the Bureau of Forestry
and Fishery on June 3, 1943, for which Official Receipt No. 0080695 was
issued.

“The annual rental of P8,501 shall be paid not later than June
30th of each year. Failure to pay the annual rental on time will subject the
lessee to a surcharge according to the following schedule: Rental paid from July
1st to July 31st, 10 per cent; August 1st to August 31st, 15 per cent; September
1st to September 30th, 20 per cent; October 1st to October 31st, 25 per cent;
and after October 31st, 30 per cent.

“As a guaranty of good faith in the satisfactory compliance
with the terms and conditions of the lease, the lessee has posted a real estate
bond in the amount of P8,501 with Gaudencio Banaag” and Pedro Cruz and Basilia
A. de Cruz as sureties, executed on June 1, 1943. This bond should last for five
years.

“This license shall expire on June 30, 1948; it may be
suspended or cancelled at any time as the circumstances demand and it should be
presented upon demand of competent authorities.”

Petitioner contends that said contract should be declared valid
for the whole period of five years therein stipulated, from July 1, 1943, to
June 30, 1948, while respondents maintain the theory that the contract or
concession should be declared terminated as of the date of the liberation of the
Province of Batangas or that, at least, subject to suspension or cancellation at
the will of the Secretary of Agriculture and Commerce, or of any person who may
competently act in his behalf.

The case was submitted for decision on December 19, 1945, upon
the following stipulated facts:

“x     x     x     x     x

“1. That he is of age and resident of the municipality of Taal,
Province of Batangas, Philippine Islands;

“2. That the respondent Vicente Singson Encarnacion is likewise
of age, a resident of the City of Manila, Philippine Islands, and is the duly
appointed, qualified and acting Secretary of Agriculture and Commerce of the
Commonwealth of the Philippines and is sued herein in his capacity as such; and
that the municipalities of Taal and Lemery are municipal corporations, organized
and existing under the laws of the Commonwealth of the Philippines;

“3. That the petitioner is the exclusive concessionaire of the
Pansipit fisheries of Batangas, Philippine Islands for a period of five years,
from the first of July, 1943, to the 30th of June, 1948, granted to him by the
Bureau of Forestry and Fishery, under the authority of the Secretary of
Agriculture and Commerce, in pursuance to Executive Order No. 127 of the
Executive Commission promulgated on January 23, 1943, in connection with the
Revised Administrative Code and Act 4003, as amended by Act 471 of the
Commonwealth of the Philippines;

“4. That the Executive Commission, upon whose authority the
concession and adjudication of the exclusive authority of the lease of Pansipit
fisheries were granted to the herein petitioner, was a de facto
government, recognized and declared as such by our Supreme Court in a very
recent case, Co Kim Cham alias Co Cham vs. Eusebio Valdez Tan keh and .Judge Dizon of the Court of First Instance of Manila, 75 Phil., 371:

“In view of the foregoing, it is evident that the Philippine
Executive Commission, which was organized by Order No. 1, issued on January 23,
1942, by the Commander of the Japanese Forces, was a civil government
established by the Military forces of occupation and therefore a de facto
government of the second kind. It was not different from the government
established by the British in Castine, Maine, or by the United States in
Tampico, Mexico. As Hallecks says, “the government established over an enemy’s
territory during the military occupation may exercise all the powers given by
the laws of war to the conqueror over the conquered, and is subject to all
restrictions which that code imposes. It is of little consequence whether such
government be called a military or civil government. Its character is the same
and the source of its authority is the same. In either case it is a government
imposed by the laws of war, and so far as it concerns the inhabitants of such
territory or the rest of the world, those laws alone determine the legality or
illegality of its acts.” (Vol. 2, p. 466). The fact that the Philippine
Executive Commission was a civil and not a military government and was run by
Filipinos and not by Japanese nationals, is of no consequence.’

“x     x     x     x     x

“6. That upon the adjudication and concession of said Pansipit
fisheries, the petitioner took possession of them in June 1943, after having
filed a bond in the sum of P5,501 with sufficient sureties, and incurred in
expenses in the amount of P10,000, more or less, for the construction of corrals
and for the acquisition of fishing equipments, etc.; and since then the
petitioner continued and still continues in the peaceful and quiet possession of
same.

“x     x     x     x     x

“9. That there is a dispute between the petitioner and the
respondents herein as to the validity and construction of the deed of lease
granted to the former, the latter contending that the aforementioned deed of
lease is doubtful and not enforceable at present.

“10. That article 3, section 1, of the Constitution of the
Philippines reads as follows:

” ‘No Person shall be deprived of * * * property without due
process of law, nor shall any person be denied the equal protection of the
laws.’

“11. That under the provisions of rule 66, of the Rules of
Court, any person interested under a deed, contract or other instrument, or
whose rights are affected by a statute or ordinance, may bring an action to
determine any question of construction or validity arising under the instrument
and for a declaration of his rights or duties thereunder.”

Petitioner advances the theory that the Executive Commission
during the Japanese occupation, upon whose authority the concession and
adjudication of the Pansipit fisheries were granted to him was a de facto
government and, under certain limitations, obligations assumed by it in behalf
of the country, will, in general, be respected by the government de jure
when restored.

Respondents allege that the deed of lease granted to petitioner
on July 3, 1943, even if valid at its inception, cannot bind the government of
the Philippines, not only because it was not a party thereto, but because the
Executive Commission was merely an instrumentality of the Japanese forces of
occupation and, as such must be regarded only as administrator and usufructuary
of the public buildings, real estate, forest, and agricultural works situated in
the occupied country, and that the deed of lease in question should be deemed
terminated with the establishment of the Commonwealth upon the principle that a
government of occupation can let lands and buildings and make contracts in
reference to them only for such time as it is in occupation, and that it is
expressly stated in said deed of lease that the concession “may be suspended or
cancelled at any time as the circumstances demand and it should be presented
upon the demand of competent authorities.”

The parties agreed that on August 17, 1945, the mayors of Taal
and Lemery required Banaag to return the possession of the Pansipit fisheries to
said municipalities.

The trial court, in a decision rendered on February 11, 1946,
declared the deed of lease valid and legitimate for all legal purposes.
Respondents appealed against said decision.

This case has been submitted for decision since January, 1947,
as stated in the resolution of this Court of December 23, 1947, in relation with
the petition of December 20, 1947, filed by respondents praying for early
hearing on the case. Deliberation for decision could have taken place only in
February, 1949.

On June 21, 1948, petitioner filed a petition praying for the
issuance of a writ of preliminary injunction ordering the municipalities of Taal
and Lemery to refrain from taking over on July 1, 1948, or on any date
thereafter, the Pansipit fisheries until this case is decided by the Supreme
Court, and to permit petitioner to continue with the administration and
occupation of said fisheries in the meantime. The petition was filed in view of
the adoption by the municipalities of Taal and Lemery of a resolution to take
away from petitioner the Pansipit fisheries on July 1, 1948, after the
expiration of the 5-year period of the lease contract executed on June 3, 1943.
The petition was denied by our resolution of June 23, 1948.

Respondents appeal hinges on two main questions, one based on
article 55, section III of the Hague Conventions of 1907, and the other on the
context of the deed of lease.

Article 55, section III of the Hague Conventions of 1907,
provides:

“The occupying State shall be regarded only as administrator
and usufructuary of public buildings, real estate, forest, and agricultural
works belonging to the hostile State, and situated in the occupied country. It
must protect the capital of these properties and administer it according to the
rules of usufructuary.”

They invoked the United States War Department rules of Land
Warfare, 1934, No. 316, which declares that “a lease or contract should not
extend beyond the conclusion of the war,” reiterating the general rule embodied
in article 480 of the Civil Code to the effect that “* * * all the contracts he
may make as such usufructuary shall terminate at the expiration of the usufruct
* * *.”

Petitioner and appellee tries to advance the theory that the
words “real estate,” of the above quoted article 55 of the Hague Conventions of
1907, do not include all and every species of real property, failing, however,
to state what should be excluded or even to state that the fisheries are among
the ones excluded. There cannot be any question that the words “real estate”
include said fisheries and, accordingly, the Japanese armed forces, in whose
representation the Executive Commission and its agencies executed the deed of
lease in question, had ceased, after liberation, to be the .administrator and
usufructuary of the fisheries in question and, therefore, the deed of lease has
to be regarded as null and void since then.

Furthermore, although the belligerent occupant may appropriate
the produce of public immovables belonging to the State, the occupant cannot, as
correctly stated by Oppenheim, appropriate “the produce of those belonging to
.municipalities, or of those which, although they belong to the hostile State,
are permanently set aside for religious purposes, for the maintenance of
charitable and educational institutions, or for the benefit of art and science,”
as, according to article 56 of the Hague Regulations, such property is to be
treated as private property. (Page 308, International Law, by Oppenheim, Vol.
II, edited by Lauterpacht.) The fisheries in question belong to the
municipalities of Taal and Lemery.

The said deed of lease having expressly provided that the
concession “may be suspended or cancelled at any time as the circumstances
demand”—and no one questions the authority of the municipalities of Taal and
Lemery, to which the Pansipit fisheries belong, to suspend or cancel the deed of
lease in behalf of the Philippine Government and it appearing that said
municipalities have actually demanded from petitioner the return of the
administration and occupation of said fisheries since August 17, 1945, it is
evident that petitioner lost since then his right to continue administering and
occupying said fisheries.

The other questions raised in respondents brief need not be
considered in view of the result of the discussion of the above two main
questions.

The appealed decision is reversed and the deed of lease
executed on June 3, 1943, by Florencio Tamesis, Director of Forestry and
Fishery, in favor of petitioner Santiago Banaag, is declared cancelled and
without effect since the liberation of the Province of Batangas or, at least,
since August 17, 1945. The Pansipit fisheries shall be returned by petitioner to
the municipalities of Taal and Lemery, if he has not already done so.

Moran, C.J., Feria, Pablo, Bengzon, Briones, Tuason,
Montemayor, and Reyes, JJ., concur.
Paras, J., concurs in
the result.