IFC-SERVICE LEASING & ACCEPTANCE CORPORATION, PLAINTIFF-APPELLEE, VS. SARMIENTO DISTRIBUTORS CORPORATION AND SARMIENTO SECURITIES CORPORATION, DEFENDANTS-APPELLANTS.

This is a petition for review on certiorari of the
decision* of the then Court of First Instance of Rizal, Branch X, in Civil Case No. 17126 for breach of
contract, entitled “IFC SERVICE LEASING & ACCEPT­ANCE CORPORATION v.
SARMIENTO DISTRIBUTORS CORPORATION and SARMIENTO SECURITIES CORPORATION”,
ordering the defendants to jointly and seve­rally pay the plaintiff the sum of
P19,583.16 corresponding to the arrears in rentals up to November, 1972, plus
1% interest per month until fully paid, and to pay the remaining rentals
covering the whole period of the contract as actual damages, plus the sum of
P5,000.00 as attorney’s fees and to pay the costs.

The plaintiff and the
defendants are corporations duly organized and existing under and by virtue of
the laws of the Philippines.

The facts of this case
are as follows:

On September 10, 1971,
the plaintiff as LESSOR, and defendants as LESSEES, entered into a written
contract entitled “Equipment Lease Agreement” (Record on Appeal, pp.
9-32) involving eight (8) units single sideband (HP) radio-telephone type
communicator-300 2 channels, the term of which lease is for an irrevocable
period of 36 months commencing in September, 1971 at a monthly rental of
P1,900.80 with 1% per month inte­rest on delinquent rentals (Ibid., pp. 35-36).

On December
27, 1972, plaintiff
filed a complaint in the trial court alleging that:

“the defendants violated the terms of
the contract by defaulting in the payment of the agreed rentals and as of
November 15, 1972, the arrearage in rents amount to P19,583.16 and despite
demands failed to settle the same; that on August 15, 1972, plaintiff received
from defend­ant, Sarmiento Distributors Corporation a
formal letter dated August 14, 1972 advising the plain­tiff, among other
things, about said defendant’s position to effect a surrender of the units as
its top management has decided to change its posture on its business strategy
and offered to surrender the equipment and to cease in payment of the rentals
upon its surrender; that in another letter dated September 13, 1973, Sarmiento Distributors Cor­poration reiterated its desire
to return the leased equipment, in view of which the plaintiff sent its
representative to inspect the leased equipment, to see if damages can be
minimized by both parties but plaintiff found out that the physical condition
of the leased equipment is such that it has deteriorated to such an extent
beyond ordinary wear and tear of a good user that extensive repairs are neces­sary
to put the equipment to serviceable unit; and that there is no one interested
to lease the said equipment.  It is
further alleged that the equipment leased to Sarmiento
Distributors Corporation were purchased by plaintiff specifi­cally to meet the
needs and existing requirements of said defendant and had it not been for such
client, the plaintiff had no reason to acquire the said equipment and that the
defendant Sarmiento Securities Corporation acted as
surety to secure faithful compliance of all the terms and conditions of the
Equipment Lease Agreement and is jointly severally liable with the other
defendant to the plaintiff.” (CA Resolution, Rollo,
p. 25.)

In their answer, the defendants countered that the lease
agreement concerning eight (8) units of single sideband (HP) radio-telephone
type communicator, had been extinguished by a subsequent law prohibiting the
use of privately owned radio facilities and all other kinds of media of
communication thereby rendering the performance of defendants’ obli­gation
(payment of rental) impossible.  Because
of this change of condi­tions that supervened during the term of the lease
contract, defendants as lessees of the eight units of radio-telephone
communicators were deprived of their use and are by law excused from payment of
said rentals.  They claim that such change
of conditions in effect extinguished the object of the lease so that they
cannot be held liable for payment of subsequent rentals after September 22,
1972 when the prohibiting law took effect and the alleged irrevocable term of
the lease agreement for three years was rendered nugatory because the very
object of the contract was subse­quently prohibited by law and there can be no
valid contract without a lawful object (Record on Appeal, pp. 43-44).

At the pre-trial, the parties agreed to file their respective
memo­randa on the issue of whether or not the Lease Contract object of the case
was deemed terminated with the issuance by the then President of the
Philippines of Letter of Instructions No. 1 whereby the Secretary of National
Defense was ordered to take over the control or cause the taking over and
control of newspapers, magazines, radio and radio facilities and other media of
communication (Ibid., pp. 49-50).

On October 11, 1973,
the trial court found for the plaintiff and rendered judgment the dispositive portion of which reads as follows:

“WHEREFORE, decision is hereby rendered in favor of the
plaintiff and against the defend­ants ordering the latter to jointly and seve­rally
pay to the former the sum of P19,583.16 corresponding to the arrears up to
November, 1972, plus 1% interest per month until fully paid; to pay the
remaining rentals covering the
whole period of the contract as actual damages, plus the sum of P5,000.00 as
attorney’s fees and the costs of this suit.

SO ORDERED.” (Ibid., p. 61)

The dispositive
portion of the foregoing Decision was later amended on October
29, 1973, viz:

“WHEREFORE, decision is hereby rendered in favor of the
plaintiff and against the defendants ordering the latter to jointly and
severally pay to the former the sum of P19,583.16 correspond­ing to the arrears
up to November, 1972, plus 1% interest per month until fully paid; to pay the
remaining rentals covering the whole period or the contract
as actual damages, plus the sum of P5,000.00 as attorney’s fees and the costs
of this suit.  The defendants are hereby
further ordered to deliver and return to the plaintiff the eight (8) Units
Single Sideband Radio-Telephone subject matter of the contract.”

SO ORDERED.” (Ibid., p. 62).

In its Notice of Appeal defendants stated that they would raise questions of facts and law
(Record on Appeal, p. 63) but after notice to file appellants’ brief had been
issued by the Court of Appeals, plaintiff-appellee,
filed on September 10, 1974 a Manifestation alleging:

“that the question submitted for resolution as raised by
defendants-appellants’ appeal was one of law;

“that the parties in the case stipulated during the pre-trial
that only questions of law remain to be resolved for the adjudication of the
issues raised by the parties;

“that the decision of the court below merely resolved the
legal issue presented by the parties.” (CA Resolution, Rollo,
p. 27.)

Finding plaintiff-appellee’s manifestation to be meritorious and that
defendants-appellants’ reply thereto
interposed no objection, the Court of Appeals resolved** to certify
the appeal in this case to the Supreme Court (Ibid., p. 29).

Both parties were
required by this Court to file Briefs (Rollo, p.
34).  In compliance thereof,
defendants-appellants filed their brief on November 5, 1975 (Rollo, p. 58)
while plaintiff-appellee filed its brief on June 9,
1975 (Rollo, p. 68).

For failure of
defendants-appellants to file reply brief, the case was considered submitted
for decision without reply brief (Rollo, p. 70).

In their brief appellants
raised the following assignment of errors:

I

The lower court erred in considering that Letter of Instructions
No. 1 of the President did not absolutely prohibit the maintenance of the
communication system leased to the defendants appellants.

II

The lower court erred in ordering defendants to pay plaintiff the
sum of P19,583.16 representing arrears up to November 1972 plus 1% interest per
month until fully paid.

III

The lower court erred in awarding actual damages representing the
remaining rentals for the whole period of the contract of lease.

The appeal is impressed
with merit.

As mutually agreed upon
by the parties, the only issue here is whether or not Letter of Instructions
No. 1 issued by the President of the Philippines, upon the advent of martial law, effectively
abro­gated or rendered illegal the lease contract entered into between the
parties thereto.  We answer in the
affirmative.

Letter of Instructions
no. 1 quoted verbatim, reads:

“In view of the present national emergency which has been brought
about by the activities of those who are actively engaged in a criminal conspiracy to seize
political and state power in the Philippines and to take over the Govern­ment
by force and violence the extent of which has now assumed the proportion of an
actual war against our people and their legitimate Government, and pursuant to
Proclamation No. 1081, dated September 21, 1972, and in my capacity as Command­er
in Chief of all the Armed Forces of the Philip­pines and in order to prevent
the use of privately owned newspapers, magazines, radio and television
facilities and all other media of communications, for propaganda purposes
against the Government and its duly constituted authorities or for any purpose
that tends to undermine the faith and confidence of the people in our
Government and agg­ravate the present national emergency, you are hereby
ordered forthwith to take over and control or cause the taking over the control
of all such newspapers, magazines, radio and television facilities and all
other media of communications, wherever they are, for the duration of the
present national emergency, or until otherwise ordered by me or by my duly
designated representative.

In carrying out the foregoing order you are hereby directed to see
to it that reasonable means are employed by you and your men and that injury to
persons and property must he carefully avoided.”

The martial law
government had to enforce the prohibition against privately-owned communication
facilities as its measure of self-defense.

The contract of lease
entered into by the parties must be deemed terminated upon the date of effectivity of Letter of Instructions no. 1.  We cannot therefore say that from said date,
the lessees were delinquent in the payment of their rentals.  As implied in the case of Caltex
(Phil.) v. Reyes, 84 Phil 654 the act of the ruling power (the martial law
administration the instant case) was not an act of mere trespass but a trespass
in law (not a “perturbacion de mero hecho” but a “perturbacion de derecho“),
justified as it is by an act of the government in legitimate self defense.  Accordingly, the lessees ceased to have any
duty to pay rentals from the date the contract terminated by operation of law.

The fact that in a letter to the lessor
dated August 15, 1972, the lessees, in evident anticipation of martial law,
already were asking for the end of the lease contract is of no moment.  Almost everybody knew by that time that
martial law would be eventually imposed. 
Only the precise date of imposition remained a question mark.  And even if this were not so, still the lease
object became illegal on September 22,
1972, the date of effectivity of Letter
of Instructions no. 1.

Again, the fact that some
communications establishments were allowed to continue operating upon the fulfillment
of certain requi­sites is immaterial. 
What is significant is that no authorization was given to the lessees.

WHEREFORE the assailed decision is hereby MODIFIED in the
sense that the lessees are hereby ordered to pay the lessor
the rents from September 10, 1971
up to September 22, 1972.  All other awards made by the trial court are
hereby DELETED.

SO ORDERED.

Fernan, (Chairman), Gutierrez, Jr.,
Padilla, Bidin, and
Cortes, JJ., concur.

* Penned by Judge Eficio B. Acosta.

** Penned by Justice Ramon G. Gaviola, Jr. and concurred in by Justices Luis B. Reyes and
Pacifico P. de Castro.