American Far Eastern School of Aviation, Inc. v. Ayala y Compania
REITERATIONFacts
The Antecedents: On March 20, 1936, Ayala y Compañia (AYALA) leased a parcel of land to American Far Eastern School of Aviation, Inc. (AFESA) for ten (10) years commencing February 15, 1936. Subsequent contracts expanded the leased area and adjusted the lease period. AFESA established an aeronautical school and airport. In August 1941, AFESA subleased the premises to the United States Army with AYALA's consent. AFESA paid rents until November 1941. Due to the Japanese invasion, the Japanese Army occupied the premises from January 2, 1942, to February 15, 1945. Subsequently, the United States Army occupied the premises from February 15, 1945, until February 15, 1946, after a contract was executed with AFESA. AFESA did not pay rent for December 1941, nor for the periods occupied by the Japanese and United States Armies until the lease expiration on February 15, 1946. Procedural History: AFESA filed a complaint for specific performance and accounting, seeking restoration of possession and accounting of income. AYALA counterclaimed for unpaid rentals. The Court of First Instance ruled in favor of AFESA, ordering AYALA to restore possession and maintain AFESA's peaceful enjoyment for an extended period. The Court of Appeals reversed this, dismissing AFESA's complaint and ordering AFESA to pay unpaid rentals and attorney's fees. The Petition: AFESA appealed to the Supreme Court, contending that the lease period should be extended due to the interruption of possession by the Japanese Army and that the Court of Appeals erred in holding it liable for rentals and attorney's fees without restoring possession.
Issue(s)
Whether the lease period should be extended due to the interruption of possession by the Japanese Army. Whether AFESA is liable for unpaid rentals during the periods of occupation by the Japanese and United States Armies. Whether AFESA is entitled to possession and accounting of income.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals, dismissing AFESA's complaint and ordering AFESA to pay AYALA the unpaid rentals from December 1, 1941, to January 2, 1942, and from February 15, 1945, to February 15, 1946, plus attorney's fees.
Ratio Decidendi
On the extension of the lease period: The Court held that the interruption of possession by the Japanese Army did not entitle AFESA to an extension of the lease term. Citing Article 1560 of the old Civil Code, the Court stated that a lessor is not liable for disturbances of mere fact caused by a third party. The lessee has a direct action against the trespasser. The occupation by the Japanese Army was considered a mere trespass, not a disturbance of right for which the lessor would be liable. Therefore, the period of occupation by the Japanese Army should not be counted against the lease term, and the lease expired on its original termination date. On liability for unpaid rentals: The Court found AFESA liable for the unpaid rentals. The lease contract stipulated specific rental payments up to a certain period. The fact that the premises were occupied by foreign armies did not absolve AFESA from its contractual obligation to pay rent, especially since the lease had not been legally terminated or suspended by a valid cause. The Court noted that AFESA had paid rents up to November 1941 and that the unpaid rentals corresponded to periods before and after the Japanese occupation, including the period of US Army occupation for which a contract was eventually executed with AFESA. On entitlement to possession and accounting: Since the lease had expired on its stipulated date and AFESA was found liable for unpaid rentals, it was no longer entitled to possession of the leased premises. Consequently, the claim for an accounting of income derived from the property during the period of occupation was also dismissed, as AFESA's right to the property had ceased.
Main Doctrine
The lessor is not liable for disturbances of mere fact caused by a third party, such as occupation by an invading army, as the lessee has a direct action against the trespasser. The term of the lease is not extended by such period of dispossession.