Facts:

The case before the Supreme Court involved Santiago Banaag as the petitioner and Vicente Singson Encarnacion, in his capacity as Secretary of Agriculture and Commerce, along with the municipalities of Taal and Lemery, as respondents. The events of the case unfolded against the backdrop of the Second World War, specifically during the Japanese occupation of the Philippines. On June 3, 1943, the Bureau of Forestry and Fishery issued a lease to Santiago Banaag, granting him the exclusive privilege to erect a fish corral, commonly known as "Baklad," in the Pansipit River, which connects Taal Lake to the sea. This lease was framed under the provisions of Executive Order No. 127, and it included specific conditions for the construction and operation of the fish corral, such as leaving a portion of the river open for navigation and requiring that all fish caught be reported and sold through a designated association.

Banaag contended that the lease was valid for the full five-

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Facts:

Background of the Lease Contract

• Santiago Banaag executed a contract of lease on June 3, 1943, granting him the exclusive privilege to erect a fish corral (locally known as “Baklad”) in the Pansipit River, which serves as the outlet of Taal Lake, covering the municipalities of Taal and Lemery in Batangas.
• The lease was executed under the authority of Executive Order No. 127 issued by the Philippine Executive Commission during the Japanese occupation, and it stipulated various conditions including construction design to ensure free navigation and proper conservation of the fisheries.
• The lease specified financial obligations:
• An annual rental of ₱8,501 (the highest bid from a public auction) with a detailed schedule of surcharges for late payment.
• Payment of a daily fee per ton of fish caught, subject to penalties if not promptly remitted.
• Submission of a real estate bond in the amount of ₱8,501 as a guaranty for compliance, executed on June 1, 1943, lasting five years.

Parties and Their Claims

• Petitioner Santiago Banaag, a resident of Taal, Batangas, claimed entitlement to the full 5-year period of the lease (from July 1, 1943, to June 30, 1948) and sought a declaratory judgment upholding its validity.
• Respondents included Vicente Singson Encarnacion, in his capacity as Secretary of Agriculture and Commerce, and the municipalities of Taal and Lemery.
• They contended that the lease should have terminated upon the liberation of Batangas or be subject to suspension or cancellation at the will of the government authorities.
• They relied on the clause in the deed that stated the concession “may be suspended or cancelled at any time as the circumstances demand.”

Procedural History and Stipulated Facts

• The case was submitted for decision with the following stipulated facts:
• Identification of the petitioner and respondents as legally competent parties, with petitioner being the exclusive concessionaire of the Pansipit fisheries.
• The lease was granted pursuant to Executive Order No. 127 and related statutory provisions (the Revised Administrative Code, Act 4003 as amended by Act 471).
• The Petitioner's possession of the fisheries began in June 1943 after providing the mandatory bond and incurring expenses for construction and acquisition of fishing equipment.
• A dispute arose concerning the validity and construction of the deed of lease, with respondents asserting that the lease was executed by a de facto government (the Philippine Executive Commission under Japanese occupation) and was inherently limited by its nature as an occupation instrumentality.

Context of Occupation and Subsequent Developments

• Respondents argued that the Executive Commission, which executed the lease, functioned only as an instrumentality of the Japanese forces of occupation, and its contracts should not bind the government of the Philippines after liberation.
• They cited international and regulatory provisions, including Article 55, Section III of the Hague Conventions of 1907 and the United States War Department’s rules, which imply that contracts by an occupying government should terminate with the cessation of hostilities.
• The municipalities of Taal and Lemery, through a resolution adopted on August 17, 1945, demanded that petitioner return possession of the Pansipit fisheries.
• Petitioner’s subsequent petition for a writ of preliminary injunction in June 1948—aimed at restraining the municipalities from taking over the fisheries—was denied.

Issue:

Validity and Binding Effect of the Lease

• Whether the deed of lease executed on June 3, 1943, by the de facto government of the Philippine Executive Commission, remains valid and enforceable after the liberation of Batangas.
• Whether the lease should be considered valid for the full five-year period (July 1, 1943, to June 30, 1948) as claimed by petitioner.

Effect of Occupation and Governmental Changes

• Whether the lease, executed during the Japanese occupation, is subject to cancellation or suspension upon the restoration of the de jure government.
• Whether international legal principles (such as those embodied in Article 55 of the Hague Conventions of 1907) and domestic contractual doctrines mandate the termination of such contracts upon the end of the occupation.
• The implication of the clause in the lease which provided that the concession “may be suspended or cancelled at any time as the circumstances demand.”

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)