G.R. No. L-1614 - De la Cruz vs. Asociacion Zanjera Casilian

The litigation involves a parcel of slightly more than 90 hectares of barren land located in Barrio de Casilian, Ilocos Norte, owned by the defendants and their predecessors.
In 1908, the plaintiffs (and their predecessors) constructed an irrigation system fed by the Bacarra River to render the barren land productive, laying the foundation for the ensuing contracts and disputes.

Under the original arrangement, the plaintiffs and their predecessors dug irrigation canals within the defendants’ property. In compensation, following local customary practice, the defendants (and their predecessors) ceded two-thirds of the land to the plaintiffs while retaining one-third for themselves.
A subsequent agreement on May 18, 1926, modified these conditions so that:

The plaintiffs returned the land previously received under the original arrangement.
They were to receive 5/6 of the palay harvested and 2/3 of any other crop.
The laborers were bound to pay 2/3 of the land taxes.
Violations of its terms were penalized with a fine that doubled with each infraction.

On March 18, 1930, a tenancy contract was signed requiring the plaintiffs (as tenants) to:

Take care of and fence the defendants’ property.
Cultivate the uncultivated portions, with breaches subject to punishment by “our association.”
Share the harvest under distinct terms depending on whether the land was already cultivated, newly cultivated, or unirrigated.

On April 22, 1933, another tenancy agreement, superseding the March 1930 arrangement, was executed by 47 tenants (including some of the plaintiffs) with modifications:

Adjustments in the division of palay, with different shares for new and previously cultivated portions.
A clause requiring the tenants to render free labor for the repair of the landowners’ infrastructure.

On October 31, 1932, the defendants filed for registration of the property in their name before the Court of First Instance of Ilocos Norte.
On March 6, 1933, some individuals associated with the plaintiff group applied with the Bureau of Public Works for water rights to irrigate lands in Bacarra, leading to further complications by suggesting an intention to supplement or alter the existing arrangement.

On August 22, 1934, the tenants organized themselves into a corporation, known as the “Asociacion Zanjera Casilian de Bacarra, Ilocos Norte, Inc.,” with the objective of maintaining and improving the irrigation system.
On November 1, 1934, a general meeting approved the transfer of all rights, privileges, and obligations relating to the irrigation system from the individual tenants to the newly incorporated corporation.
Subsequent to these corporate steps, tensions escalated between the parties regarding the contractual terms and the assignment of rights, especially since the personal nature of the tenancy agreements was questioned upon their transfer to the corporation.

On November 8, 1934, legal action was initiated by the defendants (represented by Atty. Vicente Llanes) to address repeated incidents wherein the irrigation ditches were closed and destroyed by individuals associated with the plaintiffs, thereby affecting the productivity of the land.
On December 29, 1934, the defendants filed a complaint seeking an injunction to prevent the plaintiffs from forcefully entering the land and harvesting the crop from approximately 40 hectares, under threat of damage.
During January–February 1935, violence erupted when Domingo de la Cruz shot Andres Aceret with a shotgun amid an incident on the property, leading to a criminal charge for frustrated homicide against Domingo de la Cruz.

On October 21, 1938, the Court of Appeals in a prior decision (G.R. No. 44597) reaffirmed the validity of the tenancy contracts (designated as Exhibits 2, 3, and 4) and recognized the plaintiffs’ vested rights deriving from the earlier agreements and the construction of the irrigation system.
On November 16, 1939, the plaintiffs filed the main complaint in the present case, seeking:

The defendants answered on January 30, 1940, later amending their answer on March 14, 1941, to include a counterclaim, which was eventually dismissed.
After a protracted trial (closed on April 16, 1941) and subsequent appeals—including the reconstitution of the case before the Supreme Court following the destruction of Court of Appeals records during the Battle of Manila—the case was finally determined on the basis of established contractual rights and the actions (fraudulent, violent, and obstructive) of the defendants that prevented the plaintiffs from fulfilling their tenancy obligations.

The trial court had initially quantified annual damages based on pre-war prices and estimated crop productions, awarding a sum for every agricultural year from 1933–1934 onward.
A significant controversy arose regarding whether damages should be computed using pre-war prices or the higher prices evident during the enemy occupation and post-liberation periods, with the latter reflecting a substantial difference and favorable to the plaintiffs.
While a majority of the judges were convinced by the Court of Appeals’ reasoning for applying pre-war prices due to the lack of definitive evidence on current market rates, a minority argued for the epikeia-based adjustment considering the widespread increase in prices and production costs.

Whether the tenancy contracts (and their subsequent modifications) remain valid and enforceable despite the transfer of rights to the incorporated Asociacion Zanjera Casilian.
Whether the alleged breach (through dismissal and obstruction) by the defendants nullified the tenants’ rights under these contracts.

Whether the damages awarded should be based on the pre-war prices, as originally determined by the trial court and Court of Appeals, or adjusted to reflect the elevated prices during the enemy occupation and post-liberation periods.
Whether proper deductions (e.g., two-thirds of the land taxes) should be applied to reduce the computed damages.

Whether the defendants’ actions—ranging from obstructing the irrigation system’s use, preventing the plaintiffs from cultivating the land, to the violent acts—constitute fraudulent behavior (dolo) justifying full indemnity.
Whether the counterclaim for damages advanced by the defendants, claiming that they suffered losses due to the plaintiffs’ actions, has merit under the circumstances.

Whether the cession of the tenancy rights to the corporation violated the inherent personal nature of the tenancy agreements.
Whether such assignment should preclude the individual tenants from enforcing the contracts against the defendants.