Peoples Bank and Trust Co. v. Philippine National Bank
REITERATIONFacts
The Antecedents: The Philippine National Bank (PNB) filed a claim against the Intestate Estate of Charles A. McDonough for P3,916.60, representing P3,000 principal on a promissory note dated November 19, 1941, payable 60 days after date with 8% annual interest, plus daily interest of P0.658 on P3,000 from November 15, 1945, until paid. The note was jointly and severally signed by Charles A. McDonough and H. E. Bennet. Procedural History: The administrator of the estate failed to file an answer, and at the hearing, did not object to the PNB's evidence (promissory note and statement of account). The lower court approved the claim for P3,000 with interest at 8% per annum from February 1945 until payment, disallowing interest from January 20, 1942, to February 1945. The Petition: PNB moved for reconsideration, arguing that Commonwealth Act No. 672 allowed it to charge interest during the war and that war suspends contract operations, but rights can be enforced thereafter. The administrator opposed, asserting that the deceased, an American citizen, was interned by the Japanese, who confiscated assets of enemy citizens and prohibited them from paying obligations. The lower court denied the motion for reconsideration.
Issue(s)
Whether the internment of a debtor as an enemy alien during the Japanese occupation, and the associated sequestration of assets, constitutes a legal prohibition against payment that suspends the accrual of interest on a pre-war promissory note.
Ruling
The Supreme Court modified the lower court's order, directing the administrator to pay the Philippine National Bank the sum of P3,000 with interest at the stipulated rate of 8% per annum from January 9, 1942, to the date of payment. The Court ruled that there was no prohibition during the Japanese occupation for the late Charles A. McDonough to pay his obligations to the PNB.
Ratio Decidendi
On the Single Issue: The Court held that interest is not demandable only when the law prohibits the payment of the principal. Citing the landmark case of Haw Pia v. China Banking Corporation, the Court emphasized that the Japanese Military Administration did not confiscate enemy assets but merely sequestrated them to prevent their use in aid of the enemy. There was no specific order or ordinance from the Japanese authorities that prohibited enemy nationals from paying overdue debts to non-enemy creditors like the Philippine National Bank (PNB), which was the bank of the Philippine Government and allowed to operate. The Court pointed to Instructions No. 28 and 42 of the Director General of the Japanese Military Administration, which permitted the trial and determination of civil cases involving enemy aliens upon approval, suggesting that a debtor could have sought approval to pay or could have been sued for collection. Because PNB was not considered an enemy bank by the Japanese, payment to it was not legally barred. In its resolution of the motion for reconsideration, the Court also addressed Republic Act No. 401, stating it was inapplicable because there was no evidence that the late McDonough was unable to pay due to 'penury' or specific war-related causes defined in the act. Therefore, since there was no legal prohibition against payment, the interest stipulated in the promissory note continued to accrue throughout the period of the occupation.
Main Doctrine
During the Japanese occupation, the sequestration or freezing of assets of enemy aliens did not amount to confiscation, nor did it constitute a prohibition against paying their obligations. Therefore, interest on debts continues to accrue unless a specific prohibition against payment is proven.