Ponce v. Afable
REITERATIONFacts
1. The Antecedents: On June 3, 1969, Jesusa B. Afable, along with Felisa L. Mendoza and Ma. Aurora C. Diño, executed a promissory note for P814,868.42 in favor of Nelia G. Ponce, payable on or before July 31, 1969. The note stipulated 12% annual interest if not paid at maturity, 10% for attorney's fees if legal action was necessary, and a requirement for debtors to mortgage properties or Carmen Planas Memorial, Inc. if the debt was not settled. When the debtors failed to pay, petitioners filed a complaint for recovery of the principal sum, interest, and damages. 2. Procedural History: The Court of First Instance of Manila ruled in favor of the petitioners, ordering Afable and her co-debtors to pay the principal sum, interest, and attorney's fees. Afable appealed to the Court of Appeals, arguing the contract was illegal as it involved US dollars and thus fell under the in pari delicto rule. Initially, the Court of Appeals affirmed the trial court's decision but later, upon a second motion for reconsideration, reversed its own ruling. The appellate court found the intent was to pay in US dollars, deeming the transaction illegal under Republic Act 529 and applying the in pari delicto doctrine, thereby dismissing the complaint. 3. The Petition: Petitioners filed a Petition for Certiorari with the Supreme Court, assailing the Court of Appeals' Resolutions of June 8, 1978, July 6, 1978, and November 27, 1978. They argued that the Court of Appeals erred in concluding the promissory note was payable in US dollars, in holding that Republic Act 529 applied to the transaction, and in applying the in pari delicto doctrine when these defenses were not properly raised. Petitioners contended that the promissory note clearly stated payment in Philippine Pesos and that even if it were a dollar transaction, recovery in Philippine currency equivalent was permissible under existing jurisprudence.
Issue(s)
Whether the Respondent Court of Appeals erred in concluding that the promissory note was payable in U.S. dollars. Whether Republic Act No. 529 covers the transaction of the parties. Whether private respondent Jesusa B. Afable could avail herself of the defense of Republic Act No. 529 and the doctrine of in pari delicto when these were not pleaded in the trial court. Whether, assuming Republic Act No. 529 applies, the doctrine of in pari delicto does not apply and the agreement was not null and void.
Ruling
The Supreme Court set aside the Resolutions of the Court of Appeals dated June 8, 1978, July 6, 1978, and November 27, 1978, and reinstated the Decision of the Court of First Instance of Manila.
Ratio Decidendi
On the issue of the promissory note being payable in U.S. dollars: The Supreme Court disagreed with the Court of Appeals' conclusion that the promissory note was payable in U.S. dollars. The Court noted that the promissory note, on its face, clearly stipulated payment in Philippine currency, specifically P814,868.42. While there might have been an initial agreement or expectation for payment in dollars, the parties themselves converted the dollar loan into Philippine currency in the promissory note at the rate of P4.20 to $1.00. The Court emphasized that the promissory note did not contain any provision requiring payment in a currency other than Philippine currency, which is what Republic Act No. 529 specifically prohibits. On the applicability of Republic Act No. 529: The Supreme Court clarified that while an agreement to pay in dollars is declared null and void under Republic Act No. 529, the law does not defeat a creditor's claim for payment. Section 1 of the Act provides that "every other domestic obligation... shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts." Therefore, even if the original intent was a dollar transaction, the obligation is to be discharged in Philippine currency. The Court reiterated that what is prohibited is the payment in dollars, meaning a creditor cannot compel a debtor to pay in dollars, but the obligation itself is not extinguished. On the availability of the in pari delicto defense: The Court found it unnecessary to delve into whether the in pari delicto defense was properly pleaded, given its resolution of the primary issue regarding the currency of payment. However, the Court's reasoning implicitly suggests that the defense would not be applicable if the obligation is to be paid in Philippine currency as stipulated in the note, or if the creditor is not insisting on payment in dollars but rather in its peso equivalent. On the nullity of the agreement and the application of in pari delicto: The Supreme Court held that even if the original intention was to pay in dollars, petitioners could still recover the peso equivalent of the US$194,016.29. Citing Eastboard Navigation, Ltd. vs. Juan Ysmael & Co. Inc. and Arrieta vs. National Rice & Corn Corp., the Court stated that any agreement to pay in a currency other than Philippine legal tender is null and void as contrary to public policy under Republic Act No. 529. However, the most that could be demanded is payment in Philippine currency. The indemnity should be expressed in Philippine currency based on the current rate of exchange at the time of payment, or at the time the obligation was incurred, depending on the specific circumstances and the ruling in Kalalo vs. Luz.
Main Doctrine
An agreement to pay an obligation in US dollars, while declared null and void under Republic Act No. 529 as being contrary to public policy, does not necessarily defeat the creditor's claim for payment. The obligation shall be discharged in Philippine currency based on the prevailing rate of exchange at the time of payment, or at the time the obligation was incurred, depending on the nature of the obligation and the specific provisions of the law.