Araneta v. Rehabilitation Finance Corporation
REITERATIONFacts
The Antecedents: In December 1946, the administratrix of the estate of the deceased Ramon S. Araneta requested the Court of First Instance of Occidental Negros to order the cancellation of a mortgage and assignment of sugar annotated on the back of Transfer Certificate of Title No. 31593. The property was mortgaged in March 1940 to the Agricultural and Industrial Bank (AIB) for P125,000. The administratrix alleged that the loan was fully discharged in August 1944, as evidenced by supporting papers, but the deed of cancellation was lost during the Liberation. Procedural History: The AIB, through its successor, the Rehabilitation Finance Corporation (RFC), replied that the indebtedness was paid in Japanese military notes. It prayed that the cancellation be made subject to paragraph 1 of Circular No. 14 of the Secretary of Justice, which required an annotation on the title stating that the transaction was subject to further dispositions by the Commonwealth Government. The Court of First Instance ordered the cancellation without this annotation. The RFC appealed. The Petition: The RFC insisted that the cancellation should be subject to the provisions of Circular No. 14, as a precautionary measure regarding transactions made during the Japanese occupation.
Issue(s)
Whether the cancellation of the mortgage annotation should be made subject to the provisions of Circular No. 14 of the Secretary of Justice. Whether the Secretary of Justice had the authority to issue Circular No. 14.
Ruling
The appealed order is affirmed. The cancellation of the mortgage annotation is ordered without subjecting it to the provisions of Circular No. 14.
Ratio Decidendi
On the issue of whether the cancellation of the mortgage annotation should be made subject to the provisions of Circular No. 14 of the Secretary of Justice: The Court held that such an annotation would constitute an encumbrance on the title, making it subject to further government action regarding the validity of payments made with Japanese war notes. This would effectively mean that if the payments were declared invalid, the property would continue to serve as security for the mortgage obligation. According to Section 39 of Act No. 496, subsequent purchasers in good faith for value hold the title free from all encumbrances except those noted on the certificate. The annotation required by the circular was not and could not have been noted on the original certificate or the deed of cancellation, which was lost. Therefore, the Secretary of Justice had no power to order such an annotation, and the Register of Deeds was not bound to comply. Furthermore, even if the annotation were not an encumbrance and the Secretary of Justice had the power to issue the circular, it would have no effect in light of the Supreme Court's ruling in Haw Pia v. China Banking Corporation and Hongkong and Shanghai Banking Corporation v. Luis Perez Samanillo, which declared payments made with Japanese war notes during the occupation, when accepted by the creditor, as valid and releasing the obligations. The Philippine Congress had not enacted any law to the contrary, making the Court's ruling the adopted disposition of the government regarding such transactions. On the issue of whether the Secretary of Justice had the authority to issue Circular No. 14: The Court, in its previous ruling in Lim v. Register of Deed, held that the Secretary of Justice exceeded his authority under Section 79(B) of the Administrative Code. This section empowers the Secretary to promulgate rules and regulations not contrary to law. The Court found that compliance with the circular would be contrary to the Constitution, as it would impair the obligation of contract or deprive a person of property without due process of law. The Court also noted that the police power, which might be invoked to justify such a measure, is primarily exercised by the legislative branch and cannot be delegated by the Secretary of Justice to others. The Court reiterated that the circular's requirement of an annotation was an encumbrance not permitted by law.
Main Doctrine
The cancellation of a mortgage annotated during the Japanese occupation, even if the payment was made with Japanese military notes, need not be subject to an annotation stating that the transaction is subject to further dispositions by the Commonwealth Government, as such an annotation would constitute an encumbrance and potentially impair the obligation of contract and violate due process. Payments made with Japanese war notes during the occupation, if accepted by the creditor or his representative, are valid and release the obligations.