Larraga v. Bañez
REITERATIONFacts
The Antecedents: On November 26, 1941, defendants obtained a P5,000 loan from plaintiffs, payable within three years with 10% annual interest, secured by a mortgage. On April 18, 1944, defendants paid the principal of P5,000 plus P1,352.50 in interest using Japanese military notes. Plaintiffs executed an instrument releasing the mortgage. Procedural History: On February 13, 1945, plaintiffs filed a complaint seeking to declare the payment and release null and void, alleging they accepted the payment under duress from Japanese military authorities to avoid punishment. The Court of First Instance of Leyte ruled that the payment was valid only to the extent of one-third of the indebtedness (P3,333.33 1/3), that the interest was fully paid, and the cancellation of the mortgage was valid only for one-third of P5,000, with the mortgage subsisting for the unpaid balance. Defendants were sentenced to pay the balance, with foreclosure ordered upon default. Defendants appealed. The Petition: Defendants appealed the decision of the Court of First Instance of Leyte.
Issue(s)
Whether the payment made in Japanese military notes was valid. Whether the plaintiffs were compelled by duress to accept the payment and execute the release of the mortgage.
Ruling
The appealed judgment is reversed. The defendants are absolved from the complaint. Costs against the plaintiffs and appellees.
Ratio Decidendi
On the validity of the payment made in Japanese military notes: The Supreme Court held that the payment made in Japanese military notes was valid and satisfied the full indebtedness. Citing the case of Haw Pia vs. China Banking Corporation, the Court reiterated that the military occupant has the right to issue military currency as legal tender. The intrinsic or extrinsic worth of the Japanese war notes is inconsequential, as they were issued as legal tender at par with the Philippine peso. Therefore, the payment of P5,000 in Japanese military notes must be considered as having satisfied the full indebtedness of P5,000. On whether the plaintiffs were compelled by duress to accept the payment and execute the release of the mortgage: The Court found that the payment was valid, and consequently, the mortgage ceased to be in force as the principal obligation was paid. It was deemed immaterial whether the deed of cancellation was executed reluctantly. The Court referenced Philippine Trust Company vs. Araneta, which ruled that there was no collective and general duress exercised by the Japanese military occupant in ordering the use of war notes for payments. Any interference with the circulation of these notes, such as rejection of payment, would be considered hostile and severely punished. The plaintiffs' apprehension of punishment for refusal to accept the payment did not invalidate the payment itself, as the payment was made in Japanese military notes which were declared legal tender.
Main Doctrine
Payments made in Japanese military notes during the Japanese occupation, when issued as legal tender, are considered valid and satisfy the full indebtedness, even if accepted under apprehension of punishment, as the military occupant has the right to issue such currency.