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Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-3316 October 31, 1951

JOSE PONCE DE LEON, plaintiff-appellant,

vs.
SANTIAGO SYJUCO, INC., defendant-appellant,
PHILIPPINE NATIONAL BANK, defendant-appellee.

Jose D. Cortes and Claro M. Recto for plaintiff and appellant.

Ramon Diokno and Jose Diokno for defendant and appellant.
Hilarion U. Jarencio for defendant and appellee.

BAUTISTA ANGELO, J.:

This is an appeal from a decision of the Court of First Instance of Manila absolving defendant Santiago Syjuco, Inc.
of the complaint and condemning the plaintiff to pay to said defendant the sum of P18,000 as principal and the
further sum of P5,130 as interest thereon from August 6, 1944, to May 5, 1949, or a total of P23,130, Philippine
currency, with interest thereon at the rate of 6% per annum from May 6, 1949, until said amount is paid in full, with
costs against the plaintiff.

The facts of this case as reflected in the pleadings and the evidence, stripped of unnecessary details, are well
narrated in the brief submitted by counsel for the Philippine National Bank, and which for purposes of this decision
are hereunder reproduced:

The appellee, Philippine National Bank, hereinafter to be referred to as the Bank, was the owner of two (2)
parcels of land known as Lots 871 and 872 of the Murcia Cadastre, Negros Occidental, more particularly
described in Transfer Certificates of Titles Nos. 17176 and 17175, respectively. On March 9, 1936 the Bank
executed a contract to sell the said properties to the plaintiff, Jose Ponce de Leon, hereinafter to be referred
to as Ponce de Leon, the total price of P26,300, payable as follows: (a) P2,630 upon the execution of the said
deed; and (b) the balance P23,670 in ten (10) annual amortizations, the first amortization to fall due one year
after the execution of the said contract (See annex "A" Syjuco's Segunda Contestacion Enmendada).

On May 5, 1944, Ponce de Leon obtained a loan from Santiago Syjuco, Inc., hereinafter to be referred to a s
Syjuco, in the amount of P200,000 in Japanese Military Notes, payable within one (1) year from May 5, 1948.
It was also provided in said promissory note that the promisor (Ponce de Leon) could not pay, and the payee
(Syjuco) could not demand, the payment of said note except within the aforementioned period. To secure the
payment of said obligation, Ponce de Leon mortgaged in favor of Syjuco the parcels of land which he agreed
to purchase from the Bank (See Annex "B", Syjuco's Segunda Contestacion Enmendada).

On May 6, 1944, Ponce de Leon paid the Bank of the balance of the purchase price amounting to P23,670 in
Japanese Military notes and, on the same date, the Bank executed in favor of Ponce de Leon, a deed of
absolute sale of the aforementioned parcels of land (See Annex "F", Syjuco's Segunda Contectacion
Enmendada).

The deed of sale executed by the Bank in favor of Ponce de Leon and the deed of mortgage executed by
Ponce de Leon in favor of Syjuco were registered in the Office of the Register of Deeds of Negros Occidental
and, as a consequence of such registration, Transfer Certificate
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On several occasions in October, 1944, Ponce de Leon tendered to Syjuco the amount of P254,880 in
Japanese military notes in full payment of his indebtedness to Syjuco. The amount tendered included not only
the interest up to the time of the tender, but also all the interest up to May 5, 1948. Ponce de Leon also wrote
to Syjuco a letter tendering the payment of his indebtedness, including interests up to May 5, 1948, Syjuco,
however, refused to accept such repeated tenders. During the trial, Ponce de Leon explained that he wanted
to settle his obligations because as a member of the guerilla forces he was being hunted by the Japanese
and he was afraid of getting caught and killed (t.s.n. pp. 14-15).

In view of Syjuco's refusal to accept the payment tendered by Ponce de Leon, the latter deposited with the
Clerk of Court, of First Instance of Manila the amount of P254,880 and, on November 4, 1944, he filed a
complaint consigning the amount so deposited to Syjuco. To this complaint Syjuco filed his answer. The
records of this case were destroyed as a result of the war and after the liberation the same were reconstituted
(R. on A., pp. 1-17)

On May 15, 1946, Ponce de Leon filed a petition in the Court of First Instance of Negros Occidental for the
reconstitution of transfer Certificates of Titles Nos. 17175 and 17176 in the name of the Bank and, in an order
dated June 4, 1946, the Court ordered the reconstitution of said titles. In compliance with said order, the
Register of Deeds of Negros Occidental issued Certificates of Title Nos. 1297-R and 1298-R in the names of
the Bank. Ponce de Leon then filed with the Register of Deeds a copy of the deed of sale of the properties
covered by the said certificates of title issued by the Bank in his (Ponce de Leon's) favor and the Register of
Deeds cancelled the said Certificates of Title Nos. 1297-R and 1298-R and issued in favor of Ponce de Leon
Transfer Certificates of Title Nos. 526-N and 527-N (R. on A., pp. 48-50).

On August 16, 1946, Ponce de Leon obtained an overdraft account from the Bank in an amount not
exceeding P135,000 and, on the same date, he executed a mortgage of the two parcels of land covered by
the reconstituted Transfer Certificates of Title Nos. 526-N and 527-N in favor of the said Bank to secure the
payment of any amount which he may obtain from the Bank under aforementioned overdraft account. The
overdraft account was granted by the Bank to Ponce de Leon in good faith, said Bank not being aware of the
mortgage which Ponce de Leon had executed in favor of Syjuco during the Japanese occupation, and said
Bank believing that the said properties had no lien or encumbrance appeared annotated on the reconstituted
 certificates of Title Nos. 526-N and 527-N in the name of Ponce de Leon (See Testimony of Atty. Endriga).

On September 28, 1946, Syjuco filed a second amended answer to Ponce de Leon's complaint and, in its
"Tercera Reconvention", it claimed that Ponce de Leon, by reconstituting the titles in the name of the Bank, by
causing the Register of Deeds to have the said titles transferred in his (Ponce de Leon's name, and by
subsequently mortgaging the said properties to the Bank as a guaranty for his overdraft account, had violated
the conditions of the morgage which Ponce de Leon has executed in its favor during the Japanese
occupation. Syjuco then prayed that the mortgage executed by Ponce de Leon in favor of the Bank be
declared null and void. (R. on A., pp. 32-53).

Ponce de Leon objected to the inclusion of the Bank as a cross-defendant. (R on A. pp. 55-58).
Notwithstanding said objection, however, the lower court ordered the inclusion of the Bank as a cross-
defendant (R. on A., pp. 59-60).

On June 28, 1947, the Bank filed a motion to drop on the ground that it had been misjoined and to dismiss on
the ground that the venue was improperly laid and there is another action pending between the same parties
for the same cause (R. on A., pp. 65-75). The said motion was denied by the lower court in its order dated
October 7, 1947 (R. on A., pp. 95-100). In view of such denial, the Bank filed its answer on October 29, 1947
(R. on A., pp. 101-106).

On June 24, 1949, the lower court rendered a decision absolving Syjuco from Ponce de Leon's complaint and
condemning Ponce de Leon to pay Syjuco the total amount of P23,130 with interest at the legal rate from May
6, 1949, until fully paid (R. on A., pp. 107-135). Both Ponce de Leon and Syjuco file their appeal from this
decision.

The principal questions to be determined in this appeal are: (1) Did the lower court err in not giving validity to the
consignation made by the plaintiff of the principal and interest of his two promissory notes with the clerk of court?;
(2) did the lower court err in reducing the principal and interest of said promissory notes to their just proportions
using as a pattern the Ballantyne schedule in effecting the reduction?; (3) did the lower court err in disregarding the
defense of moratorium set up by the plaintiff against the counterclaim of defendant Syjuco?; and (4) did the lower
court err in not passing on the question of priority between the mortgage claim of defendant Syjuco and that of the
Philippine National Bank on the same set of properties on the ground that they are situated in a province different
from that in which this action was brought? We will discuss these issues in the order in which they are propounded.

1. It appears that plaintiff obtained from defendant Syjuco two loans in 944. One is for P200,000 obtained on May 5,
1944, and another for P16,000 obtained on July 31, 1944. These two loans appear in two promissory notes signed
by the plaintiff which were couched in practically the same terms and conditions and were secured by two deeds of
mortgage covering the same parcels of land. In said promissory notes it was expressly agreed upon that plaintiff
shall pay the loans "within one year from May 5, 1948, . . . peso for peso in the coin or currency of the Government
of the Philippines that, at the time of payment above fixed it is the legal tender for public and private debts, with
interests at the rate of 6% per annum, payable in advance for the first year, and semi-annually in advance during the
succeeding years", and that, the period above set forth having been established for the mutual benefit of the debtor
and creditor, the former binds himself to pay, and the latter not to demand the payment of, the loans except within
the period above mentioned. And as corollary to have the above stipulations, it was likewise agreed upon in the two
deeds of mortgage that "if either party should attempt to annul or alter any of the stipulations of this deed or of the
note which it secures, or do anything which has for its purpose or effect an alteration or annulment of any of said
stipulations, he binds himself to indemnify the other for the losses and damages, which the parties hereby liquidate
and fix at the amount of P200,000".

The facts show that, on November 15, 1944, or thereabouts, contrary to the stipulation above mentioned, plaintiff
offered to pay to the defendant not only the principal sum due on the two promissory notes but also all the interests
which said principal sum may earn up to the dates of maturity of the two notes, and as the defendant refused to
accept the payment so tendered, plaintiff deposited the money with the clerk of court and brought this action to
compel the defendant to accept it to relieve himself of further liability.

The question now to be determined is, is the consignation made by the plaintiff valid in the light of the law and the
stipulations agreed upon in the two promissory notes signed by the plaintiff? Our answer is in the negative.

In order that cogsignation may be effective, the debtor must first comply with certain requirements prescribed by law.
The debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had been made
bacause the creditor to whom tender of payment was made refused to accept it, or because he was absent for
incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code);
(3) that previous notice of the consignation have been given to the person interested in the performance of the
obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of the court (Art 1178, Civil
Code); and (5) that after the consignation had been made the person interested was notified thereof (Art. 1178, Civil
Code). In the instant case, while it is admitted a debt existed, that the consignation was made because of the refusal
of the creditor to accept it, and the filing of the complaint to compel its acceptance on the part of the creditor can be
considered sufficient notice of the consignation to the creditor, nevertheless, it appears that at least two of the above
requirements have not been complied with. Thus, it appears that plaintiff, before making the consignation with the
clerk of the court, failed to give previous notice thereof to the person interested in the performance of the obligation.
It also appears that the obligation was not yet due and demandable when the money was consigned, because, as
already stated, by the very express provisions of the document evidencing the same, the obligation was to be paid
within one year after May 5, 1948, and the consignation was made before this period matured. The failure of these
two requirements is enough ground to render the consignation ineffective. And it cannot be contended that plaintiff is
justified in accelerating the payment of the obligation because he was willing to pay the interests due up to the date
of its maturity, because, under the law, in a monetary obligation contracted with a period, the presumption is that the
same is deemed constituted in favor of both the creditor and the debtor unless from its tenor or from other
circumstances it appears that the period has been established for the benefit of either one of them (Art. 1127, Civil
Code). Here no such exception or circumstance exists.

It may be argued that the creditor has nothing to lose but everything to gain by the acceleration of payment of the
obligation because the debtor has offered to pay all the interests up to the date it would become due, but this
argument loses force if we consider that the payment of interests is not the only reason why a creditor cannot be
forced to accept payment contrary to the stipulation. There are other reasons why this cannot be done. One of them
is that the creditor may want to keep his money invested safely instead of having it in his hands (Moore vs. Cord 14
Wis. 231). Another reason is that the creditor by fixing a period protects himself against sudden decline in the
purchasing power of the currency loaned specially at a time when there are many factors that influence the
fluctuation of the currency (Kemmerer on Money, pp. 9-10). And all available authorities on the matter are agreed
that, unless the creditor consents, the debtor has no right to accelerate the time of payment even if the premature
tender "included an offer to pay principal and interest in full" (17 A.L.R. 866-867; 23 L.R.A. (N.S.) 403; see ruling of
this Court in the recent case of Ilusorio vs. Busuego, 84 Phil., 630).

Tested by the law and authorities we have cited above, the conclusion is inescapable that the consignation made by
the plaintiff is invalid and, therefore, did not have the effect of relieving him of his obligation.

2. The next question to be determined is whether the lower court erred in reducing the amount of the loans by
applying the Ballantyne schedule.

This is not the first time that this question has been raised. On two previous occasions this Court had been called
upon to rule on a similar question and has decided that when the creditor and the debtor have agreed on a term
within which payment of the obligation should be paid and on the currency in which payment should be made, that
stipulation should be given force and effect unless it appears contrary to law, moral or public order. Thus, in one
case this Court said: "One who borrowed P4,000 in Japanese military notes on October 5, 1944, to be paid one year
after, in currency then prevailing, was ordered by the Supreme Court to pay said sum after October 5, 1945, that is,
after liberation, in Philippine currency (Roño vs. Gomez et al., 83 Phil., 890). In another case, wherein the parties
executed a deed of sale with pacto de retro of a parcel of land for the sum of P5,000 in Japanese military notes
agreeing that within 30 days after the expiration of one year from June 24, 1944, the aforementioned land may be
redeemed sa ganito ding halaga (at the same price), the Court held that the "phrase sa ganito ding halaga meant
the same price of P5,000 in Japanese war notes". The Court further said, "The parties herein gambled and
speculated on the date of the termination of the war and the liberation of the Philippines by America. This can be
gleaned from the stipulation about redemption, particularly that portion to the effect that redemption could be
effected not before the expiration of one year from June 24, 1844. This kind of agreement is permitted by law. We
find nothing immoral or unlawful in it" (Gomez vs. Tabia Off. Gaz., 641; 84 Phil., 269).

In this particular case, the terms agreed upon are clearer and more conclusive than the ones cited because the
plaintiff agreed not only to pay the obligation within one year from May 5, 1948, but also to pay peso for peso in the
coin or currency of the Government that at the time of payment it is the legal tender for public and private debts.
This stipulation is permitted by law because there is nothing immoral or improper in it. And it is not oppressive
because it appears that plaintiff used a great portion of that money to pay his obligations during the Japanese
occupation as shown by the fact that he settled his account with the Philippine National Bank and other accounts to
the tune of P100,000. It would seem therefore clear that plaintiff has no other alternative than to pay the defendant
his obligation peso for peso in the present currency as expressly agreed upon in the two promissory notes in
question. The decision of the lower court on this point should, therefore, be modified.

As regards the penal clause contained in the two deeds of mortgage herein involved, we agree to the following
finding of the court a quo: "The attempt made by the plaintiff to pay the obligation before the arrival of the term fixed
for the purpose may be wrong; but it may be attributed to an honest belief that the term was not binding and not to a
desire to modify the contract". This penal clause should be strictly construed.

3. As regards the third question, we find that the lower court erred in disregarding the defense of moratorium set up
by the plaintiff against the counterclaim of the defendant on the sole ground that this defense was not raised by the
plaintiff in his pleadings. An examination of the record shows that the plaintiff raised this question in his pleadings.
This must have been overlooked by the court.

The lower court, therefore, should have passed upon this defense in the light of Executive Order No. 32, which
suspended payment of all obligations contracted before March 10, 1945. We note, however, that said moratorium
orders have already been modified by Republic Act No. 342 in the sense of limiting the ban on obligations
contracted before the outbreak of the war to creditors who have filed claims for reparations with the Philippine War
Damage Commission, leaving them open to obligations contracted during the Japanese occupation (Uy vs. Kalaw
Katigbak, G.R. No. L-1830, December 1, 1949). As the obligation in question has been contracted during enemy
occupation the same is still covered by the moratorium orders. The claim of counsel for the defendant that the
moratorium orders cannot be invoked because they are unconstitutional cannot now be determined it appearing that
it has been raised for the first time in this instance. This defense of moratorium was raised by plaintiff in his reply to
the amended answer of the defendant dated August 1, 1946, and in his motion to dismiss the counterclaim dated
October 29, 1946, but the defendant did not traverse that allegation nor raise the constitutionality of the moratorium
orders in any of its pleadings filed in the lower court. It is a well known rule that this Court can only considera
question of constitutionality when it has been raised by any of the parties in the lower court (Laperal vs. City of
Manila, 62 Phil., 352; Macondray and Co. vs. Benito and Ocampo, 62 Phil., 137).

4. The facts relative to the execution of the deed of mortgage in favor of the Philippine National Bank on the two lots
in question are as follows: On March 9, 1936, the Philippine National Bank was the owner of the lots Nos. 872 and
871 of the Murcia Cadastre, Negros Occidental, covered by Certificates of Titles Nos. 17175 and 17176
respectively. On the same date, the Bank sold the two lots to the plaintiff and as a result Transfer Certificates of
Titles Nos. 398 and 399 were issued in the name of the plaintiff. On May 5, 1944, plaintiff mortgaged these two lots
to defendant Syjuco to guarantee the payment of two loans, one for P200,000 and another for P16,000. The
mortgage was registered in accordance with the law. Then liberation came. Plaintiff taking advantage of the
destruction of the records of the office of the Register of Deeds of Negros Occidental, obtained from the Court of
First Instance of said province the 3‚3 reconstitution of Transfer Certificate of Titles Nos. 17175 and 17176 and by
virtue thereof, the register of deeds issued transfer certificates of titles Nos. 1297-R and 1298-R in the name of the
Philippine National Bank. Then he secured the cancellation of the titles last named and the issuance of Transfer
Certificates of Titles Nos. 526-N and 527-N in his name without informing the court of the encumbrance existing in
favor of defendant Syjuco. After securing the new titles in his name, plaintiff obtained a loan from the Philippine
National Bank for the sum of P135,000 on the security of the property covered by said reconstituted titles. On said
titles no encumbrance appears annotated, but it was noted thereon that they would be subject to whatever claim
may be filed by virtue of documents or instruments previously registered but which, for some reason, do not appear
annotated thereon, as required by a circular of the Department of Justice.

From the foregoing facts, it clearly appears that the mortgage executed in favor of the defendant Syjuco is prior in
point of time and in point of registration to that executed in favor of the Philippine National Bank, let alone the fact
that when the later mortgage was executed, the Bank must have known, as it was its duty to find out, that there was
a warning appearing in reconstituted titles that the same were subject to whatever encumbrance may exist which for
one reason or another does not appear in said titles. With such warning, the Bank should have taken the necessary
precaution to inquire into the existence of any hidden transaction or encumbrance that might affect the property that
was being offered in security such as the one existing in favor of the defendant, and when the Bank accepted as
security the titles offered by the plaintiff without any further inquiry, it assumed the risk and the consequences
resulting therefrom. Moreover, it also appears that this same question of priority has already been threshed out and
determined by the Court of First Instance of Negros Occidental in the cadastral proceedings covered the two lots in
question wherein the court ordered the cancellation of the reconstituted titles issued in the name of the plaintiff and
the reconstitution of the former titles copies of which were in the possession of defendant Syjuco, subject only to the
requirement that the mortgage in favor of the Philippine National Bank be annotated on said new titles. In other
words, the court declared valid the titles originally issued in the name of the plaintiff wherein the encumbrance in
favor of the defendant Syjuco appears and declared invalid the reconstituted titles secured by plaintiff through fraud
and misinterpretation. This order is now final because no appeal has been taken therefrom by any interested party.

We have, therefore, no other alternative than to declare that the mortgage claim of the defendant Syjuco is entitled
to priority over that of the Philippine National Bank. This question can be threshed out here regardless of venue
because the counterclaim is but ancillary to the main case (1 Moran, Comments on the Rules of Court, 2nd ed.,
201).

In view of the foregoing, the decision appealed from should be modified in the sense of ordering the plaintiff to pay
the defendant Syjuco the sum of P216,000, Philippine currency, value of two promissory notes, with interest thereon
at the rate of 6% per annum from May 6, 1949, until said amount is paid in full. It is further ordered that should said
amount, together with the corresponding interests, be not paid within 90 days from the date this judgment in
accordance with law, with costs against the plaintiff.

However, this judgment shall be held in abeyance, or no order for the execution thereof shall be issued, until after
the moratorium orders shall have been lifted.
Feria, Bengzon, Tuason, Reyes, and Jugo, JJ., concur.

Separate Opinions

PARAS, C.J., dissenting:

The plaintiff obtained from defendant Syjuco on May 5, 1944, a loan of P200,000 and on July 31, 1944, another loan
of P16,000, payable within one year from May 5, 1948." On November 15, 1944, the plaintiff offered to pay the
entire indebtedness plus all the interest up to the date of maturity. Upon Syjuco's refusal to accept the tendered
payment, the plaintiff deposited the amount with the clerk of the Court of First Instance of Manila and instituted the
present action to compel Syjuco to accept payment. The records of the case were destroyed during the war, but
they were duly reconstituted after the liberation. The trial court sentenced the plaintiff to pay Syjuco the total sum of
P23,130, representing the whole indebtedness plus all the interest from August 6, 1944, to May 5, 1949, computed
according to the Ballantyne scale of values. From this judgment Syjuco has appealed, claiming his right to be paid
the sum of P216,000, actual Philippine currency, plus P200,000, as penalty agreed upon in the contract. The
majority of this Court sustains Syjuco's claim for P216,000.

As the same question has been resolved in Ilusorio vs. Busuego, G.R. No. L-822, September 30, 19491, Roño vs.
Gomez, May 31, 19492, 46 Off. Gaz., Supp. to No. 11, p. 339, and Gomez vs. Tabia, August 5, 19493, 47 Off. Gaz.,
644, in which I dissented, I have to disagree with the majority in the case at bar.

On the question whether a debtor can pay an indebtedness before the date of maturity provided corresponding
interest is paid, I said the following in Ilusorio vs. Busuego:

In other words, I hold that the mortgagor has the right to pay the indebtedness at any time within three years
provided that, as in this case, he pays the interest for the whole term of the mortgage. In the ordinary course
of things, a loan is granted in consideration of interest, and if by the early payment of the obligation, the
creditor would not lose any part of the stipulated interest, both paragraphs 3 and 4 would practically be
enforced. It cannot be alleged that the creditor herein, in addition to interest, wanted to have his money in the
safekeeping of the debtor because the contract is one of the loan and not of deposit. It is to be remembered,
moreover, that the debt was being paid in the same currency loaned (Japanese money). The effect of inflation
is one of the risks naturally incident to the money-lending business, and the lender should protect himself
against it by plain covenants.

On the matter of requiring a loan obtained in Japanese war notes to be paid after the liberation in equivalent
Philippine currency, I am hereinbelow reproducing at length what I stated in Roño vs, Gomez which should have
greater application and force, because while in the Roño case the amount of the loan is only P4,000, in the case at
bar the debtor is being ordered to pay the large sum of P216,000:

The principal defense set up by Roño in that the note is contrary to law, morals or public order. This defense
was flatly overruled in the court of origin, seconded by the Court of Appeals. The judgment of the latter court
is now before us upon appeal by certiorari of Cristobal Roño.

The situation in which a borrower of P4,000 in Japanese war notes is made to pay the same amount in
currency of the present Philippine Republic. In other words, the borrower of P4,000 during the latter part of
the Japanese Military occupation which, in ordinary practical terms, could hardly purchase a cavan of rice, is
now compelled to pay P4,000 in actual Philippine currency which, in the same ordinary practical terms, may
be held equivalent to at least 100 cavanes of rice. Said borrower is compelled to do so, merely because in his
promissory note he agreed to pay after one year in pesos of the Philippine Currency, and expressly waived
any postwar arraignment devaluating the amount borrowed in October, 1944.

The Court of Appeals held that the commitment of Cristobal Roño settle his indebtedness in the legal tender
at the time of payment is not against the law, morals or public order. We readily acquiesce in the proposition
that the contract is not contrary to law or public order, for we are aware of no statute or public policy which
prohibits a person from bringing about or causing his own financial reverses. But we are of the opinion that, if
enforced to the letter, it is against morals. If the contract was entered into in times of peace, its obligations
should have the force of law between the parties and must be performed in accordance with their stipulations
(Art. 1091, Civil Code). But when as in the case at bar, the borrower had to obtain a loan during war time,
when living conditions were abnormal and oppressive, everything was uncertain, and everybody was fighting
for his survival, our conscience and common sense demand that his acts be judged by compatible standards.

The Court of Appeals found that everybody was aware of the developments of the war outside of official
propaganda and that, in so far as knowledge of war events is concerned, Roño was on more or less on an
equal footing with Gomez. This means that all knew the bombings by the american air forces of various parts
of the islands in September, 1944, and of the decisive defeats of the Axis powers in Europe, and that the
mighty forces of the Allies would soon, as in fact they did, concentrate on and crush Japan, with the result
that the Japanese war notes would accordingly become worthless. It may of course be opposed that Roño
knowingly bound himself to his pact. But this is true merely in theory. Although, as found also by the Court of
Appeals, Roño was not entirely an ignorant man because he is a mechanic and knows English, the fact
nevertheless remains that the lender, Jose L. Gomez, was a lawyer, and the exaggerated way the promissory
word is worded plainly shows that the latter must have thoroughly studied the transaction with Roño imposed
the conditions evidenced therein to his one-sided advantage. It is needless to say that borrowers are always
at the mercy of unscrupulous money lenders. "Neccesitous men are not, truly speaking, free men; but, to
answer a present emergency, will submit to any terms that the crafty may impose upon them." (Marquez et al.
vs. Valencia, 44 Off. Gaz., pp. 895, 897*, quoting Villa vs. Santiago, 38 Phil., 157, 164). We cannot believe, as
intimated in the testimony of Sinforosa A. de Gomez (wife of Jose L. Gomez), that Roño informed them that
he would use the money to purchase a jitney, for the simple reason that, in view of the inflated value of the
Japanese war notes on October, 1944, the amount of P4,000 could not possibly purchase a jitney. At any
rate, even accepting the conjecture that said amount was invested by Roño in his business, the circumstance
still makes him a necessitous man that had to submit to the terms of his lender. That a contract like the one in
question is shocking to the conscience and therefore immoral becomes patent when we resort to the example
of a borrower of P2,000 just before the liberation, when a kilo of sugar already cost P2,000, being compelled
to pay the same in Philippine currency now when a kilo of sugar hardly costs P0.50. Where is the conscience
of anyone who will collect P2,000 for a loan of virtually fifty centavos?

The Court of Appeals argued that the parties took equal risks, since it was impossible to predict the exact
time at which the Philippines would be liberated and that, supposing that the liberation had been delayed for
more than one year, Gomez might have been the loser and Roño the winner, for the Japanese currency might
have further diminished in value. To this we would answer that Gomez would then be paid in the same
currency that was borrowed and during the same war time when the loan was extended. This would not be
unusual, as the parties are still under the very environments that surrounded the execution of the contract.

I may add the following observations contained in my dissenting opinion in Gomez vs, Tabia:

The majority also hold that the contract here in question is aleatory. This is open to doubt. Aleatory contracts,
or those depending on chance, are covered by Title XII, Book IV, of the Civil Code. It is to be noted that, under
 article 1790, an aleatory contract involves the occurrence of an event which is uncertain or will happen at an
indeterminate time. Moreover, the contracts contemplated by the Code as being aleatory, are grouped under
insurance, contracts, gambling and betting, and life annuities. It follows that the contract now under
consideration, which is one of loan does not fall under any of those groups of aleatory contracts. At any rate,
the contract of loan herein involved is clearly not dependent upon any uncertain event. The loan was granted
on a definite date and has to be paid on a definite date. Both dates are certain. The payment of the loan has
to be effected regardless of the result of the war.

As the contract in question contemplated that the payment is to be made in the same currency that was
loaned, and the parties are presumed never to have intended that said payment would be made in what has
become valueless money, justice demands that the indebtedness be paid in actual Philippine currency at an
equivalent amount determined in the Ballantyne schedule, in the absence of evidence as to such value. The
exceptions mentioned in the Ballantyne schedule refers to contracts in which the obligation is payable by
something other than legal tender. Indeed, the majority in Hilado vs. De la Costa et al.,** G.R. No. L-150,
decided on April 30, 1949, held that "what the debtor should pay is the value of the Japanese war notes in
relation the peso of Philippine currency obtaining on the date when at the place where the obligation was
incurred, unless the parties had agreed otherwise." This underscored clause undoubtedly contemplates an
agreement to pay in a consideration other than legal tender of the Philippines, such as gold dollars, pounds
sterling, Spanish pesetas, or the like. It cannot be otherwise, since if the intention is merely to pay in legal
tenders, no express stipulation is necessary, because under section 1612 of the Revised Administrative
Code, the Philippine currency is the legal tender for all debts.

In reiteration of my stand in the case of Roño vs. Gomez, supra, I wish to emphasize that to require the herein
respondent to pay the sum of P5,000 actual Philippine currency, in return for an indebtedness obtained in
Japanese military notes equivalent in actual Philippine currency according to the Ballantyne schedule, to only
P790.26 as found by the Court of Appeals, is unconscionable.

In my considered opinion, the appealed judgment should at most be affirmed.

Pablo, J., concurs:

PADILLA, J., dissenting:

I dissent. A loan of a sum of money is usually made for the purpose of earning interest. The creditor should not be
allowed to exact and impose unfair terms and conditions, such as that of barring the debtor from paying the principal
of the loan before the time agreed upon. By the payment of the principal of the loan together with the stipulated
interests accrued and to accrue up to the time agreed upon for the payment of the principal, the purpose or aim of
the loan is attained — all to the advantage and benefit of the creditor. The stipulated sum to be paid by the debtor as
penalty or liquidated damages equal to the principal of the loan if payment thereof be made before the time agreed
upon, even if the debtor pays at the same time the stipulated interests accrued and to accrue up to the time agreed
upon for the payment of the principal, is contra bonos mores, against public policy, and should be disregarded and
deemed as not written in the contract.

A loan of P200,000 in Japanese war notes was made on 5 May 1944, payable within one year from 5 May 1948. An
additional loan of P16,000 in Japanese war notes was made on 31 July 1944, payable within the same period of
time as the previous one. On different occasions in October 1944, the debtor tendered the sum of P254,880 in full
payment of the principal of the loan and the stipulated interests up to 5 May 1948, a tender refused by the creditor.
In view of this refusal, the debtor deposited the sum and filed a complaint in the competent court to compel the
creditor to accept the sum thus tendered and deposited.

To compel the debtor after the moratorium shall have been removed to pay in the present currency the principal of
the loan made in Japanese war notes which at the time of the loan had very little value or purchasing power, and the
stipulated interests up to the date of payment thereof, is so shocking to the conscience of a fair-minded person that
it will constitute a blot on the administration of justice in this Republic. To that I cannot give my assent.

The requirement that previous notice of consignation be made to the creditor was practically complied with by the
deposit in court of the sum of money tendered and the filing of the complaint by the debtor against the creditor to
compel the latter to accept the payment of the sum of money thus tendered and deposited. The notice of
consignation is superflous where a complaint is filed and the sum of money tendered for the payment of the principal
of the loan and stipulated interests is deposited in court, because to avoid litigation the creditor or any party
interested in the fulfillment of the obligation may still accept the payment of the sum of money deposited after he
receives the summons. It does not appear in the case that any party other than the creditor was interested in the
fulfillment of the obligation at the time the consignation was made.

The cross-claim of the creditor should have been dismissed. The consignation made by the debtor should have
been upheld, or if the provisions as to consignation were not adhered to or complied with, then the creditor should
be entitled at most to the sum awarded by the trial court.

EXCERPTS FROM THE MINUTES OF MARCH 27, 1952

xxx xxx xxx

This concerns the motions for reconsideration filed both by plaintiff and defendant in G.R. No. L-3316, Jose
Ponce de Leon vs. Santiago Syjuco, Inc.

Plaintiff predicates his motion for reconsideration on the following grounds: (1) the difference of P192,870
between the value of the promissory notes in litigation calculated on the basis of the Ballantyne schedule and
their value on the basis of one Japanese military peso constitutes an unjust enrichment (enriquecimiento
torticero) unsupported by any true consideration, and cannot be sanctioned by this Court; (2) the limitation on
the right to pay the loans as stipulated in the promissory notes was contrary to law and public order at the
time the notes were executed; and (3) the aforesaid difference of P192,870 constitutes defendant's winnings
in gambling, and cannot be recovered.

Defendant seeks the reconsideration of the decision on the following grounds: (1) the moratorium law has
been erroneously applied in this case; (2) the decision has erroneously condoned the interest stipulated from
August 6, 1944, to May 5, 1949; and (3) the Court has erroneously absolved the plaintiff from his obligation
under the penal clause.

We will first take up the grounds of the motion for reconsideration of the plaintiff.

Claiming that the real value of the loan made by defendant to plaintiff in 1944, measured in terms of genuine
currency, is P34,130, including interests, and if plaintiff is made to pay to defendant P216,000, with interests,
in genuine currency, the difference between the actual value of the loan received by plaintiff and the value set
in the decision is P192,870, which represents the value actually transferred from plaintiff to defendant. It is
claimed that this is an unjust enrichment which cannot be sanctioned in equity.

The fundamental doctrine of unjust enrichment is the transfer of value without just cause or consideration.
 The transfer is usually made in accordance with law, but the determining factor is the lack of cause or
consideration. The elements of this doctrine are: enrichment on the part of the defendant; impoverishment on
the part of the plaintiff; and lack of cause. The main objective is to prevent that one may enrich himself at the
expense of another. If this situation is obtained, equity steps in to protect the one prejudiced.

This doctrine is sound. It is based upon equity, and though not expressly recognized on our old Civil Code, it
is reflected in some of its provisions. Example: payments received though not owing, indebiti solutio, wherein
an obligation to restore the thing received arises (Art. 1895). This relation is considered by treatisers as a kind
of quasi-contract. (Castan, Derecho Civil Español, tomo 3, pag. 424).

But we doubt the application of this doctrine to the present case, if we view it in the light of its fundamental
purpose, which is lack of cause or consideration. Here we find that the money given to the plaintiff in May and
July, 1944, was invested by him not only to pay his pre-war obligations but also those contracted by him
during the Japanese occupation. According to his own admission, these accounts reached a total of
P105,000. The rest he used to promote his guerilla activities. He, therefore, made use of the money in the
light of his most pressing needs and made use of it for his personal enrichment. This being so, it is fallacious
now to claim that to make plaintiff return the money he made use of to advantage in the manner he stipulated
constitutes an unjust enrichment on the part of the giver. Nor is it fair and logical to conclude, after plaintiff had
made use of the money to suit his purpose, that the transaction should be voided simply because the
advantage has gone the other way. This is a venture in which both have speculated. It may work one way of
the other and as such both must abide by it.

The claim that the speculation which limits the right to pay the loans within a certain period of time was
contrary to the law and public order at the time the notes were executed is untenable. We find nothing in the
law or in the orders issued by the military authorities in force at the time the notes in controversy were
executed that could prevent anyone from stipulating as to the time within which certain obligation is to be
paid. The military orders regarding the use and circulation of military notes do not contain any prohibition of
this nature. They merely contain an injunction that those notes should be accepted as legal tender in making
payments of all kinds, under pain of severe punishment for those who may infringe it. The stipulation in
question does run counter to this injunction for it merely limits the time of payment of the obligation. We find
nothing in this stipulation which may be said to be contrary to the law or public order prevailing at the time.

Whether the stipulation in question involves a gambling transaction or not, and as a consequence, the
winnings resulting therefrom should be prescribed, as the law requires, is a closed matter. In Roño vs.
Gomez, May 31, 1949, 46 Off. Gaz., Supp. (Nov. 1950), 333 this Court said: "Our legislation has a word for
these contracts: aleatory. The civil code recognizes their validity (See article 1790 and Manresa's comment
thereon) on a par with insurance policies and annuities". And in Gomez vs, Tabia, Aug. 5, 1949, 47 Off. Gaz.,
(Feb. 1951) 641, this Court also said: "This kind of agreement is permitted by law. We find nothing immoral or
unlawful in it. It may be viewed in the same light as insurance contracts, or sales of grain, sugar or other
commodities to be delivered at some future date, whose price is subject to fluctuation, and may, at the time of
delivery, be way above or below the sales price." It should be stated here with a sense of finality that
contracts of this nature are valid and are not contrary to law, moral, or public order.

Let us come to the motion for reconsideration of defendant.

It is claimed that the Court has erroneously applied the moratorium law because of the pretense that the
plaintiff has failed to invoke it in his favor in the lower court, and that while it is true that plaintiff has invoked
the moratorium law he did so only in connection with his obligation to pay the interests and damages, and not
in connection with the principal.

It should be noted that one of the errors assigned by plaintiff in his brief that the lower court erred in finding
that he did not invoke the benefits of said moratorium law in his pleadings, and the defendant, in meeting this
imputation, never claimed that plaintiff did not invoke the moratorium law, but merely limited his argument to
the contention that plaintiff cannot invoke it because he failed to prove that he is a war victim, and that said
law is unconstitutional. It is only now that the defendant makes the claim that plaintiff limited his objection to
interests and damages. Surprisingly, defendants makes this claim for the first time in its motion for
reconsideration.

We are of the opinion that the defense of moratorium set up by the plaintiff in the lower court applies both to
the principal obligation as well as to the interests and damages, as it was so understood by the defendant.
And this being so, defendant is now estopped from claiming otherwise, especially if it is considered that, to
apply moratorium to interests without at the same time applying it to the principal is incongrous. This claim,
therefore, has no merit.

There is merit in the claim that the interests the plaintiff should pay on the obligation should be counted from
the date plaintiff has ceased to pay said interests, or from August 6, 1944. This should be corrected.

We find no reason to disturb the finding of this Court in so far as the penal clause is concerned. All things
considered, this finding should be maintained.

Wherefore, the motion for reconsideration filed by the plaintiff is denied.

The motion for reconsideration filed by the defendant is also denied. However, the dispositive part of the
decision rendered in this case should be modified as follows:

In view of the foregoing, the decision appealed from should be modified in the sense of ordering the plaintiff to
pay the defendant Syjuco the sum of P216,000, Philippine currency, value of two promissory notes, with
interest thereon at the rate of 6 per cent per annum from August 6, 1944, up to May 5, 1949, and with similar
interest from May 6, 1949 until said amount is paid in full. It is further ordered that should the amount of this
judgment — principal and interests, — be not paid within ninety (90) days from the date this judgment
becomes final, the properties mortgaged should be sold at public auction, and the proceeds applied to the
payment of this judgment in accordance with law, with costs against the plaintiff.

However, this judgment shall be held in abeyance, or no order for the execution thereof shall be issued, until
after the moratorium orders shall have been lifted.

The Chief Justice and Justices Pablo and Padilla dissented and voted also to let the case be set for hearing.

Footnotes

PARAS, C.J., dissenting:

1 84 Phil., 630.

2 88 Phil., 890.

3 84 Phil., 269.
 * 77 Phil., 782.

** 83 Phil., 471.

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