G.R. No. L-15743 - Ombe vs. Diga

On October 14, 1941, Kneedler Realty Co. sold a parcel of land in Pasay (now Rizal City) described in transfer certificate of title No. 6555 for the sum of P111,000.
Simon Paterno made an initial payment of P30,000 and agreed to pay the remaining balance of P81,000 through a series of instalments (eleven instalments of P7,000 each and a final instalment of P4,000), with interest at 9% per annum computed monthly.
To secure the balance, Paterno mortgaged the same property to Kneedler Realty Co., which was evidenced by the issuance of a new transfer certificate of title No. 44470 bearing the annotation of the mortgage.
The transfer certificate No. 44470 was later lost, prompting judicial and administrative actions regarding the property and the mortgage.

On May 24, 1946, Kneedler Realty Co., represented by H.D. Kneedler in his capacity as liquidator, commenced an action to foreclose the mortgage.
In the course of these proceedings, Simon Paterno allegedly acknowledged indebtedness and proposed a revised payment arrangement in a letter dated June 26, 1946.
Paterno’s settlement proposal included payment of P5,000 immediately (subject to dismissal of the suit) and further instalments with interest at a reduced rate of 5% per annum on the remaining balance, guaranteed by Vicente Madrigal.

Defendants, particularly through Paterno’s testimony and that of his witnesses, claimed that during the Japanese occupation, payment for the balance (P81,000 plus interest) was made in Japanese currency to an authority acting as the “Alien Property Custodian” or the “Japanese Military Administration.”
Paterno testified that the payment was effected by issuing two checks—one for the principal and another for the interest—prepared by Mr. Silvino Panganiban on the Yokohama Specie Bank.
The checks, however, were not accompanied by proper documentary evidence as the original checks, stubs, and a receipt in Japanese characters were said to have been burned either during the liberation or in the office of Mr. Madrigal.
Testimonies from witnesses Mr. Panganiban and Constancio B. Bayani introduced discrepancies regarding the dates of payment (ranging from November/December 1943 to January–March 1944) and the proper identification of the payee (Alien Property Custodian versus Japanese Military Administration).

In the trial court, the defendant’s special defense—alleging payment to the Japanese custodian—was examined, including detailed testimony from several witnesses.
Despite some testimonies tending to support that a payment had been made, the trial judge held that such payment was null and void as it lacked documentary corroboration.
The trial court granted judgment in favor of Kneedler Realty Co. by declaring Simon Paterno liable for the balance of P81,000 with accrued interest (subject to specific exemptions and suspensions under disputed moratorium provisions).

The court stressed the imperative of presenting the best evidence available, noting that when documentary records exist or could be produced, oral testimony cannot substitute for them.
The absence of a proper cancellation of the mortgage document, which is the standard practice in transactions of this magnitude, was heavily emphasized.
Discrepancies and inconsistencies in oral testimonies regarding the payment process weakened the defendant’s claim that the debt had been satisfied.

Whether the defendant, Simon Paterno, discharged his burden of proving that he paid the indebtedness during the Japanese occupation by relying solely on oral evidence.

Is oral testimony, in the absence of documentary evidence like the original checks or bank records, sufficient to prove payment?
Does the destruction of evidence (checks, stubs, and receipts) justify relying on less-than-best evidence?

Whether the alleged payment—characterized by discrepancies in dates, amounts, and identification of receiving authority—can be deemed valid and conclusive to extinguish the mortgage obligation.

Do the contradictions in witness testimonies undermine the credibility of the alleged payment?
Can the defendant’s claim that payment was made be reconciled with the lack of a formal cancellation of the mortgage on the transfer certificate?

The propriety of the trial court’s findings and whether the errors concerning the exemption of interest during 1942–1944 and the postponement of payment pending moratorium lifting affect the substantive relief granted.