Case Summary (G.R. No. 131013)
Key Dates
• February 17, 1926 – Original mortgage executed for ₱75,000
• March 16, 1940 – Fourth extension granted, balance ₱70,000, interest reduced from 9% to 7% per annum with option to pay in Philippine pesos or English currency at maturity (February 17, 1943)
• January 1, 1942 – Plaintiffs allege further reduction of interest rate to 3½% per annum
• June 3, 1944 – Clara de Legarda deposits ₱75,920.83 (Japanese military notes via certified check) in court
• August 5, 1949 – Court of First Instance (Manila) dismisses complaint; orders payment of ₱70,000 plus interest at 3½% from January 1, 1942, P2,500 costs
• April 28, 1951 – Supreme Court decision
Applicable Law
• Constitution of the Philippines (1935)
• Civil Code of the Philippines (Act No. 386):
– Art. 1127 (strict compliance for efficacious consignation)
– Art. 1132(2), 1134, 1136(1) (alternative obligations and impossibility)
– Art. 1157 (requirement of complete performance)
– Art. 1166 (no substitution of undertaking against creditor’s will)
– Art. 1170 (legal tender in specie; checks not legal tender)
Procedural History
• June 3, 1944 – Plaintiffs file complaint against Burke for refusal to accept payment and to release mortgage.
• July 19, 1944 – Burke answers, asserting a wartime agreement to condone interest until war’s end.
• CFI initially orders Burke to accept payment and release mortgage; Burke moves for new trial.
• Post-liberation, supplemental answer with counterclaim filed and denied; Supreme Court reverses denial and remands for new trial.
• March 31, 1949 – Substitution of Burke’s heir and admission of amended supplemental answer.
• August 5, 1949 – CFI dismisses complaint, upholds counterclaim, orders mortgage foreclosure sale.
• Plaintiffs appeal to the Supreme Court.
Factual Background
Over nearly two decades, plaintiffs enjoyed successive extensions of a ₱75,000 loan, with interest rate reductions from 9% down to 7%. During the Japanese occupation, plaintiffs sought further relief. Plaintiffs maintain that in early 1942 Burke agreed to reduce interest to 3½% per annum. Burke contends, supported by Attorney Carrascoso’s testimony, that he instead agreed to condone all interest due and to accrue until termination of the war, thereby deferring payment.
Lower Court Findings
Judge Jose Gutierrez David credited plaintiffs’ witness (Vicente Legarda) and letters from Clara de Legarda, finding no condonation agreement and concluding a 3½% interest reduction. Judge Conrado Sanchez, on remand, adopted those findings.
Supreme Court’s Assessment of Credibility
Reviewing testimonial and documentary evidence, the Supreme Court found the defendant’s witnesses (Carrascoso and Burke) more credible. The Court emphasized Burke’s consistent testimony, corroborated by a contemporaneous letter (Exhibit B) and the history of repeated extensions and interest concessions, as more consonant with fairness and the parties’ dealings.
Ruling on the Alleged Agreement
The Court held that the wartime agreement condoned interest until the wa
Case Syllabus (G.R. No. 131013)
Procedural History
- Original complaint filed June 3, 1944 in the Court of First Instance of Manila by Clara Tambunting de Legarda and Vicente L. Legarda against William J. B. Burke, alleging refusal to accept payment of a mortgage debt and praying for (1) acceptance of P75,920.83 deposited in court, (2) deed of release of mortgage, and (3) P1,000 damages.
- Defendant’s answer (July 19, 1944) pleaded a May 26, 1944 agreement condoning interest due and to become due until end of war, with payment deferred until war’s termination.
- Trial court (Judge Jose G. David) ordered acceptance of the deposit, release deed, and P120.40 costs (decision date not specified).
- Defendant moved (January 14, 1945) to set aside decision; record reconstituted October 10–23, 1945. Supplemental answer (Oct. 23, 1945) attacked validity of Japanese‐note consignation and asserted counterclaim for foreclosure.
- Trial court order (Dec. 24, 1945) denied supplemental answer; defendant appealed to Supreme Court.
- Supreme Court (GR L-831) held supplemental answer should have been admitted and remanded for new trial.
- On remand, substitution of party (April 2, 1949): Victoria Desbarats Miailhe substituted for Burke (deceased July 23, 1946); amended supplemental answer admitted.
- Plaintiffs’ reply (April 4, 1949) denied refusal to accept Japanese notes, challenged timeliness and extinguishment of debt.
- Trial court (Judge Conrado Sanchez) rendered judgment August 5, 1949 dismissing complaint and ordering plaintiff Clara to pay P70,000 plus 3½% interest from January 1, 1942, P2,500 costs and attorney’s fees, with mortgage property sale if unpaid.
- Plaintiffs appealed to the Supreme Court; this decision follows.
Factual Background
- Original mortgage indebtedness of P75,000 executed February 17, 1926, renewable and extended repeatedly; interest rate reduced from 9% to 7% per annum by agreement of March 16, 1940, with option to demand payment in Philippine pesos or English currency at £ 0.2 per peso on February 17, 1943.
- February or March 1942 conference: plaintiffs claim further reduction of interest rate to 3½% per annum from January 1, 1942; defendant denies this