Case Summary (G.R. No. L-3435)
Factual Background
The indebtedness originated in February 1926 when Clara Tambunting de Legarda became mortgagor, with periodic extensions and reductions of interest over many years. By March 16, 1940, the mortgage had been renewed and the defendant was granted an option to demand payment either in Philippine currency or in English currency at maturity. During the Japanese occupation, the parties met in early 1942 and disputed the character of their agreement: plaintiffs contended that defendant reduced the interest rate to three and one-half percent per annum from January 1, 1942; defendant contended that he condoned interest due and to become due until the termination of the war in consideration of plaintiffs’ agreement to pay the principal only after the war.
Original Proceedings and Intermediate Rulings
On June 3, 1944, plaintiffs sued to compel defendant to accept payment of P75,920.83 deposited with the clerk of court and to execute a release of mortgage, alleging defendant unjustifiably refused payment. The trial court, through Judge Jose Gutierrez David, originally ordered defendant to accept the deposit and execute a release. Defendant moved to set aside that decision. After liberation, a supplemental answer filed October 23, 1945, was initially denied by the trial court in an order of December 24, 1945 declaring that the record had been reconstituted; defendant appealed that denial.
Supreme Court Direction and Remand
The Supreme Court on appeal (reported in the record as the decision involving Clara Tambunting de Legarda and Vicente L. Legarda vs. Antonio Carrascoso, Jr., substituting William J. B. Burke, GR L-831) held that the supplemental answer should have been admitted and directed that a new trial be had. The case returned to the trial court. On March 31, 1949, a motion requested substitution of Victoria Desbarats Miailhe for the deceased William J. B. Burke and sought admission of an amended supplemental answer, which the trial court allowed on April 2, 1949.
Counterclaim, Consignation, and Procedural Posture at Trial
The amended supplemental answer contained a counterclaim seeking foreclosure of the mortgage and alleged that plaintiffs had attempted payment in Japanese military notes in May 1944 and that defendant had agreed to condone interest only until the end of the war. Plaintiffs had deposited P75,920.83 by manager’s check representing Japanese military notes on June 3, 1944; defendant had refused to accept those notes prior to deposit. After hearing, Judge Conrado Sanchez rendered judgment for defendant on August 5, 1949, dismissing the complaint and ordering payment by plaintiff of P70,000 with interest from January 1, 1942, plus costs and attorney’s fees; plaintiffs appealed.
Central Issues Presented on Appeal
The principal factual issue was whether the wartime agreement reduced the annual interest rate to three and one-half percent as plaintiffs claimed, or whether defendant condoned interest and deferred payment until the end of the war as defendant contended. The principal legal issue was whether the consignation of P75,920.83 by manager’s check in Japanese currency effected payment or otherwise extinguished the obligation.
Evidence and Credibility Findings
The record contained mainly testimonial evidence supplemented by letters. The trial court initially credited plaintiffs’ version. On review, the Supreme Court examined testimonial and documentary evidence and disagreed with both Judges below. The Court found the preponderance favored defendant because the testimony of Attorney Antonio Carrascoso and of William J. B. Burke corroborated each other and aligned with the history of long indulgence and repeated extensions by defendant. The Court found credible a letter from Burke (Exhibit “B”) and Carrascoso’s testimony that the parties agreed, through mediation, that interest then due and to become due would be condoned until the end of the war while payment of principal would be deferred.
Legal Principles on Alternative Obligations and Legal Tender
The Court reviewed the Civil Code provisions: Art. 1157 (complete performance required for payment), Art. 1166 (no substitution of one thing for another against the will of the creditor), and Art. 1170 (money debts must be paid in species stipulated or, if impossible, in silver or gold coin legally current). The Court explained that an option to demand payment in an alternative currency must be exercised at maturity; when January 3, 1942 proclamations by the Japanese outlawed foreign currencies, the English-currency alternative became impossible. Under Arts. 1132, 1134, and 1136(1) the obligation ceased to be alternative and payment in the only legally available currency—Japanese military notes—was tantamount to payment in Philippine currency for purposes of tender.
Application to the Consignation by Check
Despite concluding that Japanese military notes constituted the available medium of payment at maturity, the Court held that consignation by manager’s or certified check did not have legal effect because checks are not legal tender under Art. 1170 and consignation must comply strictly with provisions governing payment under Art. 1127. The Court relied on prior authorities that a creditor was not bound to accept a check in s
...continue readingCase Syllabus (G.R. No. L-3435)
Parties and Procedural Posture
- CLARA TAMBUNTING DE LEGARDA ET AL., PLAINTIFFS AND APPELLANTS filed a complaint to compel acceptance of payment and a release of mortgage and sought damages.
- VICTORIA DESBARATS MIAILHE, SUBSTITUTING WILLIAM J. B. BURKE, DEFENDANT AND APPELLEE answered, later filed a supplemental counterclaim, and sought foreclosure of the mortgage.
- The Court of First Instance of Manila dismissed the complaint and rendered judgment against the plaintiffs ordering payment of P70,000 with interest at 3 1/2% per annum from January 1, 1942, plus P2,500 as costs and attorney’s fees and authorizing sale of the mortgaged property on default.
- The plaintiffs appealed the judgment to the Supreme Court.
Key Factual Allegations
- The original mortgage indebtedness dated February 17, 1926, was repeatedly extended and the interest rate was progressively reduced by agreement between the parties.
- Plaintiffs allege that in a conference in February or March 1942 defendant agreed to reduce the rate of interest to 3 1/2% per annum effective January 1, 1942.
- Defendant alleged that, during the Japanese occupation, he condoned interests then due and to become due until termination of the war in consideration of plaintiffs’ promise to pay the principal at war’s end.
- On June 3, 1944, Clara Tambunting de Legarda deposited P75,920.83 by certified check representing Japanese military notes with the clerk of court in attempted satisfaction of the obligation.
- Defendant refused to accept payment in Japanese military notes and later sought payment in pounds sterling under the March 16, 1940 mortgage renewal option.
Procedural History
- The trial court initially ordered defendant to accept the consignation and to execute a release of mortgage, and awarded plaintiffs P120.40 for certification and clerical costs.
- Defendant moved for a new trial and filed a supplemental answer on October 23, 1945, alleging impossibility and fear of Japanese reprisals for earlier nondisclosure.
- The trial court originally denied admission of the supplemental answer, prompting defendant’s appeal to the Supreme Court, which held that the supplemental answer should have been admitted and ordered a new trial.
- On remand, substitution of party defendant was allowed and an amended supplemental answer was admitted, after which the Court of First Instance rendered judgment for defendant on August 5, 1949.
Issues Presented
- Whether the parties agreed in 1942 to reduce the annual interest rate to 3 1/2% as plaintiff