Case Summary (G.R. No. L-554)
Japanese Occupation and Liquidation Authority
In January 1942 Japanese forces occupied Manila. By Ordinance No. 11 (August 1, 1942), the Japanese Military Administration directed the liquidation of banks deemed “of hostile countries,” appointing the Bank of Taiwan as liquidator of China Banking Corporation’s Philippine operations.
Collection of Debt and Trial Court Ruling
Between October 1942 and August 1944, Haw Pia paid P 6,055.21 in Japanese military notes to the Bank of Taiwan toward her prewar overdraft. After liberation, she sought cancellation of the mortgage and return of her Torrens title, while China Banking Corporation counterclaimed for balance and attorney’s fees. The trial court held that without express authorization by China Banking Corporation, payments to Bank of Taiwan did not extinguish the debt, voided the mortgage cancellation, and ordered sale of the property if payment was not made.
International Law on Occupied Territory and Enemy Property
The Supreme Court examined the Hague Regulations (1907) and international practice, distinguishing sequestration (nonconfiscatory control of enemy assets during occupation) from confiscation (permanent appropriation prohibited as private property). It held that military occupation authorities lawfully sequester and liquidate enemy‐controlled banks’ assets—including appointment of a liquidator—so long as it is not permanent confiscation.
Sequestration Versus Confiscation
Under articles 46, 47, and 53 of the Hague Regulations, private property may be sequestered, blocked or liquidated to prevent its military use by the enemy but not confiscated outright. Sequestration and liquidation of China Banking Corporation’s assets by the Bank of Taiwan fell within internationally accepted wartime measures and did not contravene the Hague prohibitions.
Validity of Payments to Liquidator
Civil Code article 1162 provides that payment to a creditor’s authorized representative extinguishes the obligation. As liquidator “authorized by law” under international occupation rules, the Bank of Taiwan validly received prewar debt payments in the name of China Banking Corporation, thereby extinguishing Haw Pia’s obligations despite lack of direct bank consent.
Legal Tender Character of Military Notes
Japanese military notes had been proclaimed legal tender at par with Philippine pesos within occupied areas. Under article 1170 and local tender‐law p
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Facts
- Haw Pia secured an overdraft of P8,000 with China Banking Corporation, payable on demand with 9% interest and guaranteed by a mortgage on her Manila lot (TCT No. 47634).
- By December 26, 1941, the overdraft balance was P5,103.35.
- On January 2, 1942, Japanese authorities appointed the Bank of Taiwan as liquidator of “banks of hostile countries,” including China Banking Corporation.
- Between October 7, 1942 and August 29, 1944, Haw Pia paid P6,055.21 in Japanese military notes to the Bank of Taiwan (claimed as liquidation payments).
- After liberation, Haw Pia demanded cancellation of the mortgage and return of her torrens title; China Bank refused.
Procedural History
- September 4, 1945: Haw Pia sued China Banking Corporation and Bank of Taiwan in CFI Manila to compel mortgage cancellation, title delivery, P1,000 attorney’s fees and costs.
- October 15, 1945: China Bank answered, set up counterclaim for P5,103.35 plus interest, P1,500 attorney’s fees and costs, to be paid within 90 days after moratorium order is lifted.
- March 12, 1946: Trial court held Bank of Taiwan had no authority to accept payments, denied Haw Pia relief, granted China Bank’s counterclaim and foreclosure remedy.
- Haw Pia appealed to the Supreme Court.
Issues
- Whether Japanese Military Administration had authority under international law to liquidate China Banking Corporation and empower the Bank of Taiwan to accept Haw Pia’s payments.
- Whether Haw Pia’s payments in Japanese military notes to the Bank of Taiwan extinguished her debt to China Banking Corporation under Civil Code article 1162.
Holdings
- The Hague Regulations and international law permit a belligerent occupant to sequestrate (not confiscate) private enemy‐bank assets and to liquidate them for military administration reasons.
- The Japanese Military Administration validly appointed the Bank of Taiwan as liquidator to collect debts owed to China Banking Corporation.
- Payments made by Haw Pia to the duly authorized liquidator extinguished her obligation under Civil Code article 1162.
- Japanese military notes is