B. J. SERVER, PLAINTIFF-APPELLEE, VS. EPIPANIA CAR, DEFENDANT-APPELLANT.

Server versus Car

The Case

This is Server versus Car, a case about a debt contracted in Japanese money during the Japanese occupation and made payable after the war. B. J. Server sued Epifania Car to collect on a promissory note and to foreclose the mortgage that secured it. Car resisted, arguing that since she had received Japanese currency, she should be allowed to pay on the Ballantyne Scale of Values rather than peso for peso in Philippine currency. The case matters because it applies the settled rule on how wartime monetary obligations are discharged, and it reminds us that freedom to contract includes the freedom to fix the currency of payment.

Procedural History

Server filed an amended complaint before the Court of First Instance of Albay, seeking recovery of the principal with interest and attorney's fees, and foreclosure of the mortgaged land in case of non-payment. Car answered with a counterclaim, denying any breach and invoking her good faith in offering to pay according to the Ballantyne Scale of Values.

The Court of First Instance of Albay ruled for Server. It held that under the terms of the promissory note, and in line with the decisions of the Supreme Court, payment should be made in Philippine currency on a peso-to-peso basis. It ordered Car to pay the principal with six percent interest from the termination of hostilities, plus twenty percent of the indebtedness as attorney's fees, and ordered the foreclosure sale of the mortgaged land upon failure to pay.

Car appealed directly to the Supreme Court, submitting a question purely of law concerning the mode of payment of the monetary obligation.

Facts

On January 22, 1945, Epifania Car obtained from B. J. Server a loan in Japanese currency. She executed a promissory note promising to pay Server, in the City of Manila, the sum of 2,500 pesos in Philippine currency, two years from and after the cessation of hostilities of the Greater East Asia War in the Philippines. The note provided that she would not be obliged to pay, and Server would not be obliged to receive payment, except after the termination of those hostilities. It also imposed six percent interest per annum from the termination of hostilities, and a twenty percent penalty on the principal for attorney's fees and costs of collection in case of failure to pay on time.

As security, Car mortgaged a parcel of land in Barrio Ogob, Malinao, Albay. The parties stipulated that the hostilities terminated on September 8, 1951, the date the formal treaty of peace was signed in San Francisco, California.

No payment was ever made. Sometime in 1953, Car offered to pay according to the Ballantyne Scale of Values, but Server did not reply to that offer. Server then sued for collection and foreclosure.

Issues

• Whether or not a monetary obligation contracted during the Japanese occupation, but expressly made payable after the termination of hostilities, must be paid peso for peso in Philippine currency rather than under the Ballantyne Scale of Values.
• Whether or not the stipulations on six percent interest and twenty percent attorney's fees are valid and binding.
• Whether or not payment in present Philippine currency would unjustly enrich the creditor and violate morals and public policy.

Applicable Provisions

The promissory note itself is the contract the Court construes, and it provides:

Two years from and after the cessation of hostilities of the Greater East Asia War in the Philippines, for value received, I promise to pay B. JOSEPH SERVER, or order, in the City of Manila, the sum of TWO THOUSAND FIVE HUNDRED PESOS (P2,500.00), Philippine Currency, subject to the following conditions.

This stipulation fixes both the currency and the maturity of the obligation, and it is the basis for the peso-for-peso ruling.

The note further provides on interest and penalty:

That I shall pay an interest on the principal at the rate of SIX (6%) PER CENT per annum from and after the termination of hostilities of the Greater East Asia War in the Philippines.

That in case of failure on my part to pay on time that is, within two years from and after the termination of hostilities of the Greater East Asia War in the Philippines, I shall pay an additional sum equivalent to twenty (20%) per cent on the principal, owing as penalty for attorney's fees and costs of collection whether incurred or not.

These are the valid stipulations the Court holds binding on the parties.

Ruling

On the first issue, the Court ruled that the obligation must be paid peso for peso in Philippine currency. It consolidated the rule in Aguilar versus Miranda into two parts. The first covers an obligation payable within a period that covers partly the occupation and partly the period after liberation, such that payment may be made at any time before the termination of the war; repayment there is made under the Ballantyne Scale of Values. The second covers an indebtedness expressly agreed to be paid within a period maturing after the war or after liberation; unless there is a clear agreement to the contrary, repayment cannot be made under the Ballantyne schedule but must follow the currency prevailing at the time of payment. The Court applied the second part, as it had in Quiogue versus Bautista, where it held that the obligation must be settled peso for peso in Philippine currency. Since the note expressly made payment due after the termination of hostilities, the peso-for-peso rule governs.

On the second issue, the Court held that the six percent interest and the twenty percent attorney's fees are expressly provided in the promissory note and referred to in the mortgage deed as binding. The trial court rightly followed these valid stipulations.

On the third issue, the Court rejected Car's invocation of the principle that no one should be enriched at the expense of another. It quoted its ruling in Dizon versus Arrastia:

Contracting parties are free to stipulate on the currency in which their respective obligations shall be settled and whenever, pursuant to the terms of an agreement, an obligation assumed during the Japanese occupation is not payable until liberation of the Philippines, the parties to the agreement are deemed to have intended that the amount stated in the contract be paid in such currency as may be legal tender at the time when the obligation becomes due.

The parties are deemed to have intended payment in the legal tender at maturity, so there is no unjust enrichment.

Doctrine

A Bar candidate should retain these rules. First, where a monetary obligation incurred during the Japanese occupation is made payable after a fixed period maturing after liberation, the debtor must pay in Philippine currency the same amount stated in the obligation, peso for peso. Second, the Ballantyne Scale of Values applies only where the obligation was payable within a period covering partly the occupation and partly the period after liberation, such that payment could be made before the war ended. Third, contracting parties are free to stipulate the currency of payment, and where the obligation is not payable until liberation, they are deemed to have intended payment in the legal tender at the time the obligation becomes due. These rules flow from the express terms of the promissory note quoted above.

Disposition

The Supreme Court affirmed the judgment of the Court of First Instance of Albay, with costs against the appellant, Epifania Car.

Remember This

Memorize this line: a wartime debt made payable after liberation is paid peso for peso in Philippine currency, not under the Ballantyne Scale. Examiners use this case to test the distinction between the two Aguilar versus Miranda rules and the principle that parties may freely stipulate the currency of payment.