JOSE PONCE DE LEON, PLAINTIFF AND APPELLANT, VS. SANTIAGO SYJUCO, IN., DEFENDANT AND APPELLANT. PHILIPPINE NATIONAL BANK, DEFENDANT AND APPELLE.

This is an appeal from a decision of the Court of First Instance of Manila
absolving defendant Santiago Syjuco, Inc. of the complaint and
condemning the plaintiff to pay to said defendant the sum of P18,000 as
principal acid the further sum of P5,130 as interest thereon from
August 6, 1944, to May 5, 1949, or a total of P23,130, Philippine
currency, with interest thereon at the rate of 6% per annum from May 6,
1949, until said amount is paid in full, with costs against the
plaintiff.

The facts of this case as reflected in the pleadings and, the
evidence, stripped of unnecessary details, are well narrated in the
brief submitted by counsel for the Philippine National Bank, and which
for purposes of this decision are hereunder reproduced:

“The
appellee, Philippine National Bank, hereinafter .to be referred to as
the Bank, was the owner of two (2) parcels of land known as Lots 871
and 872 of the Murcia Cadastre, Negros Occidental, more particularly
described in Transfer Certificates of Title Nos. 17176 and 17175,
respectively. On March 9, 1936, the Bank executed a contract to sell
the said properties to the plaintiff, Jose Ponce de Leon, hereinafter
to be referred to as Ponde de Leon, for the total price of P26,300,
payable as follows: fa) P2,630 upon the execution of the said deed; and
(b) the balance of P23,670 in ten (10) annual amortizations,
the first amortization to fall due one year after the execution of the
said contract (See Annex “A”, Syjuco’s Segunda Contestacion Enmendada).

“On
May 5, 1944, Ponce de Leon obtained a loan from Santiago Syjuco, Inc.,
hereinafter to be referred to as Syjuco, in the amount of P200.00 in
Japanese Military Notes, payable within one (1) year from May 5, 1948.
It was also provided in said promissory note that the promisor (Ponce
de Leon) could not pay, and the payee (Syjuco) could not demand, the
payment of said note except within the aforementioned period. To secure
the payment of said obligation, Ponce de Leon mortgaged in favor of
Syjuco the parcels of land which he agreed to purchase from the Bank
(See Annex ‘A’ Syjuco’s Segunda Contestacion Enmendada).

“On May 6, 1944, Ponce de Leon paid the Bank the Balance of the
purchase price amounting to P23,670 in Japanese Military notes and, on
the same date, the Bank executed in favor of Ponce de Leon a deed of
absolute salo6f the aforementioned parcels of land (See Annex “F”,
Syjuco’s Segunda Contestacion Enmendada).

“The deed of
sale executed by the Bank in favor of Ponce de Leon and the deed of
mortgage executed by Ponce de Leon in favor of Syjuco were registered
in the Office of the Register of Deeds of Negros Occidental and, as a
consequence of such registration, Transfer Certificate of Title Nos.
17175 and 17176 in the name of the Bank were cancelled and Transfer
Certificates of Title No. 398 (P.R.) and No. 399 (P.R.), respectively,
were issued in the name of Ponce de Leon. The mortgage in favor of
Syjuco was annotated on the back of said certificates.

“On July 31, 1944, Ponce de Leon obtained an additional loan from
Syjuco in the amount of P16,000 in Japanese Military notes and executed
in the latter’s favor a promissory note of the same tenor as the one he
had previously executed (R. on Appeal, pp. 23-24).

“On
several occasions in October, 1944, Ponce de Leon tendered to Syjuco
the amount of P254,880 in Japanese military notes in full payment of
his Indebtedness to Syjuco. The amount tendered included not only the
interests up to the time of the tender, but also all the interest up to
May 5, 1948. Ponce de Leon also wrote to Syjuco a letter tendering the
payment of his indebtedness, including interests up to May 5, 1948.
Syjuco, however, refused to accept such repeated tenders. During the
trial, Ponce de Leon explained that he wanted to settle his obligations
because as a member of the guerrilla forces he was being hunted by the
Japanese and he was afraid of getting caught and killed (t.s.n. pp.
23-24).

“In view of Syjuco’s refusal to accept the
payment tendered by Ponce de Leon, the latter deposited with the Clerk
of the Court of First Instance of Manila the amount of P254,880 and, on
November 4, 1944, he filed a complaint consigning the amount so
deposited to Syjuco. To this complaint Syjuco filed his answer. The
records of this case were destroyed as a result of the war and after
the liberation the same were reconstituted (R. on A. pp.1-17).

“On May 15, 1946, Ponce de Leon filed a petition in the Court of First
Instance of Negros Occidental for the reconstitution of transfer
Certificates of Title Nos. 17175 and 17176 in the name of the Bank and,
in an order dated June 4, 1946, the Court ordered the reconstitution of
said titles. In compliance with said order, the Register of Deeds of
Negros Occidental issued Certificates of Title Nos. 1297-R and 1298-R
in the name of the Bank. Ponce de Leon then filed with the Register of
Deeds a copy of the deed of sale of the properties covered by the said
certificates of title issued by the Bank in his (Ponce de Leon’s) favor
and the Register of Deeds cancelled the said Certificates of Title Nos.
1297-R and 1298-R and issued in favor of Ponce de Leon Transfer
Certificates of Title Nos. 526-N and 527-N (R. on A. pp. 48-50).

“On August 16, 1946, Ponce de Leon obtained an overdraft account from
the Bank in an.amount not exceeding P135,000 and, on the same date, he
executed a mortgage of the two parcels of land covered by the
reconstituted Transfer Certificates of Title Nos. 526-N and 527-N in
favor of the said Bank to secure the payment of any amount which he may
obtain from the Bank under the aforementioned overdraft account. The
overdraft account was granted by the Bank to Ponce de Leon in good
faith, said Bank not being aware of the mortgage which Ponce de Leon
had executed in favor of Syjuco during the Japanese occupation, and
said Bank believing that the said properties had no lien or incumbrance
in favor of anybody since no lien or encumbrance appeared annotated on
the reconstituted Certificates of Title Nos. 526-N and 527-N in the
name of Ponce de Leon (See Testimony of Atty. Endriga).

“On September 28, 1946, Syjuco filed a second amended answer to Ponce
de Leon’s complaint and, in its “Tercera Reconvencion”, it claimed
that Ponce de Leon, by.reconstituting the titles in the name of the
Bank, by causing the Register of Deeds to nave the said titles
transferred in his (Ponce de Leon’s name, and by subsequently
mortgaging the said properties to the Bank as a guaranty for his
overdraft account, had violated the conditions of the mortgage which
Ponce de Leon has executed in its favor during the Japanese occupation.
Syjuco then prayed that the mortgage in his favor be foreclosed and the
mortgage executed by Ponce de Leon in favor of the Bank be declared
null and void (R. on A. pp. 32-53).

“Ponce de Leon
objected to the inclusion of the Bank as a cross-defendant. (R. on A.
pp. 55-58). Notwithstanding said objection, however, the lower court
ordered the inclusion of the Bank as a cross-defendant (R. on A. pp.
59-60).

“On June 28, 1947, the Bank filed a motion to
drop on the ground that it had been misjoined and to dismiss on the
ground that the venue was improperly laid and there is another action
pending between the same parties for the same cause (R. on A. pp.
65-75). The said motion was denied by the lower court in its order
dated October 7, 1947 (R. on A. pp. 95-100). In view of such denial,
the Bank filed its answer on October 29, 1947 (R. on A. pp. 101-106).

“On June 24, 1949, the lower court rendered a decision absolving Syjuco
from Ponce de Leon’s complaint and condemning Ponce de Leon to pay
Syjuco the total amount of P23,130 with interest at the legal rate from
May 6, 1949, until fully paid (R. on A. pp. 107-135). Both Ponce de
Leon and Syjuco filed their appeal from this decision.”

The principal questions to be determined in this
appeal are: (1) Did the lower court err in not giving validity to the
consignation made by the plaintiff of the principal and interest of his
two promissory notes with the clerk of court?; (2) did the lower court
err in reducing the principal and interest of said promissory notes to
their just proportions using as a pattern the Ballantyne schedule in
effecting the reduction?; (3) did the lower court err in disregarding
the defense of moratorium set up by the plaintiff against the
counterclaim of defendant Syjuco?; and (4) did the lower court err in
not passing on the question of priority between the mortgage claim of
defendant Syjuco and that of the Philippine National Bank on the same
set of properties on the ground that they are situated in a province
different from that in which this action was brought? We will discuss
these issues in the order in which they are propounded.

1. It appears that plaintiff obtained from defendant Syjuco two loans in
   1944; One is for P200,000 obtained on May 5, 1944, and another for
   «.6,000 obtained on July 31, 1944. These two loans appear in two
   promissory notes signed by the plaintiff which were couched in
   practically the same terms and conditions and were secured by two deeds
   of mortgage covering the same parcels of land. In said promissory notes
   it was expressly agreed upon that plaintiff shall pay the loans “within
   one year from May 5, 19^8, * * * peso for peso in the coin or currency
   of the Government of the Philippines that, at the time of payment above
   fixed, it is the legal tender for public and private debts, with
   Interest at the rate of 6% per annum, payable in advance for the first
   year, and semi-annually in advance during the succeeding years”, and
   that, the period above set forth having been established for the mutual
   benefit of the debtor and creditor, the former binds himself to pay,
   and the latter not to demand the payment of, the loans except within
   the period above mentioned. And as a corollary to the above
   stipulations, It was likewise agreed upon in the two deeds of mortgage
   that nif either party should attempt to annul or alter any of the
   stipulations of this deed or of the note which it secures, or do
   anything which has for its purpose or effect an alteration or annulment
   of any of said stipulations, he binds himself to indemnify the other
   for the losses and damages, which the parties hereby liquidate and fix
   at the amount of P200,000″.

The facts show that, on November 15, 1944, or thereabouts,
contrary to the stipulation above mentioned, plaintiff offered to pay
to the defendant not only the principal sum due on the two promissory
notes but also all the interests which said principal sum may earn up
to the dates of maturity of the two notes, and as the defendant refused
to accept the payment so tendered, plaintiff deposited the money with
the clerk of court and brought this action to compel the defendant to
accept it to relieve himself of further liability.

The
question now to be determined is, is the consignation made by the
plaintiff valid in the light of the law and the stipulations agreed
upon in the two promissory notes signed by the plaintiff? Our answer is
in the negative.

In order that consignation may be effective,
the debtor must first comply with certain requirements prescribed by
law. The debtor must show (1) that there was a debt due; (2) that the
consignation of the obligation had been made because the creditor to
whom tender of payment was made refused to accept it, or because he was
absent or Incapacitated, or because several persons claimed to be
entitled to receive the amount due (Art. 1176, Civil Code); (3) that
previous notice of the consignation had been given to the person
interested in the performance of the obligation (Art. 1177, Civil
Code); (4) that the amount due was placed at the disposal of the court
(Art. 1178, Civil Code); and (5) that after the consignation had been
made the person interested was notified thereof (Art. 1178, Civil
Code). In the instant case, while it is admitted that a debt existed,
that the consignation was made because of the refusal of the creditor
to accept it, and the filing of the complaint to compel its acceptance
on the part of the creditor can be considered sufficient notice to the
consignation to the creditor, nevertheless, it appears that at least
two of the above requirements have not been complied with. Thus, it
appears that plaintiff, before making the consignation with the clerk
of court, failed to give previous notice thereof to the person
interested in the performance of the obligation. It also appears that
the obligation was not yet due and demandable when the money was
consigned, because, as already stated, by the very express provisions
of the document evidencing the same, the obligation was to be paid
within one year after May 5,1948, and the consignation was made before
this period matured. The failure of these two requirements is enough
ground to render the consignation ineffective. And it cannot be
contended that plaintiff is justified in accelerating the payment of
the obligation because be was willing to pay the interests due up to
the date of its maturity, because, under the law, in a monetary
obligation contracted with a period, the presumption is that the same
is deemed constituted in favor of both the creditor and the debtor
unless from its tenor or from other circumstances it appears that the
period has been established for the benefit of either one of them (Art.
1127, Civil Code). Here no such exception or circumstance exists.

It may be argued that the creditor has nothing to lose but everything
to gain by the acceleration of payment of the obligation because the
debtor has offered to pay all the Interests up to the date it would
become due, but this argument loses force if we consider that the
payment of Interests is not the only reason why a creditor cannot be
forced to accept payment contrary to the stipulation. There are other
reasons why this cannot be done. One of them is that the creditor may
want to keep his money invested safely instead of having it in his
hands (Moore vs. Cord 14 Wis. 231). Another reason is that
the creditor by fixing a period protects himself against sudden decline
in the purchasing power of the currency loaned specially at a time when
there are many factors that influence the fluctuation of the currency
(Kemmerer on Money, pp. 9-10). And all available authorities on the
matter are agreed that, unless the creditor consents, the debtor has no
right to accelerate the time of payment even if the premature tender
“included an offer to pay principal and interest in full” (17 A.L.R.
866-867; 23 L.R.A. (N.S.) 43; see ruling of this Court in the recent
case of Ilusorio vs. Busuego, G.R. No. L-882, September 30, 1949).

Tested by the law and authorities we have cited above, the conclusion
is Inescapable that the consignation made by the plaintiff is invalid
and, therefore, did not have the effect of relieving him of his
obligation.

2. The next question to be
   determined is whether the lower court erred in reducing the amount of
   the loans by applying the Balltntyne schedule.

This is not the first time that this question has been
raised. On two previous occasions this Court had been called upon to
rule on a similar question and has decided that when the creditor and
the debtor have agreed on a term within which the payment of the
obligation should be paid and on the currency in which payment should
be made, that stipulation should be given force and effect unless it
appears to be contrary to law, moral or public order. Thus, in one case
this Court said: “One who borrowed P4,000 in Japanese military notes on
October 5, 1944, to be paid one year after, in currency then
prevailing, was ordered by the Supreme Court to pay said sum after
October 5, 1945, that is, after liberation, in Philippine currency
(Roño vs. Gomez et al., G.R. No. L-19^7, May 31, 1949). In Another case, wherein the parties executed a deed of sale with pacto de retro
of a parcel of land for the sum of P5,000 in Japanese military notes
agreeing that within 30 days after the expiration of one year from June
24, 1944, the aforementioned land may be redeemed sa ganito ding halaga (at the same price), the Court held that the phrase “sa ganito ding halaga”
meant the same price of P5,000 in the currency prevailing at the time
of redemption and not the equivalent in Philippine currency of P5,000
in Japanese war notes”. The Court further said, “The parties herein
gambled and speculated on the date of the termination of the war and
the liberation of the Philippines by America. This can be gleaned from
the stipulation about redemption, particularly that portion to the
effect that redemption could be effected not before the expiration of
one year from June 24, 1944. This kind of agreement is permitted by
law. We find nothing immoral or unlawful in it”(Gomez vs. Tabia, G.R. No. L-1826, Aug. 5, 1949).

In this particular case, the terms agreed upon are clearer and more
conclusive than the ones cited because the plaintiff agreed not only
not to pay the obligation within one year from May 5, 1948, but also to
pay peso; for peso in the coin or currency of the Government that at
the time of payment it is the legal tender for public and private
debts. This stipulation is permitted by law because there is nothing
immoral or improper In it. And It is not oppressive because it appears
that plaintiff used a great portion of that money to pay his
obligations during the Japanese occupation as shown by the fact that he
settled his account with the Philippine National Bank and other
accounts to the tune of P100,000. It would seem therefore clear that
plaintiff has no other alternative than to pay the defendant his
obligation peso; for peso in the present currency as expressly agreed
upon in the two promissory notes in question. The decision of the lower
court on this point should, therefore, be modified.

As
regards the penal clause contained in the two deeds of mortgage herein
involved, we agree to the following finding of the court a quo: “The
attempt made by the plaintiff to pay the obligation before the arrival
of the term fixed for the purpose may be wrong; but it may be
attributed to an honest belief that .the term was not binding and not
to a desire to modify the .contract”. This penal clause should be
strictly construed.

3. As regards the third
   question, we find that the lower court erred in disregarding the
   defense of . moratorium set up by the plaintiff against the
   counterclaim of the defendant on the sole ground that this defense was
   not raised by the plaintiff in his pleadings. An examination of the
   record shows that the plaintiff raised this question in his pleadings.
   This must have been overlooked by the court.

The lower court, therefore, should have passed upon this
defense in the light of Executive Order No. 25, as amended by Executive
Order No. 32, which suspended payment of all obligations contracted
before March 10, 1945. We note, however, that said moratorium orders
have already been modified by Republic Act No. 342 in the sense of
limiting the ban on obligations contracted before the outbreak of war
to creditors who have filed claims for reparations with the Philippine
War Damage Commission, leaving them open to obligations contracted
during the Japanese occupation (Uy vs. Kalaw Katigbak,
G.R.No. L-1830, Dec. 1, 1949). As the obligation in question has been
contracted during enemy occupation the same is still covered by the
moratorium orders. The claim of counsel for the defendant that the
moratorium orders cannot be invoked because they are unconstitutional
cannot now be determined it appearing that it has been raised for the
first,,time in this instance. This defense of moratorium was raised by
plaintiff in his reply to the amended answer of the defendant dated
August 1, 1946, and in his motion to dismiss the counterclaim dated
October 29, 1946, but the defendant did not traverse that allegation
nor raise the constitutionality of the moratorium orders in any of Its
pleadings filed In the lower court. It Is a well known rule that this
Court can only consider a question of constitutionality when it has
been raised by any of the parties in the lower court (Laperal vs. City of Manila, 62 Phil. 352; Macondray & Co. vs. Benito and Ocampo, 62 Phil. 137).

4. The facts relative to the execution of the deed of mortgage In favor of
   the Philippine National Bank on the two lots in question are as
   follows: On March 9, 1936, the Philippine National Bank was the owner
   of lots Nob. 872 and 871 of the Murcia Cadastre, Negros Occidental,
   covered by Certificates of Titles Nos. 17175 and 17176 respectively. On
   the same date, the Bank sold the two lots to the plaintiff and as a
   result Transfer Certificates of Titles Nos. 398 and 399 were issued in
   the name of the plaintiff. On May 5, 1944, plaintiff mortgaged these
   lots to defendant Syjuco to guarantee the payment of two loans, one for
   7200,000 and another for 716,000. The mortgage was registered in
   accordance with law. Then liberation came. Plaintiff taking advantage
   of the destruction of the records of the office of the Register of
   Deeds of Negros Occidental, obtained from the Court of First Instance
   of said province the reconstitution of Transfer Certificates of Titles
   Nos. 17175 and 17176 and, by virtue thereof, the register of deeds
   issued transfer certificates of titles Nos.1297-R and 1298-R. In the
   name of the Philippine National Bank. Then he secured the cancellation
   of the titles last named and the issuance of Transfer Certificates of
   Titles Nos. 526-N and 527-N in his name without informing the court of
   the encumbrance existing in favor of defendant Syjuco. After securing
   the new titles In his name, plaintiff obtained a loan from the
   Philippine National Bank for the sum of P135,000 on the security of the
   property covered by said reconstituted titles. On said titles no
   encumbrance appears annotated, but it was noted thereon that they would
   be subject to whatever claim may be filed by virtue of documents or
   Instruments previously registered but which, for some reason, do not
   appear annotated thereon, as required by a circular of the Department
   of Justice.

From the foregoing facts, it clearly appears that the
mortgage executed in favor of defendant Syjuco is prior in point of
time and in point of registration to that executed in favor of the
Philippine National Bank, let alone the fact that when the later
mortgage was executed, the Bank must have known, as it was its duty to
find out, that there was a warning appearing In the reconstituted
titles that the same were subject to whatever encumbrance may exist
which for one reason or another does not appear in said titles. With
such warning, the Bank should have taken the necessary precaution to
Inquire into the existence of any hidden transaction or encumbrance
that might affect the property that was being offered in security such
as the one existing in favor of the defendant, and when the Bank
accepted as security the titles offered by the plaintiff without any
further Inquiry, it assumed the risk and the consequences resulting
therefrom. Moreover, it also appears that this same question of
priority has already been threshed out and determined by the Court of
First Instance of Negros Occidental in the cadastral proceedings
covering the two lots In question wherein the court ordered the
cancellation of the reconstituted titles Issued In the name of the
plaintiff and the reconstitution of the former titles copies of which
were In the possession of defendant Syjuco, subject only to the
requirement that the mortgage in favor of the Philippine National Bank
be annotated on said new titles. In other words, the court declared
valid the titles originally issued in the name of the plaintiff wherein
the encumbrance In favor of the defendant Syjuco appears and declared
Invalid the reconstituted titles secured by plaintiff through fraud and
misrepresentation. This order is now final because no appeal has been
taken therefrom by any Interested party.

We have, therefore,
no other alternative than to declare that the mortgage claim of the
defendant Syjuco Is entitled to priority over that of the Philippine
National Bank. This question can be threshed out here regardless of
venue because the counterclaim Is but ancillary to the main case (1
Moran, Comments on the Rules of Court, 2nd ed., 201).

In view
of the foregoing, the decision appealed from should be modified In the
sense of ordering the plaintiff to pay to defendant Syjuco the sum of
P2l6,000, Philippine currency, value of two promissory notes, with
Interest thereon at the rate of 6% per annum from May 6, 1949, until
said amount is paid in full. It is further ordered that should said
amount, together with the corresponding interests, be not paid within
90 days from the date this Judgment becomes final, the properties
mortgaged should be sold at public auction, and the proceeds applied to
the payment of this judgment in accordance with law, with costs
against the plaintiff.

However, this Judgment shall be held In abeyance, or no order for
the execution thereof shall be issued, until after the moratorium
orders shall have been lifted.

Feria, Bengzon, Tuason, Reyes, and Jugo JJ., concur.

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