SALVADOR ARANETA, PLAINTIFF AND APPELLANT, VS. ALVA J. HILL, DEFENDANT AND APPELLANT.

Alva
J. Hill is the registered owner of a piece of a real estate situated in
Mandaluyong, Rizal, covered by transfer certificate of title No. 39240
of the Registry of Deeds of Rizal. On October 25, 1941, he sold that
land to Manuel Briones (Appendix A), for the sum of P9,977.60 of which
P977.76 was paid upon the recording of the contract of sale on the
certificate of title, and the balance of P8,799.84 was to be paid with
9 per cent annual interest in equal monthly installments of P146.66
each for a period of 5 years beginning November 1, 1941. The contract
further states that should the vendee become in arrears in his payments
for a total of P600, the vendor has the option to cancel the contract
and all amounts previously paid shall be considered as rental for the
use of the premises.

Subsequently Manuel Briones, for
valuable consideration, assigned all his interests to the plaintiffs
Salvador Araneta, who duly notified the vendor of, and the latter
approved, such assignment. Then came World War II. The defendant being
an American citizen, was interned by the Japanese forces. Not knowing
where the defendant was and desiring to pay him the installments on the
property, the plaintiff requested his former law partner, the late
Antonio Bautista, to contact him. Bautista succeeded in doing so;
through this partner of his, the plaintiff sent the defendant the sum
of P500. This was in 1943. In 1944, plaintiff again gave the defendant
the sum of P600, with the help of Margaret Wolfson. Both payments were
in Japanese military notes.

Upon the advent of the American
forces in 1945, Alva J. Hill departed for the United States. Before
leaving he appointed Atty. Felix Falgui as his attorney-in-fact. In a
letter dated July 3, 1945 (Exhibit 1), Attorney informed the plaintiff
of such appointment and the same time demanded payment of the
installment in arrears on the property. The plaintiff answered that he
was willing to pay, provided the defendant would validate the payments
made during the Japanese occupation and that no interest would be
collected during the same period. Attorney Falgui replied that he will
consult the defendant (who was then in the States) regarding the
validation of those payments; as to the interest, his instructions were
to collect all. On August 21, 1945, the plaintiff wrote back, informing
Attorney Falgui about his reluctance to resume payments due to the fact
that he (Falgui) was “not yet prepared to admit the payment of P1,100
which I have made to Mr. Hill”; and furthermore, he sought refuge under
the moratorium order. A series of letters were later exchanged between
the two, more or less of the same tenor until April 25, 1946 when the
plaintiff received a letter from Attorney Falgui, informing him that
due and in arrears, the contract has been cancelled by his principal in
accordance with the provisions of the contract of sale. On June 19,
1946, the plaintiff sent a letter to the defendant (who had then
arrived from the States) containing his version of the statement of
accounts and a formal offer to pay P8,555.70, after deducting the
amount of P1,100 paid during the Japanese occupation and excluding the
interest during the same period. The offer was rejected. Wherefore, on
February 21, 1947, plaintiff filed a complaint in the Manila court to
compel defendant “to accept the sum of P8,555.70 tendered to him by the
plaintiff in complete payment of the purchase price of the property in
question and to execute and deliver to the plaintiff the necessary deed
of sale” of the land.

On February 10, 1948, the trial judge
rendered his decision, ordering the plaintiff to pay defendant
P8,869.56 plus 9 per cent interest thereon from February 27, 1945,
until fully paid and requiring the defendant to deed to plaintiff the
real estate involved in the controversy. The court did not give full
value to the Japanese notes which had been delivered by the plaintiff
to the defendant during the occupation.

From this decision,
both parties appealed. The Court of Appeals forwarded the case on the
ground that the defendant “assails the constitutionality and validity
of Moratorium Order (Executive Order No. 32) and of Republic Act No.
342”.

The plaintiff says the lower court erred in holding
that although the defendant had received P1,100 in Japanese military
notes, such money was only equivalent to P80 in today’s currency and
therefore said plaintiff is deemed to have paid only P80 on account of
the purchase price. The assignment is well taken,^[1] said notes being legal tender at the time of payments.^[2]

In his second assignment of error, the plaintiff argues it was
erroneous to require him to pay interest on the unpaid purchase price,
because on June 19, 1946 he had made an offer to make payment of the
whole unpaid price by his letter Exhibit 1. We note however that as the
offer excluded interest during the Japanese occupation, defendant was
justified in rejecting the offer. There is no law condoning interest
accruing during the Japanese occupation on debts owing to private
individuals.^[3] Commonwealth Act No. 727 was vetoed by the President of the United States.

Main points of defendant’s appeal are the propositions that he had a
right to cancel the contract and did legally cancel it, and that, at
any rate, the plaintiff should pay interest on the balance due
corresponding to the whole period of the Japanese occupation.

In connection with his first proposition defendant alleges that
plaintiff as of January 1, 1942 had become in arrears to the extent of
P637.98 and the only payments made since then was P500 in 1943 and P600
in 1944 as against accrued liability of at least P4,225 (installments
for two years plus P637). The arrears therefore were always over the
P600-limit and he could have rescinded the contract of sale during the
Japanese occupation.

In reply to this, the plaintiff
maintains he was always ready and willing to pay during the occupation
but defendant did not desire, (and so informed him) to get full payment
in Military currency. He likewise offers other excuses which, in the
approach we propose to follow, do not require extended elucidation.

Supposing the defendant had a right to rescind the contract by reason
by plaintiff’s default during the Japanese occupation, the fact is that
he elected not to cancel but to enforce the contract by the letter of
July 3, 1945 demanding payment of the installments in arrears.
Thereafter plaintiff’s failure to pay was justified by two
circumstances, to wit, the refusal of defendant to fully validate the
payment during the occupation and the moratorium law, Executive Order
No. 32 dated March 10, 1945.

By virtue of this order the
obligation of plaintiff to pay the installments due before July 3, 1945
as well as those accruing afterwards was not demandable. Consequently
the letter of April 25, 1946 canceling the contract had no juridical
foundation.

The defendant argues that the order merely
suspended “enforcement of payment of all debts” but does not suspend
the duty to pay obligations. He also argues that the order does not
affect installments falling due after March 1, 1945.

There
is no doubt in our minds that the installments due constituted a debt
or obligation of the plaintiff which the defendant could not “enforce”
by cancelling the contract. Such cancellation would be an indirect way
of “enforcing” the debt, contrary to purposes of the Moratorium orders.
The installments falling due after March 1, 1945, are not obligations
“contracted” after such date, and are properly within the purview of
the moratorium orders.

True, we have in May of this year declared the Moratorium Laws ineffective^[4]
but in August 1945 when plaintiff invoked it, and at the beginning of
this case, it was in full force. Anyway plaintiff may fall back upon
his other excuse: defendant’s refusal to give entire validity to his
payments during the Japanese occupation.

Hence the trial
court must be held to have committed no mistake in finding that the
deed of sale Appendix A is still in force and binding upon both parties
and their assigns.

However, as herein previously intimated,
the plaintiff is not relieved from paying interest for the whole period
of the Japanese occupation.

Wherefore, with the modification
that the full amount of P1,100 shall be credited against the purchase
price, and that plaintiff shall pay 9 per cent interest on the unpaid
balance of the purchase price, including the period of the Japanese
occupation, the appealed judgment is affirmed. No costs in this
instance. So ordered.

Paras, C. J., Pablo, Montemayor, Reyes, Jugo, Bautista Angelo and Labrador, JJ., concur.

Padilla, J., concurring and dissenting: As stated in the
opinion I do not agree to the pronouncement that the payment of P1,100
in Japanese military or war notes released the debtor by that amount. I
concur in the opinion in all other respects.

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^[1] Haw Pia vs. China Banking Corporation, 45 Off. Gaz., Supp. (9) 299, 80 Phil. 604; Lim vs. Register of Deeds of Rizal, 46 Off. Gaz., 3665, 82 Phil. 789; Fidelity & Surety Co. vs. Court of Appeals, 47 Off. Gaz., 4084, 85 Phil. 485.

[2] Mr. Justice Padilla disagrees on this score, in view of his dissent in the Haw Pia case.

[3] De Guzman vs. Fernando, 90 Phil. 251; Araneta vs. Samson, 85 Phil. 142.

[4] Rutter vs. Esteban, supra, p. 68.