G.R. No. L-3316; October 31, 1951
JOSE PONCE DE LEON, plaintiff-appellant, vs. SANTIAGO SYJUCO, INC., defendant-appellant, PHILIPPINE NATIONAL BANK, defendant-appellee.

FACTS

The Philippine National Bank (Bank) owned two parcels of land. On March 9, 1936, the Bank executed a contract to sell these properties to Jose Ponce de Leon for P26,300, payable in installments. On May 5, 1944, Ponce de Leon obtained a loan of P200,000 in Japanese Military Notes from Santiago Syjuco, Inc. (Syjuco), payable within one year from May 5, 1948, and secured by a mortgage on the same parcels of land. The next day, May 6, 1944, Ponce de Leon paid the Bank the balance of the purchase price in Japanese Military Notes, and the Bank executed a deed of absolute sale in his favor. The sale and mortgage were registered, and new titles were issued in Ponce de Leon’s name with Syjuco’s mortgage annotated. On July 31, 1944, Ponce de Leon obtained an additional loan of P16,000 from Syjuco under similar terms. In October 1944, Ponce de Leon, fearing capture as a guerrilla, tendered payment of P254,880 in Japanese Military Notes to Syjuco, covering the principal and all interest up to May 5, 1948. Syjuco refused. Ponce de Leon consigned the amount with the court and filed a complaint. After the war, Ponce de Leon reconstituted the land titles in the Bank’s name and then had them transferred to his name, obtaining new certificates free of Syjuco’s mortgage annotation. On August 16, 1946, Ponce de Leon obtained an overdraft from the Bank and mortgaged the same properties to secure it, which the Bank accepted in good faith, unaware of the prior mortgage. Syjuco, in its answer, claimed Ponce de Leon violated the mortgage terms and prayed for the nullity of the Bank’s mortgage. The trial court absolved Syjuco from Ponce de Leon’s complaint and ordered Ponce de Leon to pay Syjuco P23,130. Both Ponce de Leon and Syjuco appealed.

ISSUE

1. Did the lower court err in not giving validity to the consignation made by the plaintiff?
2. Did the lower court err in reducing the principal and interest of the promissory notes using the Ballantyne schedule?
3. Did the lower court err in disregarding the defense of moratorium set up by the plaintiff against Syjuco’s counterclaim?
4. Did the lower court err in not passing on the question of priority between the mortgage of Syjuco and that of the Philippine National Bank?

RULING

1. The consignation was not valid. The promissory notes stipulated payment “within one year from May 5, 1948,” and that the debtor could not pay, nor the creditor demand payment, except within that period. The tender and consignation in October 1944 were premature and violated the express terms of the contract. The penal clause for alteration or annulment of stipulations was applicable.
2. The reduction using the Ballantyne schedule was erroneous. The obligation was payable “peso for peso” in the currency legal tender at the time of payment (May 1948). The Ballantyne scale, which reduced Japanese war notes to their value relative to pre-war currency, was inapplicable as the parties contracted with reference to the currency’s future value, not its pre-war value. The obligation remained P216,000 in Philippine currency.
3. The defense of moratorium (under Executive Order No. 32) was validly invoked by Ponce de Leon against Syjuco’s counterclaim. The moratorium applied to the payment of the principal obligation, and its execution should be held in abeyance until the moratorium orders were lifted.
4. The court did not err in not ruling on the priority of mortgages. The properties were in Negros Occidental, while the action was filed in Manila. Under the Rules of Court, actions affecting title to real property must be filed in the province where the property lies. The issue of priority was not properly before the court.
The decision was modified: Ponce de Leon was ordered to pay Syjuco P216,000 (the total principal of the two notes) with 6% interest per annum from August 6, 1944, until fully paid. The mortgaged properties were to be sold at auction if the judgment was not paid within 90 days after it became final, but execution was to be held in abeyance until the moratorium was lifted.