G.R. No. L-1438; August 11, 1949

SOCORRO C. VDA. DE ARANETA, petitioner-appellee, vs. REHABILITATION FINANCE CORPORATION, oppositor-appellant.

FACTS

The administratrix of the estate of Ramon S. Araneta petitioned the Court of First Instance of Occidental Negros to order the cancellation of a mortgage annotation on Transfer Certificate of Title No. 31593. The mortgage was executed in March 1940 in favor of the Agricultural and Industrial Bank to secure a loan. The loan was fully paid in August 1944 with Japanese military notes. The deed of cancellation was lost. The bank’s successor, the Rehabilitation Finance Corporation, opposed the outright cancellation, praying that it be made subject to the precautionary annotation required by Circular No. 14 (dated August 25, 1945) of the Secretary of Justice, which stated that transactions from the Japanese occupation were subject to future government dispositions. The trial court ordered the cancellation without the annotation.

ISSUE

Whether the cancellation of the mortgage annotation must be made subject to the precautionary annotation required by Circular No. 14 of the Secretary of Justice.

RULING

No. The Supreme Court affirmed the trial court’s order for outright cancellation. Following its precedent in Lim v. Register of Deeds, the Court held that Circular No. 14 could not validly impose such an annotation. The annotation would constitute an incumbrance on the title not noted on the certificate, contrary to the Torrens System. Furthermore, the Secretary of Justice had no authority to issue such a circular, as it would impair contractual obligations without due process, and the police power cannot be delegated to him by Congress. In any case, the circular had become moot since, as established in Haw Pia v. China Banking Corporation, payments with Japanese war notes during the occupation, accepted by the creditor, are valid and discharge the obligation. Therefore, no precautionary annotation was necessary.

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