G.R. No. L-3225; April 27, 1951
J. ANTONIO ARANETA, plaintiff-appellant, vs. HONG KONG & SHANGHAI BANKING CORPORATION, defendant-appellee.

FACTS

On May 25, 1937, plaintiff J. Antonio Araneta executed a letter of hypothecation in favor of defendant Hong Kong & Shanghai Banking Corporation, obtaining an overdraft credit line not exceeding P18,000. As security, he pledged certificates of stock. As of January 1, 1949, his indebtedness was P2,709.64. During the Japanese occupation, the Bank of Taiwan, as liquidator of the defendant bank, demanded payment from the plaintiff, who made monthly installments of P50, reducing the balance to P687.36 by the end of the occupation. After liberation, the defendant bank refused to recognize the payments made to the Bank of Taiwan and insisted the balance was P2,709.64 plus interest. On March 17, 1947, the plaintiff tendered a check for P687.36 as full payment, which the bank refused. The plaintiff filed an action. During the pendency of the case, the parties entered a partial stipulation on February 23, 1948, whereby the defendant agreed to release the pledged securities if the plaintiff deposited P2,709.64 as substitute security. The plaintiff made this deposit by borrowing the amount from the Bank of the Philippine Islands, incurring 8% interest. He then filed a supplemental complaint seeking the return of the P2,709.64 deposit plus 8% interest from February 23, 1948, alleging the defendant wrongfully refused his tender of P687.36.

ISSUE

Whether the defendant bank wrongfully refused the plaintiff’s tender of payment (P687.36) and wrongfully retained the pledged securities, thereby entitling the plaintiff to recover the substitute cash deposit and the interest he paid on it.

RULING

No. The appealed decision is affirmed. The defendant bank was entitled, at the time of the plaintiff’s tender, not to recognize the payments made to the Bank of Taiwan during the Japanese occupation, as the legal effect of such payments was still unsettled. The bank acted in good faith, as evidenced by its prompt acceptance of those payments once the Supreme Court upheld their validity in the Haw Pia case on April 9, 1948, and its admission that the true balance was P687.36. Consequently, the bank had the right to retain the pledged securities. The substitution of a cash deposit for the pledged stocks was a concession granted by the bank for the plaintiff’s benefit and was not necessary to his cause of action. The defendant was not a wrongful possessor, as it held the pledge under the letter of hypothecation and agreed to release it upon the Haw Pia decision. Therefore, the plaintiff is not entitled to recover the interest paid on the substitute deposit.