G.R. No. L-3241 October 29, 1953
SALVADOR ARANETA, plaintiff-appellant, vs. ALVA J. HILL, defendant-appellant.

FACTS

Alva J. Hill sold a parcel of land in Mandaluyong, Rizal, to Manuel Briones on October 25, 1941. The contract provided for installment payments and granted Hill the option to cancel the contract if the vendee’s arrears reached P600, with prior payments to be considered as rent. Briones assigned his rights to Salvador Araneta, with Hill’s approval. During World War II, Hill, an American citizen, was interned. Araneta, through intermediaries, paid Hill P500 in 1943 and P600 in 1944 using Japanese military notes. After liberation, Hill departed for the U.S., appointing Atty. Felix Falgui as his attorney-in-fact. Falgui demanded payment of arrears. Araneta expressed willingness to pay but requested validation of the Japanese occupation payments and a waiver of interest for that period. Hill, through Falgui, insisted on full interest collection and was non-committal on validating the occupation payments. Araneta invoked the moratorium order (Executive Order No. 32). On April 25, 1946, Hill, through Falgui, notified Araneta of the contract’s cancellation due to non-payment. Araneta later made a formal offer to pay the balance, deducting the P1,100 paid during the occupation and excluding interest for that period, which Hill rejected. Araneta filed a complaint to compel Hill to accept his tender of payment and execute a deed of sale. The trial court ordered Araneta to pay the balance with interest from February 27, 1945, and Hill to execute the deed, but it did not give full value to the Japanese military note payments. Both parties appealed.

ISSUE

1. Whether the payments made in Japanese military notes during the occupation should be credited at their full face value.
2. Whether Araneta is obligated to pay interest on the unpaid balance for the period of the Japanese occupation.
3. Whether Hill had the right to cancel the contract of sale.

RULING

1. Yes. The payments made in Japanese military notes, being legal tender at the time of payment, must be credited at their full face value of P1,100 against the purchase price.
2. Yes. There is no law condoning interest accruing during the Japanese occupation on debts between private individuals. Araneta is obligated to pay 9% interest on the unpaid balance for the entire period, including the occupation.
3. No. Hill’s cancellation of the contract was invalid. Although Araneta was in arrears during the occupation, Hill elected to enforce, not rescind, the contract by demanding payment in July 1945. Thereafter, Araneta’s failure to pay was justified by Hill’s refusal to fully validate the occupation payments and by the moratorium law (Executive Order No. 32), which suspended the enforcement of such debts. The contract remained in force. The appealed judgment was affirmed with the modifications that the P1,100 be fully credited and that interest be paid for the occupation period.