G.R. No. L-4044 July 9, 1952
PEDRO C. HERNAEZ and ASUNCION DE LA RAMA VDA. DE ALUNAN, in her own behalf and as administratix of the estate of her deceased husband, RAFEL R. ALUNAN, plaintiffs-appellees, vs. HON. J. HOWARD McGRATH, Attorney General of the United States, defendant-appellant. REPUBLIC OF THE PHILIPPINES, and DR. NICANOR JACINTO, intervenors-appellants.

FACTS

Pedro C. Hernaez and Rafael R. Alunan were registered co-owners of eight contiguous parcels of land in Manila. On February 20, 1943, during the Japanese occupation, a deed of sale purportedly signed by Hernaez and Alunan, selling the property to the Hakodate Dock Co., Ltd. (a Japanese firm) for P170,000, was presented for registration. New transfer certificates of title were issued in the purchaser’s name. After investigation post-liberation, the Philippine Alien Property Administration (a U.S. instrumentality) vested the property as enemy-owned on April 20, 1947. The plaintiffs (Hernaez and Alunan’s estate) filed an ejectment and damages suit, alleging the deed of sale was forged. The Republic of the Philippines intervened as transferee of the vested property. Dr. Nicanor Jacinto also intervened, claiming a pre-war mortgage on the property for P160,000, which was paid and cancelled in 1943, but which he alleged he accepted only under duress from the Japanese. The original deed of sale, the new titles, and related notarial copies were lost or destroyed due to war events and a theft from the Register of Deeds. The trial court ruled for the plaintiffs and dismissed the interventions.

ISSUE

The primary issues were: (1) Whether the deed of sale to the Hakodate Dock Co., Ltd. was genuine, thereby validating the subsequent vesting of the property by the Alien Property Administration; and (2) Whether the pre-war mortgage in favor of Dr. Nicanor Jacinto was validly discharged by payment during the occupation.

RULING

The Supreme Court reversed the trial court’s judgment regarding the plaintiffs and the defendant, but affirmed it regarding intervenor Jacinto.
1. On the Validity of the Sale: The Court held that the defendant successfully proved the due execution and authenticity of the lost deed of sale through secondary evidence. The testimony of witnesses Satoru Watanabe (Hakodate’s manager), Napoleon Garcia (the notary public), and Jose Ma. Recto (the lawyer who prepared the deed) established that the document was signed by Hernaez and Alunan in Recto’s office. The trial court erred in rejecting this parol evidence based on an unsupported insinuation that a signed copy still existed and was suppressed. The loss of the original and signed copies was satisfactorily proven, making secondary evidence admissible. Therefore, the sale to the enemy national was valid, and the subsequent vesting of the property by the Alien Property Administration was proper. The defendant was absolved.
2. On the Mortgage Discharge: The Court held that the mortgage debt was validly extinguished. The payment was made in Japanese war notes, which were the legal currency at the time (February 1943). Under applicable law and jurisprudence, a debtor had the right to pay a pre-war obligation in such currency, and such payment effectively discharged the debt even if the creditor was compelled to accept it. The Court noted the disparity in value between the Japanese notes and pre-war pesos was minimal at that time. Furthermore, Jacinto accepted the payment, deposited it, and could have used it, leading to a possible estoppel. His claim of duress was insufficient to invalidate the payment and cancellation of the mortgage.