Haw Pia v China Banking Corporation PIL

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80 Phil 604 April 7, 1948 Feria, J. Cams
Petitioners: Respondents:
Haw Pia The China Banking Corporation
Recit Ready Summary

Haw Pia instituted this action in the CFI of Manila against China Banking Corp to compel it to execute a
deed of cancellation of the mortgage on the property alleging that her indebtedness to the bank of
P5,103.35 has been completely paid to the latter through the Bank of Taiwan, Ltd., that was appointed
by the Japanese Military authorities as liquidator of the China Banking Corporation. The trial court ruled
in favor of China Banking Corp holding that there was no evidence presented to show that China Banking
Corporation had authorized the Bank of Taiwan, Ltd., to accept the payment, and said Bank of Taiwan,
as an agency of the Japanese invading army, was not authorized under the international law to liquidate
the business of the China Banking Corporation. Thus, the payment has not extinguished the
indebtedness under Article 1162 of the Civil Code.

Haw Pia appealed from the decision of the Court contending that the Japanese Military Administration
had authority which extinguishes her obligation to the Bank. This Court agrees with her.

As to the first issue, Haw is correct as liquidation here is a mere sequestration of the bank’s assets which
required the liquidation or winding up of its business. Before the Hague Convention, it was the practice
to allow the confiscation or appropriation by the belligerent occupant of the enemy in a territory occupied
by the belligerent hostile army. As such was allowed, any other act short of confiscation was permitted.
China Banking Corporation, comes within the meaning of the word "enemy" as used in the Trading with
the Enemy Acts of civilized countries, because it was controlled by Japan's enemies, and incorporated
under the laws of a country with which Japan was at war. It is to be presumed that Japan, in sequestrating
and liquidating the China Banking Corporation, acted in accordance with her own Manual of the Army
and Navy and Civil Affairs or with her Trading with the Enemy Act. Even if not, the Allied Nations are
allowed to do so with enemy properties found within their own domain or in enemy territories occupied
during the war by their armed forces. With this, Japan had also the right to do the same in the Philippines
by virtue of the international law principle that "what is permitted to one belligerent is also allowed to the
other." With regard to the funds of commercial banks like the so-called enemy banks, it was impossible
or impracticable to attain the purpose for which these acts were intended, without liquidating the said
banks and collecting the loans given by them to hundreds if not thousands of persons scattered over the
Islands. It was physically impossible for the Japanese Military authorities to do so because they were
forcibly driven out of the Philippines or annihilated by the forces of liberation. Further, the owners of such
properties who are nationals of the victorious belligerent are entitled to receive compensation.

Consequently, such payment has extinguished her obligation to the Bank.

Facts

1. Plaintiff-appellant Haw Pia instituted this action in the CFI of Manila against Defendant-appellee
China Banking Corp to compel it to execute a deed of cancellation of the mortgage on the property.
2. The cause of action is that Haw Pia’s indebtedness to the China Banking Corp of P5,103.35 has
been completely paid to the latter through the defendant Bank of Taiwan, Ltd., that was appointed
by the Japanese Military authorities as liquidator of the China Banking Corporation.

Procedural History

1. China Banking Corp, after having been served with summons, made a demand from Haw Pia for
payment of P5,103.35 with interests.
2. The Trial Court held that there was no evidence presented to show that the China Banking
Corporation had authorized the Bank of Taiwan, Ltd., to accept the payment of Haw Pia’s debt to
China Banking Corp, and said Bank of Taiwan, as an agency of the Japanese invading army, was
not authorized under the international law to liquidate the business of the China Banking

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 Corporation. Thus, the payment has not extinguished the indebtedness under Article 1162 of the
Civil Code.
3. Haw Pia appealed from the decision of the Court.
Issues Ruling
1. Whether the Japanese Military Administration had authority to order the 1. Yes
liquidation or winding up of the business of China Banking Corporation, and to 2. Yes
appoint the Bank of Taiwan liquidator authorized as such to accept the payment
2. Whether such payment has extinguished her obligation
Rationale
1. The Japanese military authorities had power, under the international law, to order the
liquidation of the China Banking Corporation and to appoint and authorize the Bank of
Taiwan as liquidator to accept the payment in question.

a. This is because liquidation is not a confiscation of the properties of the bank, but a mere
sequestration of its assets which required the liquidation or winding up of the business of said
bank.

b. The provisions of the Hague Regulations, section III, on Military Authority over Hostile Territory,
which is a part of the Hague Convention respecting the laws and customs of war on land, are
intended to serve as a general rule of conduct for the belligerents in their relations with each
other and with the inhabitants. However, it does not cover other unforeseen cases so it was
agreed that until a complete code of the laws of war has been issued, the inhabitants and the
belligerents remain under the protection and the rule of the principles of international law.

c. Before the Hague Convention, it was the practice to allow the confiscation or appropriation by
the belligerent occupant of the enemy in a territory occupied by the belligerent hostile army. As
such was allowed, a fortiori, any other act short of confiscation was necessarily permitted.

d. The purpose of sequestration was explained in the Annual Report of the Office of the Alien
Custodian (March 11, 1943, to June 30, 1943) that "in the absence of effective measures of
control, enemy-owned property can be used to further the interest of the enemy and to impede
our own war effort.”

e. China Banking Corporation, comes within the meaning of the word "enemy" as used in the
Trading with the Enemy Acts of civilized countries, because it was controlled by Japan's
enemies, and incorporated under the laws of a country with which Japan was at war.

f. The Trading with the Enemy Act of the United States may be applied and enforced in a hostile
territory occupied by the United States armed forces, because section 2 of said Act provides
"That the words 'United States,' as used herein, shall be deemed to mean all land and water,
continental or insular, in any way within the jurisdiction of the United States or occupied by the
military or naval forces thereof."

g. After the liberation of the Philippines during World War II, properties belonging to Japanese
nationals located in this country were taken possession of by the Alien Property Custodian
appointed by the President of the United States under the Trading with the Enemy Act, because,
although the Philippines was not a territory or within the jurisdiction or national domain of the
United States, it was then occupied by the military and naval forces thereof.

h. The obligations assumed by the United States, in applying the Trading with the Enemy Act of
the United States to properties within her national domain, is different and distinct from those
arising from the application thereof to enemy properties located within the hostile territory
occupied by her armed forces.
1.) In the first case, Congress is free to authorize the seizure, use, or appropriation of such
properties without any compensation to the owners.

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 2.) While in the latter case, Congress cannot legally refuse to credit the compensation for them
to the States of the owners as payment on account of the sums payable by said States
under treaties, and the owners have to look for compensation to their States.

i. It is to be presumed that Japan, in sequestrating and liquidating the China Banking Corporation,
acted in accordance with her own Manual of the Army and Navy and Civil Affairs or with her
Trading with the Enemy Act. Even if not, the Allied Nations are allowed to sequestrate, impound,
and block enemy properties found within their own domain or in enemy territories occupied
during the war by their armed forces. Consequently, Japan had also the right to do the same in
the Philippines by virtue of the international law principle that "what is permitted to one
belligerent is also allowed to the other."

j. With regard to the funds of commercial banks like the so-called enemy banks, it was impossible
or impracticable to attain the purpose for which the freezing, blocking and impounding are
intended, without liquidating the said banks and collecting the loans given by them to hundreds
if not thousands of persons scattered over the Islands. It was physically impossible for the
Japanese Military authorities to do so because they were forcibly driven out of the Philippines
or annihilated by the forces of liberation.

k. Further, the owners of properties seized, sequestrated or impounded who are nationals of the
victorious belligerent are entitled to receive compensation. Naturally, as the Japanese war notes
were issued as legal tender for payment of all kinds at par with the Philippine peso, by the
Imperial Japanese Government, Japan is bound to indemnify the aggrieved banks for the loss
or damage on their property, in terms of Philippine peso or U. S. dollars at the rate of $1 for P2.

2. Consequently, the obligation is extinguished.

a. Said payments were made to a person, the Bank of Taiwan, authorized to receive them in the
name of the bank creditor under article 1162, of the Civil Code.

b. The fact that the money with which the debts have been paid were Japanese war notes does
not affect the validity of the payments. The contract between the parties was to pay Philippine
pesos and not some specifically defined species of money. The Philippine peso and half-pesos
including the Philippine Treasury Certificate was and is the legal tender in the Philippines under
section 612 of the Administrative Code, as amended by Act No. 4199.

c. The power of the military governments established in occupied enemy territory to issue military
currency in the exercise of their governmental power is based, not only on the occupant's
general power to maintain law and order recognized in article 43 of the Hague Regulations, but
on Military necessity.

d. According to Feilchenfeld in his book "The International Economic Law of Belligerent

Occupation," the occupant in exercising his powers in regard to money and currency, may adopt
one of the following methods according to circumstances:
(1) When the coverage of the currency of the territory occupied has become inadequate and
"the local currency continues to be used, an occupant may reorganize the national currency by
appropriate methods, such as the creation of new types and supplies of coverage" (paragraph
272).
(2) The occupant, may, and not infrequently, use his own currency, in the occupied region. But
this method may be found inconvenient if the coverage for their national currency had already
become inadequate, and for that reason authorities are afraid of exposing it to additional strain,
and for that reason an occupant may not replace the local currency by his own currency for all
currency for all purposes, and enforce its use not only for his own payment but also for payments
among inhabitants (paragraph 285).
(3) Where the regional currency has become inadequate and it is deemed inadvisable by the
occupant to expose his own currency to further strain, new types of money may be created by

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 the occupant. Such new currency may have a new name and may be issued by institution
created for that purpose (paragraph 296).
- This last method was the one adopted by Japan in this country, because the coverage of the
Philippine Treasury Certificate of the territory occupied had become inadequate, for most if not
all the said coverage have been taken to the United States and many millions of silver pesos
were buried or thrown into the sea near Corregidor, and Japan did not want to use her national
currency, and expose it to additional strains.
Disposition

The judgment appealed from is REVERSED, and the defendant-appellee is sentenced to execute the
deed of cancellation of mortgage of the property described in the complaint, and to deliver to the plaintiff-
appellant the Transfer Certificate of Title No. 47634 of the Register of Deeds in Manila with the annotation
of mortgage therein already cancelled, without pronouncement as to costs.