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EN BANC

G.R. No. L-18967 January 31, 1966

REPUBLIC OF THE PHILIPPINES, Plaintiff-Appellant, vs. GREGORIO RODRIGUEZ, Defendant-Appellee.

Office of the Solicitor General for the plaintiff and appellant.
C. Teehankee for the defendant and appellee.

BENGZON, C.J.:chanrobles virtual law library

This is an appeal from the order of the Court of First Instance of Negros Occidental dismissing, on the ground of prescription, the plaintiff's complaint.chanroblesvirtualawlibrarychanrobles virtual law library

The material facts are as follows: On June 30, 1943, defendant Gregorio Rodriguez obtained a loan of P172.00 from the Bank of Taiwan, Ltd. payable on June 30, 1944; and on November 1, 1943, he obtained another loan of P150.00 from the same bank without maturity date (hence payable on demand). These two loans are evidenced by two promissory notes, the payment of which was secured by a chattel mortgage.chanroblesvirtualawlibrarychanrobles virtual law library

On January 21, 1946, the aforesaid two loans which remained unpaid became vested in the United States of America, thru its Alien Property Custodian, pursuant to the United States Trading with the Enemy Act, as amended, and under its Vesting Order No. P-4. On July 20, 1954, these unpaid accounts were together with other assets of said banks "transferred, conveyed and assigned to the Government of the Philippines by virtue of the Transfer Agreement executed on that date between the United States and the Philippine governments.chanroblesvirtualawlibrarychanrobles virtual law library

On October 1, 1954 and November 17, 1958, the plaintiff Republic made written demands upon defendant for payment. Upon his failure, plaintiff filed this complaint before the justice of the peace court of La Carlota, Negros Occidental, in June, 1960, to recover the two sums and attorney's fees and costs. A few days later, the defendant moved to dismiss on the ground that plaintiff's cause of action had already prescribed; but said motion was denied. However, after a hearing on the merits, said justice of the peace court rendered judgment dismissing the complaint on the ground of prescription. Plaintiff then appealed to the Court of First Instance of Negros Occidental. Therein the defendant again filed a motion to dismiss on the ground of prescription; and that court, upholding the motion, dismissed the case. Hence this appeal, directly to this Court because only questions of law are involved.chanroblesvirtualawlibrarychanrobles virtual law library

Has the action prescribed? We have recently held in Republic vs. Grijaldo, G.R. No. L-20240, December 31, 1965, that these notes of the Bank of Taiwan, Ltd. are being enforced by the Republic in its sovereign role, and that the statute of limitations does not run against it (Government of P.I. vs. Monte de Piedad, 35 Phil. 738-751). But as this Republic became the owner of the notes on July 20, 1954, the real question arises whether on that date, action on the notes had already prescribed; because if they had, the Republic got nothing - notes that had already become unenforceable.chanroblesvirtualawlibrarychanrobles virtual law library

As stated, the first note matured on June 30, 1944; and the second became payable on November 1, 1943. So at the time the Government of the Republic got ownership of the credit (1954), more than ten years had already elapsed. The Civil Code and Act 190 fix ten years as the prescriptive period for this kind of obligation and action.chanroblesvirtualawlibrarychanrobles virtual law library

At first glance, the period of prescription has lapsed. However, the Government argues that from the period of 1943-1954, must be deducted the time when the Moratorium Law was in force, because it tolled or suspended the running of the statute of limitations. The other side replies that as the Moratorium did not bind the Republic of the Philippines or the Government of the United States, the running of the prescriptive period was never interrupted, and therefore, more than ten years having elapsed, the notes prescribed.chanroblesvirtualawlibrarychanrobles virtual law library

It will be recalled that the Moratorium Law was established by Executive Orders Nos. 25 and 32, dated November 18, 1944, and March 10, 1945, respectively. At that time, these credits belonged to the Bank of Taiwan. The Moratorium Law bound it. Therefore, as to it, the prescriptive period was tolled. As it was only on January 21, 1946, that it lost ownership to the United States Government, more than one year must be deducted from the period from November, 1943 to July, 1954; with the result that, for purposes of prescription, less than ten years had elapsed when (in July, 1954) the Republic became the owner of the promissory notes. It must be remembered that from that time (July, 1954), the prescriptive period stopped to run against the Republic of the Philippine Islands.chanroblesvirtualawlibrarychanrobles virtual law library

Prescription does not run against the State (Art. 1108, New Civil Code).chanroblesvirtualawlibrarychanrobles virtual law library

It may be added in this connection that after Independence in July, 1946, the United States Government became a foreign country, lost its sovereignty over these Islands, and therefore, could not sue, by reason of the Moratorium Law, which lost its force only on May 18, 1953.¹ So the period between July, 1946 to May, 1953 (about 7 years) should be deducted in computing the period of prescription. This is practically what we held in the Grijaldo case, supra.chanroblesvirtualawlibrarychanrobles virtual law library

For the foregoing reasons, we are of the opinion, and so hold, that this action of the Republic has not prescribed. The order is reversed and the record remanded for further proceedings. So ordered.

Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala, Bengzon, J.P. and Zaldivar, concur.
Makalintal and Sanchez, JJ., took no part.

Endnotes:

¹Rutter vs. Esteban, 93 Phil., 68.