Republic of the Philippines vs. Herida

Although moratorium laws were declared unconstitutional, their effectivity suspended the running of the prescriptive period for debts incurred during the war, meaning the prescriptive period begins the day after they were declared unconstitutional.

Julio Herida obtained loans from the Bank of Taiwan, Ltd. in 1943, evidenced by promissory notes and secured by real estate mortgages over six parcels of land. The assets of the Bank of Taiwan, Ltd. were vested in the United States government and subsequently transferred to the Republic of the Philippines through Transfer Agreements dated July 20, 1954, and June 15, 1957. The Republic, through the Board of Liquidators, administered these assets and sought to collect the outstanding debt from Herida.

Julio Herida obtained loans from the Bank of Taiwan, Ltd. in 1943, evidenced by three promissory notes dated May 10, June 8, and June 10, 1943, totaling P1,780.00, payable one year from their dates, and bearing interest at 6% per annum compounded quarterly. To secure these loans, Herida executed real estate mortgages over six parcels of land in Negros Occidental, covered by Transfer Certificates of Title Nos. 26613, 26612, 26611, 26614, 26615, and 28079. The mortgages were duly registered with the Office of the Register of Deeds.

The assets of the Bank of Taiwan, Ltd., including Herida's loans, were vested in the United States government through the Alien Property Custodian. Pursuant to Transfer Agreements dated July 20, 1954, and June 15, 1957, the United States government transferred all rights, title, and interest in these assets to the Republic of the Philippines. The loans were then administered by the Board of Liquidators under the Office of the President.

A statement of account prepared on December 31, 1960, showed a balance of P3,948.83. On September 22, 1954, the Republic sent a demand letter to Herida via registered mail, demanding payment of his account. Despite the demand, Herida failed and refused to pay. The Republic filed a complaint for collection on November 27, 1961. When the case was called for hearing, Herida and his counsel failed to appear despite notice, prompting the lower court to allow the plaintiff to present evidence ex parte. The lower court found in favor of the Republic, ordering Herida to pay the outstanding amount, interest, attorney's fees, and costs, with a directive to sell the mortgaged properties at public auction if he failed to pay within ninety days of the decision becoming final.

• Prescription: Appellant argued that the cause of action had already prescribed because almost thirteen years had expired from 1948 to November 27, 1961, and under Article 1144 of the New Civil Code, the right to bring the action had prescribed. He contended that the indebtedness was patrimonial in character and thus subject to prescription under Article 1113 of the New Civil Code.
• Fortuitous Event: Appellant argued that the chattel upon which the chattel mortgage of standing crops was executed was totally destroyed by "caso fortuito."
• Monetary Award: Appellant argued against the lower court's order to pay P3,948.83 plus 6% interest compounded quarterly from December 31, 1960.

• Applicability of Moratorium Laws: Appellee maintained that the moratorium laws temporarily suspended the enforcement of payment of all debts and other monetary obligations payable within the Philippines, and therefore the present action was not barred by the statute of limitations when the complaint was filed.
• Computation of Prescriptive Period: Appellee argued that the period during which a law is in force is excluded from the computation of the prescriptive period. Since the moratorium laws were declared unconstitutional only on May 18, 1953, the ten-year period began the next day, on May 19, 1953, making the complaint filed on November 27, 1961 within the prescriptive period.

• Prescription: Whether the action to collect the debt was already barred by prescription when the complaint was filed on November 27, 1961.
• Applicability of Moratorium Laws: Whether the moratorium laws (Executive Orders Nos. 25 and 32, and Republic Act No. 342) suspended the running of the prescriptive period during their effectivity despite being declared unconstitutional.

• Prescription: No. The action was not barred by prescription because the complaint was filed within the ten-year prescriptive period.
• Applicability of Moratorium Laws: Yes. The moratorium laws suspended the running of the prescriptive period during their effectivity, meaning the prescriptive period began the day after they were declared unconstitutional on May 18, 1953.

• Prescription: The promissory notes became due in 1944. Ordinarily, the prescriptive period would be reckoned from those dates. However, the moratorium laws supervened, suspending the enforcement of payments of all debts contracted during the war. The ten-year prescriptive period began the day after the moratorium laws were declared unconstitutional, or on May 19, 1953. Since the complaint was filed in November 1961, it was well within the ten-year period.
• Applicability of Moratorium Laws: Although the moratorium laws were declared unconstitutional in Rutter vs. Esteban because their continued operation was unreasonable and oppressive, they were in effect from their promulgation until May 18, 1953. As a consequence, before they were declared unconstitutional, they suspended the running of the prescriptive period during their effectivity. An unconstitutional law still has operative effect during the period of its enforcement prior to the declaration of unconstitutionality.

• Suspension of Prescriptive Period by Moratorium Laws — Although moratorium laws were subsequently declared unconstitutional, they were in effect and operative during the period from their promulgation until the date of the declaration of unconstitutionality. Consequently, they suspended the running of the prescriptive period for obligations during their effectivity. The prescriptive period begins to run the day after the laws were declared unconstitutional.

• "As a consequence, before they were declared unconstitutional, they suspended the running of the prescriptive period during their effectivity. Thus, the 10-year period within which to institute the action against herein appellant began the day after the moratorium laws were declared unconstitutional or, to be precise, on May 19, 1953." — This passage establishes the ratio decidendi that an unconstitutional law can still have operative effect during the period of its enforcement, specifically suspending the prescriptive period.

• Royal L. Rutter vs. Placido J. Esteban, 93 Phil. 68 — Cited as the controlling precedent where the moratorium laws (Executive Orders Nos. 25 and 32 and Republic Act No. 342) were declared unconstitutional for being unreasonable and oppressive, but the declaration of unconstitutionality did not retroactively negate their effectivity prior to the ruling.
• P.N.B. vs. Osena, et al. — Cited for the proposition that the period during which a law is in force is excluded from the computation of the prescriptive period.

• Article 1144, New Civil Code — Provides the ten-year prescriptive period for actions upon a written contract. The Court applied this to determine the prescriptive period for the collection of the promissory notes.
• Article 1113, New Civil Code — Provides that property of the State not patrimonial in character shall not be the object of prescription. The appellant invoked this, but the Court's ruling on the moratorium laws made it unnecessary to dwell on the patrimonial nature of the debt.
• Executive Orders Nos. 25 and 32, and Republic Act No. 342 — The moratorium laws that suspended the enforcement of payment of debts contracted during the war. They were applied to suspend the running of the prescriptive period.

Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez, and Gutierrez, Jr., JJ., concur.