[With Resolution of January 30, 1962]

This
petition for certiorari brings to this Court for review the decision of
the Court of Appeals in its CA-G. R. No. 17031-R, reversing that of the
Court of First Instance of Manila and dismissing petitioners’ complaint.

The
facts are not in dispute. On March 7, 1940, Gaudencio R. Quiambao,
deceased husband of petitioner Nestora Rigor Vda. de Quiambao and
father of the other petitioners, bought from respondent Manila Motor
Company, Inc. one (1) Studebaker car on the installment plan. Upon
default in the payment of a number of installments, respondent company
sued Gaudencio Quimbao in Civil Case No. 58043 of the Court of First
Instance of Manila. On December 4, 1940, judgment was entered in said
case, awarding in favor of the plaintiff the sum of P3,054.32, with
interest thereon at 12% per annum, and P300.00 attorneys’ fees.

On
July 14, 1941, the court issued a writ of execution directed to the
Provincial Sheriff of Tarlac, who thereupon levied on and attached two
parcels of land covered by Transfer Certificate of Title No. 18390 of
the Office of the Register of Deeds for Tarlac. On August 27, 1941,
Attorney Felix P. David, then counsel for the Manila Motor Company,
accompanied by the sheriff, personally apprised Gaudencio Quiambao of
the levy. The latter pleaded to have the execution sale suspended and
begged for time within which to satisfy the judgment debt, proposing
that in the measwhile, he would surrender to the company the Studebaker
car. This proposition was accepted; accordingly, Gaudencio Quiambao
delivered the car to the company, and Attorney David issued a receipt
therefor that reads:

“August 27, 1941

Received from Mr. Gaudencio Quiambao, Studebaker President Sedan
License No. 45-368 pending settlement of the judgment in Civil Case No.
58043 CFI Manila rendered in favor of Manila Motor Company.

	David and Angeles
	By (Sgd.) Felix P. David
	Attorneys for Manila Motor Company.”

On
October 16, 1941, Gaudencio Quiambao remitted to the company, on
account of the judgment, the sum of P500.00; he, however, failed to
make further payments, thus leaving a balance still unsettled of
P1,952.47, with interest thereon at 12 per cent per annum from March 7, 1940.

In
the meantime, the Pacific war broke out, and when the Japanese forces
occupied the country shortly thereafter, the invaders seized all the
assets of the Manila Motor Company, Inc. as enemy property.

After
the war, the company filed with the Philippine War Damage Commission,
among other things, a claim for its mortgage lien on the car of
Gaudencio Quiambao and was awarded the sura of P780.47, P409.75 of
which amount had already been paid.

On October 12, 1949, the
company addressed a letter to Gaudencio Quiambao asking him to fill a
blank form relative to the lost car. Quiambao having since died, his
widow, Nestora Rigor Vda. de Quiambao, returned the form with the
statement that the questioned car was surrendered to the company for
storage. On May 18, 1953, a demand was made on the widow to settle the
deceased unpaid accounts, but in view of her refusal, the company urged
the Provincial Sheriff of Tarlac to carry out the pre-war writ of
execution issued in Civil Case No. 58043. Although the records of that
case had been lost during: the war, and have not been reconstituted, a
copy of said writ of execution kept on file by the provincial sheriff
was saved. Accordingly, the latter advertised for sale at public
auction the properties levied upon. Notified of the sheriff’s action,
the heirs of the deceased Quiambao filed this suit to annul and set
aside the writ of execution and to recover damages. Judgment was
rendered by the Court of First Instance of Manila in favor of
plaintiffs-petitioners, but on appeal to the Court of Appeals, the
decision was reversed and another entered dismissing the complaint.
Hence, this appeal by writ of certiorari.

Briefly, the issues are:

         (a)
Did the delivery of the Studebaker car to respondent company produce
the effect of rescinding or annulling the contract of sale between the
company and the deceased Gaudencio Quiambao and of barring the former
from executing its pre-war judgment in Civil case No. 58043?

         (b)
Did the payment to respondent company and the latter’s acceptance of
war damage compensation for the lost car amount to a foreclosure of the
mortgage covenanted in its favor? and

         (c) Was the pre-war judgment already prescribed taking into account the moratorium laws?

Anent the first issue, petitioners, citing the case of H.E. Heacock Company vs.
Buntal Manufacturing Company, et al., 66 Phil. 245-246, maintain that
the “taking of the automobile by respondent company from Gaudencio
Quiambao *** amounted to a waiver of said company’s right to execute
its judgment in Civil Case No. 58043 and clearly constituted a
cancellation or rescission of the sale,” which, under the first
paragraph of Article 1454-A of the old Civil Code,^[1]
then applicable, bars any further claim for unpaid installments. There
is no merit in this claim. Unlike the situation that arose in the H. E.
Heacock Company case wherein the vendor demanded the return of the
thing sold, and thereby indicated an unequivocal desire on its part to
rescind its contract with the vendee, here it was the buyer (deceased
Gaudencio Quiambao) who offered indeed pleaded, to surrender his car
only in order that he might be given more time within which to satisfy
the judgment debt, and suspend the impending execution sale of the
properties levied upon. The very receipt issued then by the company,
and accepted without objection by the deceased (Gaudencio Quiambao),
indicated that the car was received “pending settlement of the judgment
in Civil Case No. 58043.” Other circumstances that militate against
petitioners’ theory of rescission or annulment of the contract of sale
and waiver of the judgment debt and, conversely, strengthen the
proposition that the delivery of the car to respondent company was
merely to postpone the satisfaction of the judgment amount, are that
the deceased still paid the further sum of P500.00 on account of his
indebtedness about two months after the car was surrendered, and that
despite respondent company’s acceptance of the car, the company made
repeated demands against the petitioners to settle the deceased’s
unpaid accounts.

Since respondent company did not receive the
car for the purpose of appropriating the same, but merely as security
for the ultimate satisfaction of its judgment credit, the situation
under consideration could not have amounted to a foreclosure of the
chattel mortgage as petitioners imply.

Petitioners next argue
that “the payment of war damage compensation to respondent company * *
* produced the same and equal legal effect as formal foreclosure,” and
in view of the second paragraph of Article 1454 ^[2] of
the Spanish Civil Code, the latter is now precluded from claiming
unpaid installments. We do not agree. Having been the party who was
last in possession of the lost car, the company was well within its
rights, or better still, under obligation, to protect the interest of
the car owner, as well as its own, by claiming, as it did, the
corresponding war damage compensation for the car. Such action of the
company can not reasonably be construed as a constriction of its rights
under the pre-war judgment.

Furthermore, in Manila Motor Company, Inc., vs. Fernandez, 97 Phil., 782; 52 Off. Gaz., [16] 6883, 6885, we held:

*
* * At any rate, it is the actual sale of the mortgaged chattel in
accordance with section 14 of Act No. 1508 that would bar the creditor
(who chooses to foreclose) from recovering any unpaid balance (Pacific
Commercial Company vs. De la Rama, 72 Phil., 380).”

But
perhaps the best reason why respondent company may not be construed as
having rescinded or cancelled the contract of sale nor foreclosed the
mortgage on the automobile in question is precisely because it brought
suit for specific performance, and won, in the pre-war Civil Case No.
58043.

There is likewise no merit in the contention that the
pre-war judgment had already prescribed. Said judgment was entered on
December 4, 1940, and on July 14, 1941, a writ of execution was issued.
Respondent company took no further step to enforce the judgment until
May 19,1954, on which date, respondent scheduled two (2) parcels of
land owned by the petitioners for sale at public auction pursuant to
the writ of July 14, 1941. From the entry of the judgment to May 19,
1954, a period of 13 years, 5 months and 15 days had elapsed. From this
term we must deduct the period covered by the debt moratorium under
Executive Order No. 32 (which applied to all debts payable within the
Philippines), from the time the order took effect on March 10, 1945,
until it was partially lifted by Republic Act No. 342 on July 26, 1948.

Deducting
the period during which Executive Order No, 32 was in force, which is 3
years, 4 months and 16 days, from 13 years, 5 months and 15 days, the
period covered from the entry of the pre-war judgment to the time
respondent company attempted to sell the levied properties at auction,
there is still left a period of 10 years and 29 days. But as held in
Talens vs. Chuakay & Co., G. R. No. L-10127, June 30,
1958, this Court may take judicial notice of the fact that regular
courts in Luzon were closed for months during the early part of the
Japanese occupation until they were reconstituted by order of the
Chairman of the Executive Commission on January 30, 1942 ^[3].
This interruption in the functions of the courts has also been held to
interrupt the running of the prescriptive period (see also Palma vs.
Celda, 81 Phil. 416). That being the case, respondent company could not
be barred by prescription from proceeding with the execution sale
pursuant to the levy and writ of execution issued under the pre-war
judgment, considering that even the minimum period of from December 8,
1941, the outbreak of the Pacific war, to January 30, 1042 is already a
term of one (1) month and 23 days.

Petitioners raised the
issue whether or not the pre-war writ of execution and levy may still
be enforced by sale of the levied property after the lapse of the
five-year period within which a judgment may be executed by motion. On.
this point, this Court has held:

“We are of
the opinion that a valid execution issued and levy made within the
period provided by law may be enforced by a sale thereafter. * * * The
sale of the property by the sheriff and the application of the proceeds
are simply the carrying out of the writ of execution and levy which
when issued were valid. This rests upon the principle that the levy is
the essential act by which the property is set apart for the
satisfaction of the judgment and taken into custody of the law, and
that after it has been taken from the defendant, his interest is
limited to its application to the judgment, irrespective of the time
when it may be sold (Southern Cal. L. Co. vs. Hotel Co,, 94 Cal. 217, 222).” (Government of P. I. vs. Echaus, 71 Phil. 318)

The case of Ansaldo vs.
Fidelity and Surety Company of the Philippine Islands, (88 Phil., 547),
invoked by the petitioners, is not in point, for there the judgment
creditor attempted to carry out the writ of execution 10 years after
the entry of judgment. As correctly observed by the appellate court
below, both cited cases—

“* * * affirm the
fundamental principles that a valid judgment may be enforced by motion
within five years after its entry, and by action after the lapse of
said period but before the same shall have been barred by any statute
of limitations, and that a valid execution issued and Levy made within
the five-year period after entry of the judgment may be enforced by
sale of the property levied upon thereafter, provided the sale is made
within ten years after the. entry of the judgment.”

The
petitioners should, however, be credited the amount of P409.75 which
the respondent Manila Motor Company actually received from the
Philippine War Damage Commission on account of the car of Gaudencio
Quiambao that had been seized from it by the enemy occupant during the
war. This should reduce the principal amount still due the respondent
from the petitioners to the sum of P1,542.72.

In view of all the foregoing, the judgment of the Court of Appeals appealed from is affirmed, with costs against petitioners.

Bengzon, C. J., Padilla, Bautista Angelo, Labrador, Concepcion, Paredes, Dizon and De Leon, JJ., concur.

---

^[1] The provision reads:

“In a contract for the sale of personal property
payable in installments, failure to pay two or more installments shall
confer upon the vendor the right to cancel the sale or foreclose the
mortgage if one has been given on the property, without reimbursement
to the purchaser of the installments already paid, if there be an
agreement to this effect.”

^[2] The paragraph reads:

“However, if the vendor has chosen to foreclose the
mortgage he shall have no further action against the purchaser for the
recovery of any unpaid balance owing by the same, and any agreement to
the contrary shall be null and void.”

^[3] In Alcantara vs. Chico, 49
Off. Gaz., 150, the Court of Appeals estimated that in Bulacan, courts
were not opened for nearly five (5) months.Judgment of October 31,
1961, reaffirmed.

---

January 30, 1962

REYES, J. B. L., J.:

Petitioners moved for the reconsideration of our decision dated
October 31, 1961, affirming that of the Court of Appeals, on the
following grounds:

      (1) That the Moratorium Law is inapplicable in this case
because the respondent Manila Motor Co., Inc. tried to enforce its
pre-war judgment against the deceased Gaudencio Quiambao only after
said law had been declared void by this Court;

      (2) That the act of the respondent company in accepting the
return of the car in question from the deceased Quiambao before the war
operated either as a foreclosure of respondent’s chattel mortgage
thereon or a rescission of the contract of sale between the parties; and

      (3) That it would be highly inequitous, and an unjust
enrichment on the part of the respondent at petitioners’ expense, to
make the latter pay an amount close to P30,000 or P40,000 for an
original unpaid indebtedness of P1, 542.72, in view of the mounting
compounded interest provided for in the chattel mortgage contract
Exhibit “C”.

As to the first argument, we have already ruled in many cases that since in Rutter vs. Esteban (93 Phil., 68; 49 Off. Gaz., 1807) we did not declare the Moratorium law void ab initio,
but only held that its continued operation and enforcement had already
become unreasonable and oppresive said law did suspend the running of
the statute of limitations, and no action could be taken to collect
monetary obligations falling within the purview of the law during the
period that it was still in effect (Santos Vda. de Montilla vs. Pacific Commercial Co., 98 Phil., 133; Liboro vs. Finance & Mining Investments Co., 102 Phil., 489, Manila Motor Co. vs. Flores, 99 Phil., 738; 52 Off. Gaz.,. No. 13, 5804; Pacific Commercial vs.
Aquino, 100 Phil., 961; 53 Off. Gaz., No. 13, 4067, among others).
Consequently, whether or not the creditor actually brought his action
to court before or after the law had been voided, still the period for
the enforcement of his credit was tolled by the moratorium law.

As to the second contention, the same had already been: rejected by
us in our main decision, wherein we held that the surrender of the car
in question by the deceased Quiambao to the respondent company before
the war did; not operate either as a foreclosure of the chattel
mortgage thereon or as a rescission of the contract of sale between the
parties, because said return was only by way of deposit or “for
storage”, pending settlement of the judgment in Civil Case No. 58043″.

On the equity side, however, we believe that, in view of the
circumstances, we are justified in applying herein the doctrine of this
Court in the case of Warner, Barnes & Co. vs. Yasay, 108 Phil,
1005; 60 Off. Gaz., (32) 4782.

“Considering, however, that no bad faith is imputed
to the debtors; that payment could not be made during the war year even
if the debtor had bo desired, because the creditor was a British
company and an enemy via a vis the belligerent occupant of the Islands
at the time; that the creditor was indirectly benefited by the debtor’s
inaction thereby avoiding payment in military script ; and that both
under Article 1172 of the new Civil Code and Article 11703 of the old
Code, the Court have power to regulator moderate the liability arising
from negligence of a debtor, we think it equitable to reduce the interest by eliminating that which accrued during the war years,
as well as to limit the attorney’s fees to 10% of the total amoun t of
the judgment, this case presenting no unusual diffficulty.” (Italics
supplied), especially as Respondent company itself has manifested in
its answer to the motion of reconsideration that they are willing to
reach a suitable agreement with petitioners whereby they may “reduce
the obligation of the petitioners within reason”, and that said company
is Willing to “treat them with sympathy and consideration in the
eventual liquidation of the petitioners’ indebtedness”.

We should further make it clear1 that respondent actually has no
more right to enforce the provisions of the chattel mortgage Exhibit
“C”, as to comptotmd interest because the final judgment in Civil Case
No. 58043 did not provide for such compound interest but only for
simple interest of 12% per annum. Consequently, the unpaid obligation
of petitioners under the judgment (that superseded the original
obligation), exclusive of attorney’s fees and costs, amounts only to
the outstanding principal obligation before the war of P1,542,72, plus
simple interest of 12 per cent per annum until payment, but deducting
the interests that fell due during the war years, under the doctrine in
the Warner, Barnes & Co. vs. Yasay, supra.

Clarified as above indicated, the judgment of this Court of October 31, 1961 is reaffirmed.

Bengzon, C. J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Dizon, and De Leon, JJ., concur.