FRANCISCA SERRANO DE AGBAYANI, PLAINTIFF-APPELLEE, VS. PHILIPPINE NATIONAL BANK AND THE PROVINCIAL SHERIFF OF PANGASINAN, DEFENDANTS, PHILIPPINE NATIONAL BANK, DEFENDANT-APPELLANT.

A correct appreciation of the controlling doctrine as to the
effect, if any, to be attached to a statute subsequently adjudged invalid, is
decisive of this appeal from a lower court decision.  Plaintiff Francisca Serrano de Agbayani, now appellee, was able
to obtain a favorable judgment in her suit against defendant, now appellant
Philippine National Bank, permanently enjoining the other defendant, the
Provincial Sheriff of Pangasinan, from proceeding
with an extra-judicial foreclosure sale of land belonging to plaintiff
mortgaged to appellant Bank to secure a loan declared no longer enforceable,
the prescriptive period having lapsed. 
There was thus a failure to sustain the defense raised by appellant that
if the moratorium under an Executive Order and later an Act subsequently found
unconstitutional were to be counted in the computation, then the right to
foreclose the mortgage was still subsisting. 
In arriving at such a conclusion, the lower court manifested a tenacious
adherence to the inflexible view that an unconstitutional act is not a law,
creating no rights and imposing no duties, and thus as inoperative as if it had
never been.  It was oblivious to the
force of the principle adopted by this Court that while a statute’s repugnancy
to the fundamental law deprives it of its character as a juridical norm, its
having been operative prior to its being nullified is a fact that is not devoid
of legal consequences.  As will hereafter
be explained, such a failing of the lower court resulted in an erroneous decision.  We find for appellant Philippine National
Bank, and we reverse.

There is no dispute as to the facts.  Plaintiff obtained the loan in the amount of
P450.00 from defendant Bank dated July
19, 1939, maturing on July
19, 1944, secured by real estate mortgage duly registered covering
property described in T. C.T. No. 11275 of the province
of Pangasinan.  As of November 27, 1959, the balance due on said loan was in
the amount of P1,294.00.  As early as
July 13 of the same year, defendant instituted extra-judicial foreclosure
proceedings in the office of defendant Provincial Sheriff of Pangasinan for the recovery of the balance of the loan
remaining unpaid.  Plaintiff countered
with this suit against both defendants on August 10, 1959, her main allegation being that the
mortgage sought to be foreclosed had long prescribed, fifteen years having
elapsed from the date of maturity, July
19, 1944.  She sought and was
able to obtain a writ of preliminary injunction against defendant Provincial
Sheriff, which was made permanent in the decision now on appeal.  Defendant Bank in its answer prayed for the
dismissal of the suit as even on plaintiff’s own theory the defense of
prescription would not be available if the period from March 10, 1945, when
Executive Order No. 32^[1]
was issued, to July 26, 1948, when the subsequent legislative act^[2]
extending the period of moratorium was declared invalid, were to be deducted
from the computation of the time during which the bank took no legal steps for
the recovery of the loan.  As noted, the
lower court did not find such contention persuasive and decided the suit in
favor of plaintiff.

Hence this appeal, which, as made clear at the outset, possesses
merit, there being a failure on the part of the lower court to adhere to the
applicable constitutional doctrine as to the effect to be given to a statute
subsequently declared invalid.

1.   The decision now on appeal reflects the
orthodox view that an unconstitutional act, for that matter an executive order
or a municipal ordinance likewise suffering from that infirmity, cannot be the
source of any legal rights or duties. 
Nor can it justify any official act taken under it.  Its repugnancy to the fundamental law once
judicially declared results in its being to all intents and purposes a mere
scrap of paper.  As the new Civil Code
puts it:  “When the courts declare a
law to be inconsistent with the Constitution, the former shall be void and the
latter shall govern.  Administrative or
executive acts, orders and regulations shall be valid only when they are not
contrary to the laws or the Constitution.”^[3] It
is understandable why it should be so, the Constitution being supreme and
paramount.  Any legislative or executive
act contrary to its terms cannot survive.

Such a view has support in logic and possesses the merit of
simplicity.  It may not however be
sufficiently realistic.  It does not
admit of doubt that prior to the declaration of nullity such challenged legislative
or executive act must have been in force and had to be complied with.  This is so as until after the judiciary, in an
appropriate case, declares its invalidity, it is entitled to obedience and
respect.  Parties may have acted under it
and may have changed their positions. 
What could be more fitting than that in a subsequent litigation regard
be had to what has been done while such legislative or executive act was in
operation and presumed to be valid in all respects.  It is now accepted as a doctrine that prior
to its being nullified, its existence as a fact must be reckoned with.  This is merely to reflect awareness that
precisely because the judiciary is the governmental organ which has the final
say on whether or not a legislative or executive measure is valid, a period of
time may have elapsed before it can exercise the power of judicial review that
may lead to a declaration of nullity.  It
would be to deprive the law of its quality of fairness and justice then, if
there be no recognition of what had transpired prior to such adjudication.

In the language of an American Supreme Court decision:  “The actual existence of a statute,
prior to such a determination [of unconstitutionality], is an operative fact
and may have consequences which cannot justly be ignored.  The past cannot always be erased by a new
judicial declaration.  The effect of the
subsequent ruling as to invalidity may have to be considered in various
aspects, — with respect to particular relations, individual and corporate, and
particular conduct, private and official.”^[4]
This language has been quoted with approval in a resolution in Araneta v. Hill^[5]
and the decision in Manila Motor Co., Inc. v. Flores.^[6]
An even more recent instance is the opinion of Justice Zaldivar
speaking for the Court in Fernandez v. Cuerva and Co.^[7]

2.   Such an approach all the more commends itself
whenever police power legislation intended to promote public welfare but
adversely affecting property rights is involved.  While subject to be assailed on due process,
equal protection and non-impairment grounds, all that is required to avoid the corrosion
of invalidity is that the rational basis or reasonableness test is
satisfied.  The legislature on the whole
is not likely to allow an enactment suffering, to paraphrase Cardozo, from the infirmity of outrunning the bounds of
reason and resulting in sheer oppression. 
It may be of course that if challenged, an adverse judgment could be the
result, as its running counter to the Constitution could still be shown.  In the meanwhile though, in the normal course
of things, it has been acted upon by the public and accepted as valid.  To ignore such a fact would indeed be the
fruitful parent of injustice.  Moreover,
as its constitutionality is conditioned on its being fair or reasonable, which
in turn is dependent on the actual situation, never static but subject to
change, a measure valid when enacted may subsequently, due to altered
circumstances, be stricken down.

That is precisely what happened in connection with Republic Act
No. 342, the moratorium legislation, which continued Executive Order No. 32, issued
by the then President Osmeña, suspending the
enforcement of payment of all debts and other monetary obligations payable by
war sufferers.  So it was explicitly held
in Rutter v. Esteban^[8]
where such enactment was considered in 1953 “unreasonable and oppressive,
and should not be prolonged a minute longer, and, therefore, the same should be
declared null and void and without effect.”^[9]
At the time of the issuance of the above Executive Order in 1945 and of the
passage of such Act in 1948, there was a factual justification for the
moratorium.  The Philippines
was confronted with an emergency of impressive magnitude at the time of her
liberation from the Japanese military forces in 1945.  Business was at a standstill.  Her economy lay prostrate.  Measures, radical measures, were then devised
to tide her over until some semblance of normalcy could be restored and an
improvement in her economy noted.  No
wonder then that the suspension of enforcement of payment of the obligations
then existing was declared first by executive order and then by
legislation.  The Supreme Court was right
therefore in rejecting the contention that on its face, the Moratorium Law was
unconstitutional, amounting as it did to the impairment of the obligation of
contracts.  Considering the circumstances
confronting the legitimate government upon its return to the Philippines,
some such remedial device was needed and badly so.  An unyielding insistence then on the right to
property on the part of the creditors was not likely to meet with judicial
sympathy.  Time passed however, and
conditions did change.

When the legislation was before this Court in 1953, the question
before it was its satisfying the rational basis test, not as of the time of its
enactment but as of such date.  Clearly, if
then it were found unreasonable, the right to non-impairment of contractual
obligations must prevail over the assertion of community power to remedy an
existing evil.  The Supreme Court was
convinced that such indeed was the case. 
As stated in the opinion of Justice Bautista Angelo:  “But we should not lose sight of the
fact that these obligations had been pending since 1945 as a result of the
issuance of Executive Orders Nos. 25 and 32 and at present their enforcement is
still inhibited because of the enactment of Republic Act No. 342 and would
continue to be unenforceable during the eight-year period granted to prewar
debtors to afford them an opportunity to rehabilitate themselves, which in
plain language means that the creditors would have to observe a vigil of at
least twelve (12) years before they could affect a liquidation of their
investment dating as far back as 1941. 
This period seems to us unreasonable, if not oppressive.  While the purpose of Congress is plausible,
and should be commended, the relief accorded works injustice to creditors who
are practically left at the mercy of the debtors.  Their hope to effect collection becomes
extremely remote, more so if the credits are unsecured.  And the injustice is more patent when, under
the law, the debtor is not even required to pay interest during the operation
of the relief, unlike similar statutes in the United
States.”^[10]
The conclusion to which the foregoing considerations inevitably led was that as
of the time of adjudication, it was apparent that Republic Act No. 342 could
not survive the test of validity. 
Executive Order No. 32 should likewise be nullified.  That before the decision they were not
constitutionally infirm was admitted expressly. 
There is all the more reason then to yield assent to the now prevailing
principle that the existence of a statute or executive order prior to its being
adjudged void is an operative fact to which legal consequences are
attached.

3.   Precisely though because of the judicial
recognition that moratorium was a valid governmental response to the plight of
the debtors who were war sufferers, this Court has made clear its view in a
series of cases impressive in their number and unanimity that during the
eight-year period that Executive Order No. 32 and Republic Act No. 342 were in
force, prescription did not run.  So it
has been held from Day v. Court of First Instance,^[11]
decided in 1954, to Republic v. Hernaez,^[12]
handed down only last year.  What is
deplorable is that as of the time of the lower court decision on January 27, 1960, at least eight
decisions had left no doubt as to the prescriptive period being tolled in the
meanwhile prior to such adjudication of invalidity.^[13]
Speaking of the opposite view entertained by the lower court, the present Chief
Justice, in Liboro v. Finance and Mining Investments
Corp.^[14]
has categorized it as having been “explicitly and consistently rejected by
this Court.”^[15]

The error of the lower court in sustaining plaintiff’s suit is
thus manifest.  From July 19, 1944, when her loan matured, to July 13, 1959, when extra-judicial
foreclosure proceedings were started by appellant Bank, the time consumed is
six days short of fifteen years.  The
prescriptive period was tolled, however, from March 10, 1945, the effectivity of Executive Order No. 32, to May 18, 1953,
when the decision of Rutter v. Esteban was
promulgated, covering eight years, two months and eight days.  Obviously then, when resort was had extra-judicially
to the foreclosure of the mortgage obligation, there was time to spare before
prescription could be availed of as a defense.

WHEREFORE, the decision of January 27, 1960 is reversed and the suit of plaintiff
filed August 10, 1959
dismissed.  No costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Ruiz Castro, Teehankee,
Barredo, Villamor, and Makasiar, JJ., concur.

^[1]
Under Executive Order No. 32 providing for a debt moratorium, it was
specifically stated:  “Enforcement
of payment of all debts and other monetary obligations payable within the
Philippines, except debts and other monetary obligations entered into in any
area after declaration by Presidential Proclamation that such area has been
freed from enemy occupation and control, is temporarily suspended pending
action by the Commonwealth Government.” Executive Order No. 32 was issued
on March 10, 1945.  Executive Order No. 32 amended Executive
Order No. 25 (1944).

^[2]
According to the declaration of policy in Republic Act No. 342 (1948),
Executive Order No. 32 remains in full force and effect for the war sufferers
as for them the emergency created by the last war was still existent.  Then came this specific provision:  “All debts and other monetary
obligations payable by private parties within the Philippines originally
incurred or contracted before December 8, 1941, and still remaining unpaid, any
provision or provisions in the contract creating the same or in any subsequent
agreement affecting such obligation to the contrary notwithstanding, shall not
be due and demandable for a period of eight (8) years from and after settlement
of the war damage claim of the debtor by the United States Philippine War
Damage Commission, without prejudice, however, to any voluntary agreement which
the interested parties may enter into after the approval of this Act for the
settlement of said obligations.” Sec. 2.

^[3]
Art. 7.  In the classic language of
Justice Field:  “An unconstitutional
Act is not a law; it confers no rights; it imposes no duties; it affords no
protection; it creates no office; it is in legal contemplation as inoperative
as though it had never been.” Norton v. Shelly
County, 118 US
425 (1886).

^[4]
Chicot County Drainage Dist. v. Baxter States Bank, 308 US
371, 374 (1940).

^[5]
93 Phil. 1002 (1953).

^[6]
99 Phil. 738 (1956).

^[7]
L-21114, Nov. 28, 1967, 21
SCRA 1095.

^[8]
93 Phil. 68 (1953).  Rutter
v. Esteban was subsequently cited in the following cases:  Araneta v.
Hill, 93 Phil. 1002 (1953); Londres v.
National Life Insurance Co., 94 Phil. 627 (1954); Dizon
v. Ocampo, 94 Phil. 803 (1954); De Leon v.
Ibañez, 95 Phil. 119 (1954); Picornell
and Co. v. Cordova, 95 Phil. 632 (1954); Berg v. Teus, 96 Phil. 102 (1954); Herrera v. Arellano, 97
Phil. 776 (1955); Chua Lamko v. Dioso, 97 Phil. 821 (1955); Rio y Cia
v. Sandoval, 100 Phil. 407 (1956); Gonzaga v.
Rehabilitation Finance Corp., 100 Phil. 892 (1957); Pacific Commercial Co. v.
Aquino, 100 Phil. 961 (1957); Bachrach
Motor Co., Inc. v. Chua Tua Hian, 101 Phil. 184 (1957); Liboro
v. Finance and Mining Investment Corp., 102 Phil. 489 (1957); Rio y Compania v. Jolkipli, 105
Phil. 447 (1959); People v. Jolliffe, 105
Phil. 677 (1959); Uy Hoo
and Co., Inc. v. Tan, 105 Phil. 717 (1959); Compania
Maritima v. Court of Appeals and Libby,
McNeill and Libby (Phil.) Inc., 108 Phil. 469 (1960).

^[9] Ibid,
p. 82.  The same conclusion obtains in
the opinion of the Court as regards Executive Order No. 32.

^[10] Ibid,
p. 77.

^[11]
94 Phil. 816.

^[12]
L-24137, January 30, 1970, 31 SCRA 219 citing Republic v. Grijaldo, L-20240, December 31, 1965, 15 SCRA 681; Republic
v. Rodriguez, L-18967, January 31, 1966, 16 SCRA 53; Nielson and Co.,
Inc. v. Lepanto Consolidated Mining Co.,
L-21601, December 28, 1968, 26 SCRA 540.

^[13]
Day v. Court of First Instance of Tarlac, 94
Phil. 816 (1954); Montilla v. Pacific
Commercial Company, 98 Phil. 133 (1955); Pacific Commercial Co. v. Aquino, 100 Phil. 961 (1957); Bachrach
Motor Co., Inc. v. Chua Tua Hian, 101 Phil. 184 (1957); Liboro
v. Finance and Mining Investment Corp., 102 Phil. 489 (1957); Rio y Compania v. Jolkipli, 105
Phil. 447 (1959); People v. Jolliffe, 105
Phil. 677 (1959); Uy Hoo
& Co., Inc. v. Tan, 105 Phil. 716 (1959).

^[14]
102 Phil. 489 (1957).

^[15] Ibid,
p. 493.