REPUBLIC OF THE PHILIPPINES, (REPRESENTED FORMERLY BY THE LAND TENURE ADMINISTRATION AND NOW THE LAND AUTHORITY, PETITIONER-APPELLANT, VS. HON. COURT OF APPEALS AND THE PHILIPPI…

This is an appeal by certiorari from the decision* of the Court of Appeals in CA-G.R. No. 29020-R,
entitled “Republic of the Philippines, represented by the Land Tenure
Administration, Plaintiff-Appellant v. Philippine National Bank,
Defendant-Appellant,” affirming the judgment** of the
then Court of First Instance of Pampanga in Civil
Case No. 1504.

As shown in the records, the antecedent facts are as follows:

On November 5, 1959, the Republic of the Philippines, represented
by the Land Tenure Administration (now Land Authority), herein petitioner,
filed an action for the cancellation of
a mortgage credit in the sum of P200,000.00 annotated as a lien on the Transfer
Certificate of Title Nos. 28975 and 1478 of the land records of Bulacan and Pampanga, respectively.  As the assignee of the mortgage credit, the Philippine National Bank was named as
the defendant.

In its complaint
petitioner alleged, among others, that Roman R. Santos was the registered owner
of the Bahay Pare Estate covered by Transfer
Certificates of Title Nos. 21761 and 1777 of the land records of Bulacan and Pampanga,
respectively; that the Bahay Pare Estate was the
subject of a mortgage credit in the aggregate amount of
P200,000.00 consisting of four (4) promissory notes all executed by Roman R.
Santos at P50,000.00 each, to mature every August 31 of the years 1939, 1940,
1941 and 1942, respectively; that on May 10, 1939 the four promissory notes
were assigned to the Philippine National Bank; that on June 14, 1940, the
Commonwealth of the Philippines, thru the defunct Rural Progress
Administration, purchased from Roman S. Santos the Bahay
Pare Estate; that out of the purchase price of P1,000,000.00, Roman Santos
received the sum of P800,000.00, while the amount of P200,000.00 was paid to
the Philippine National Bank; that in the Deed of Absolute Sale it was stated that the parcels of land subject of the contract were “free
from any liens and encumbrances”; that during the Japanese occupation the
Rural Progress Administration, the predecessor of the Land Tenure
Administration, lost the receipts of payment and/or deed of release of mortgage
so the lien annotated on the titles was not cancelled; that upon
registration of the Deed of Sale, TCT Nos. 28975 and 1478 were issued in lieu
of TCT Nos. 21761 and 1777 in the name of the Commonwealth of the Philippines
with the Philippine National Bank’s lien annotated on said titles; that the
petitioner demanded on several occasions the cancellation of the lien annotated
on its titles but defendant
refused to the prejudice not only of the petitioner but also of the hundreds of
tenants and occupants who had purchased from the government a portion of the Bahay Pare Estate; that aside from payment, the four promissory notes matured on August 31
of the years 1939, 1940, 1941 and 1942, hence, the right to enforce said
obligations had prescribed by PNB’s inaction for more than ten (10) years from the
time the moratorium law was lifted on July 26, 1948; that in 1957 it filed two (2) petitions for
the cancellation of the lien annotated on
its title in accordance with Section 12 of Act No. 496, but it was dismissed for lack of jurisdiction.  As relief petitioner prayed for the
cancellation of the mortgage credit and/or lien annotated on its titles and on
the subsequent titles issued to individuals who acquired a portion of the land in dispute from the
government.

On November
24, 1958, private
respondent Philippine National Bank, filed its answer with counterclaim.  In its answer it alleged that the mortgage
credit of P200,000.00 was not paid, so that the annotated lien was
not cancelled and the encumbrance was
carried over the title of the government; that the moratorium law has
interrupted the ten (10) year period of prescription, hence, the right to
enforce the mortgage credit has not been barred by the statute of
limitations.  Accordingly, private respondents prayed for the dismissal of the complaint; the payment of the sum of P200,000.00 with accrued interest of 6% per annum
from March 9, 1939,
attorney’s fees and expenses of litigation. 
As alternative prayer, it also asked that if the amount adjudicated by
the Court in its favor cannot be
satisfied within ninety (90) days from the decision, the subject property should be
sold in
a public auction.

On the ground of
prescription petitioner filed on December 2, 1958 a motion to dismiss private respondent’s
counterclaim (Record on Appeal, pp. 26-28). 
Private respondent filed its opposition on December 6, 1958 (Record on Appeal, pp. 30-37). 
Not being indubitable the trial court deferred its resolution of the
motion in its order dated January 2, 1959 (Record on Appeal, p. 41).

On January
9, 1959, with leave
of court, private respondent, filed its amended answer with counterclaim.  Substantialy
private respondent reiterated the same
line of defense and relief in its original answer.  Specifically, it alleged that in addition to the moratorium law, a period of 8
years, 2 months and 8 days, reckoned from March 10, 1945 the issuance of
Executive Order No. 32 up to May 18, 1953, the promulgation of the case of Rutter v. Esteban, the period of 3 years, 1 month and
25 days of Japanese occupation of the
Philippines should be included in the determination of the period of
interruption; that the period of prescription was also tolled when private
respondent filed its opposition to the petition to cancel the lien which
opposition was dismissed by the trial court; that the July 16 and September 9,
1957 orders of the trial court in G.L.R.O. Rec. No. 9856 constitute res judicata on the issue of prescription as no appeal was interposed and said orders
became final and executory; that the complaint states no cause of action.  In its order of January 19, 1959, the trial court admitted the amended answer with counterclaim
(Record on Appeal, pp. 44-53).  Reply to
the amended answer with counterclaim was filed by the petitioner on February 10, 1959 (Record on Appeal, pp. 54-60).

On September
24, 1960, after
hearing, the trial court rendered a decision the dispositive
portion of which reads, viz:

“IN VIEW OF THE
FOREGOING CONSIDERATIONS, judgment is hereby rendered:

(1)     On the complaint;

(a)     Finding
that of the mortgage credit of P200,000.00 only the amount of P50,000.00 had
already been paid by the plaintiff to the defendant Bank with a remaining
balance therefore of P150,000.00; and

(b)     Ordering
the plaintiff to pay the said amount of P150,000.00, with interest of 6% per
annum from the date of this decision, plus attorney’s fees and expenses of
litigation not exceeding 10% of the total amount due.

(2)     On the counterclaim.

(c)     Ordering
the herein plaintiff to pay to the defendant Bank within a period of 90 days from the finality of this
judgment the sum of P150,000.00, plus interest at 6% per annum from the date of
this decision until fully paid, plus attorney’s fees and expenses of litigation
in an amount of not less than 10% of the total amount due; and

(d)     Ordering
that, upon failure of plaintiff to pay the said amounts stated above within a
period of 90 days aforesaid to the defendant Bank, the properties covered by
the mortgage be sold by the Sheriff at public auction and the proceeds thereof to be applied to the satisfaction of
the judgment in accordance with the law.

Without pronouncement as to costs.

SO ORDERED.”

(Record on Appeal, pp. 93-94)

On October 25, 1960,
private respondent, filed a motion for reconsideration, urging the court to
require petitioner to pay the interest of 6%
per annum, not from the date of the decision, but from November 24, 1958 the filing of
private respondent’s answer with counterclaim (Record on Appeal, pp.
94-98).  Said motion was denied by the
trial court in its order dated December
7, 1960 (Record on Appeal, pp. 103-104).

Also on October 25,
1960 petitioner filed its notice of appeal (Record on Appeal, pp.
98-99).  Its record on appeal was filed on November 9, 1960
(Record on Appeal, p. 100).  Private
respondent filed its Opposition dated November
25, 1960 to Petitioner’s Record on Appeal (Record on Appeal, pp.
100-103).  In its order dated January 14, 1961 the trial court
approved the record on appeal (Record on Appeal, p. 111).

On June 22, 1968, the Court of Appeals promulgated its decision affirming in toto the judgment of the trial court.  Petitioner filed a motion for
reconsideration, but it was denied by the appellate court in its resolution
dated July 20, 1968.  Hence, the instant petition.

On August 27, 1968,
this Court resolved to give due course to the petition (Rollo,
p. 47).  Brief for the petitioner was
filed on January 23, 1969 (Rollo, p. 62). 
Private respondent’s brief was filed on May 26, 1969 (Rollo, p.
78).  For failure to file a reply brief,
the court resolved to submit this case for decision on July 10, 1969 without petitioner’s reply brief (Rollo, p. 79).

In its brief petitioner cited the following errors, viz:

I

“THAT THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT
THE DEFUNCT COMMONWEALTH
GOVERNMENT BEING IN EXILE DURING THE ENEMY OCCUPATION AND ITS SOVEREIGNTY
SUSPENDED, COULD NOT BE SUED DURING THE WAR; HENCE THE DURATION OF THE PACIFIC
WAR STARTING ON DECEMBER 8, 1941
SHOULD BE INCLUDED IN COMPUTING THE PERIOD SUSPENDING THE PERIOD OF
PRESCRIPTION AS FAR AS THE THREE (3) PROMISSORY NOTES IN QUESTION ARE
CONCERNED.

II

THAT THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE
PETITIONER-GOVERNMENT BEING A WAR SUFFERER
AND A WAR DAMAGE CLAIMANT, THE
PERIOD OF PRESCRIPTION HAD BEEN EXTENDED UP TO MAY 18, 1953, WHEN THE SUPREME
COURT DECLARED REPUBLIC ACT NO. 342 UNCONSTITUTIONAL IN THE CASE OF RUTTER VS. ESTEBAN.” (Rollo,
p. 62)

Primarily, the issue
in the case at bar is whether or not the prescriptive period of ten (10) years
to enforce the mortgage credit was
suspended by the Pacific War and the moratorium law.

It is not disputed that on September 25, 1926 Roman R. Santos
executed in favor of La Compania Agricola
de Ultramar four (4) promissory notes at P50,000.00 each, to mature on August
31 of the years 1939, 1940, 1941 and 1942, respectively (Exhibit “B-1”).  On January 15, 1929 the
four promissory notes were assigned to a corporation PP de Augustinos (Exhibit “B-2”).  On March
9, 1939 said promissory notes were assigned to R.F. Navarro and
Company (Exhibit “B-3”). 
Finally, on May 10, 1939,
the four promissory notes were assigned to the Philippine National Bank
(Exhibit “B-4”).

Likewise, the findings of the trial court that the promissory
note which matured on August 31, 1939 was already paid is not refuted by
private respondent hence, the issue for resolution affects only the remaining
three (3) promissory notes.

The controversy lies on the effect of the Japanese Occupation and
the moratorium law on the period of prescription.

In the early case of Espana v. Lucido (8 Phil. 419 [1907]), this Court had occasion to
rule that war, rebellion, or insurrection suspends the statute of limitations
only when the regular courts cannot be kept open and are not within the reach
of the people.  Thus, there is no
suspension, during the duration of the war,
if the regular courts are performing their functions (Morales v. Arguelles, 49
Off. Gaz., 5481 [1933]; Talens,
et al. v. Chuakay & Co., G.R. No. L-10127, June 30, 1958; Rio
7 Compania v. Jolkipli, 105 Phil. 447 [1959]).

In the case at bar, it
may be conceded that the Court of Appeals erred in including in the computation
of the period of suspension of the statute of limitations the entire period of
the Pacific War from December 8, 1941 up to February 27, 1945, the re-establishment of the Commonwealth
Government in the Philippines. 
Likewise this Court can take judicial notice of the
fact that on January 3, 1942, the day after the Imperial Japanese Forces
occupied the City of Manila, the Japanese Military Commander issued a
proclamation to the effect that “so far as the Military Administration
permits, all the laws now in force in the Commonwealth, as well as executive and judicial institutions, shall continue to be effective for the time being as in
the past and all public officials shall remain in their present posts and carry
on their duties as before (Quoted and cited in Co Kin Chan v. Valdez Tan Keh and Dizon, 75 Phil. 109
[1945]).  After the creation of the
Philippine Executive Commission on January 23, 1942, Executive
Orders Nos. 1 and 4 were issued on January 30 and February 5, 1942,
respectively, allowing the Supreme Court, the Court of Appeals, the Courts of
First Instance, and the Justices of the Peace and Municipal Courts to perform
their functions.  When the so-called
Republic of the Philippines was inaugurated on October
14, 1943, the courts
continued to administer the laws then
in force in the Philippines.  In
fact, the Civil Code provides:

“Art. 1136. Possession in wartime, when the civil courts are
not open, shall not be counted
in favor of the adverse claimant.”

Thus, the prescriptive period of the promissory notes which matured on August 31, 1940 and August 3, 1941 was effectively
interrupted from December 1941 up to January
30, 1942, the date most courts opened.  As regard the other promissory note which
matured on August 31, 1942 the prescriptive period was not interrupted by war,
because on the date of its maturity the private respondent could already seek
relief in courts and enforce its rights as the regular courts were open and performing
its function.  With the courts in
operation and with the establishment of a
de facto government under the
Philippine Executive Commission and then later the so-called Republic of the
Philippines during the Japanese military occupation (Co Kim Chan v. Valdez Tan Keh and Dizon, supra),
private respondent should have instituted an action in court, if only to
legally interrupt the prescriptive period, against the de facto government which succeeded and
assumed not only the governmental functions but also the proprietary
obligations of the Commonwealth Government in exile in the United States.  Transmission of the monetary obligation is
discernible and implied upon the creation on January 23, 1942 by the Philippine Executive Commission of
the Bureau of Agricultural Administration which assumed the function and activities of the National Land
Settlement Administration and the Rural Progress Administration.  On August
9, 1944 Ordinance No. 27 was issued by then President Jose P.
Laurel transferring the duties and functions of the Bureau of Agricultural
Administration to the Bureau of Agricultural Development.  Said agencies were not only authorized to
receive payments for lots due in favor of the Commonwealth government in exile,
but were also granted authority to dispose of the Bahay
Pare Estate and other lands under the administration and supervision of the
defunct Rural Progress Administration.

On the effect of the
moratorium law on the statute of limitations, on several occasions, this Court
ruled that Executive Order No. 32 dated March 10, 145 suspended the payment of all monetary
obligations contracted before December 8, 1941. 
Because of the suspension of payments the running of the prescriptive
period was also tolled or interrupted from March 10, 1945 to July 26, 1948, or
for a period of three years, four months and sixteen days (Montilla
v. Pacific Commercial Company, 98 Phil. 133
[1955]; Pacific Commercial Company v. Aquino, 100 Phil.
961 [1957]; Bachrach Motor Co., Inc. v. Chua Tian, 100 Phil. 184 [1957]; Liboro
v. Finance and Mining Investment Corp., 102 Phil. 489 [1957]).  However, for war damage claimants in accordance with Republic Act No. 342 dated
July 26, 1948, it was held in a number of cases that the suspension of the
statute of limitations started with the issuance of Executive Order No. 32 on
March 10, 1945 and lasted up to May 18, 1953 when Republic Act No. 342 was
declared unconstitutional by this Court in Rutter v.
Esteban (93 Phil. 68 [1953]).  In other
words, during the duration of the moratorium law, or for a period of 8 years, 2
months and 8 days, the prescriptive period was also suspended for debtors with
war damage claims (Tiosejo v. Dag,
et al., L-9944, April 10, 1937; Levi Hermanos, Inc.
v. Perez, L-14487, April 29, 1960; Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., 135 Phil. 532 [1969];
Republic v. Hernaez, 31 SCRA 219 [1970]; Republic v. Grizaldo, 15 SCRA 681 [1965]; De Agbayani
Philippine National Bank, 38 SCRA 429
[1971]).

Petitioner’s view however that Executive Order NO. 342 applies
only to private parties and not to herein petitioner, is untenable.  While Section 2 thereof speaks of “all
debts and other monetary obligations payable by private parties within the
Philippines originally incurred or contracted before December 8, 1941 x x x” it should be remembered
that when it assumed the
obligation of the original debtor Roman R. Santos, petitioner was subrogated to
the rights and obligations of said private party.  Furthermore, the Court of Appeals correctly
ruled that judicial notice can be taken that petitioner
Republic of the Philippines
was a war sufferer and did not need to be a war damage claimant.  Hence, the period of prescription had been
suspended with respect to the monetary claim of the defendant PNB against the plaintiff
Republic until May 18, 1953.

In resume, We can therefore, conclude that during the duration of
the moratorium law, from March 10, 1945 up to May 18, 1953 or for a period of 8
years, 2 months and 8 days, the statute of limitations was interrupted so that
said period must be considered in determining whether or not the action to
enforce the three promissory notes has prescribed.  Likewise, except for the promissory note
which matured on August 31, 1942,
the outbreak of the Pacific War from December, 1941 up to January 30, 1942 must also be considered as it
also interrupted the statute of limitations.

 As private respondent’s answer with counterclaim was filed on November 24, 1958, only 9 years, 8 months and 23 days had
lapsed from the time the promissory note became due on August
31, 1940, after the
period of moratorium and the war totaling a period of 8 years, 3 months and 31
days are deducted.  Similarly, after
deducting the same period of interruption, for the promissory note which
matured on August 31, 1941, only 7 years, 8 months and 23 days had lapsed. 
For the promissory note which matured on August 31, 1942 only 7 years, and 16 days had lapsed.  Clearly, private respondent’s right to
enforce and collect the mortgage credit within the prescriptive period of ten
years is not barred by prescription.

PREMISES CONSIDERED, the instant petition is
DENIED for lack of merit, and the decision appealed from is AFFIRMED.

SO ORDERED.

Melencio-Herrera, (Chairman),
Padilla, Sarmiento, and
Regalado, JJ., concur.

* Penned by Justice Jose S.
Rodriguez and concurred in by Justices Francisco R. Capistrano and Edilberto Soriano.

** Written by Judge Felix R.
Domingo.