REPUBLIC OF THE PHILIPPINES, PLAINTIFF-APPELLANT, VS. PEDRO C. HERNAEZ AND RAMON M. DE LA RAMA, DEFENDANTS-APPELLEES.

Appeal by the Government from the decision of the Court of First Instance
of Manila in its Civil Case No. 50010 – a suit filed by the Republic of the
Philippines against Pedro C. Hernaez and Ramon M. de
la Rama for collection of certain loans obtained from
the Bank of Taiwan, Ltd. during the Japanese occupation – which was dismissed
by the court a quo on the ground that the action of the
Government had already prescribed.

The background facts as set forth in the decision appealed from
which are not disputed by appellant are as follows:

“It appears from the evidence submitted by the Plaintiff, both
testimonial and documentary, that on various dates during the Japanese
occupation in 1943 defendant Ramon M. de la Rama,
brother-in-law and negotiorum gestor
of his co-defendant Pedro C. Hernaez, obtained loans
from the former Bank of Taiwan, Ltd., with 6% annual interest compounded
quarterly and payable at its offices in Bacolod City,
in the total amount of P14,786.61, Philippine Currency, as follows:

“As security for the payment of the loans De la Rama, also as negotiorum gestor, executed two chattel mortgages on the standing
crops growing on lots 1089 and 1090 (part) of the Cadastral survey of Murcia
belonging to Hernaez and described in Certificate of
Title Nos. 16164 and 16165 of the Register of Deeds of Negros
Occidental (Exhs. D and E).  The chattel mortgages were re­corded and
registered on May 8, and 17, 1943, respectively, with the Office of the
Register of Deeds of Negros Occidental in accordance
with the Chattel Mortgage Law.

“By virtue of the transfer agreement dated July 20, 1954, and
June 5, 1957, between the governments of the United States of America and the
Republic of the Philippines, all the assets of the Bank of Taiwan, Ltd.,
including the promissory notes Exhibits C, C-1 to C-9, and the chattel
mortgages on standing crops Exhibits D and E, were transferred by the United
States Government, thru its Attorney General, as successor of the Philippine
Alien Property Administration, to the Government of the Republic of the
Philippines.  These assets are now
administered by the Board of Liquidators, an agency under the Office of the
President of the Philippines.

“Under the Ballantyne Schedule the
amount of P14,786.61 was reduced to P10,652.49. 
The interest due thereon at the rate of 6% per annum, compounded
quarterly as of December 31, 1961,
amounted to P21,248.42.  As of that date
therefore the principal and interest totaled P31,900.91 (Exh.
A-1).  In spite of repeated demands the
said amount remains unpaid up to the present (Exhs.
B, B-1, B-2 and B-3).

x        x          x          x”

Upon these facts, the court below dismissed the com­plaint filed
by the Government on the ground that the action had prescribed, reasoning as
follows:

“The obligations under the pro­missory notes were due and
payable one year after the execution thereof. 
Altho the period of maturity is not stated in
all the notes, this is sufficiently shown by the nature of the standing crops –
maiz, sugarcane and palay –
mortgaged, which are yearly crops.  The
first promissory note is dated April 7,
1943, and the last, October 27, 1943; but the complaint was filed
only on March 30, 1962.  Even taking into consideration that ‘the
moratorium law suspended the running of the period of prescription and the
enforcement of the payment of all debts and other monetary obligations payable
within the Philippines from March 10, 1945, to July 26, 1948, or a period of
three years, four months and sixteen days’ as repeatedly stated by the Supreme
Court in so many decisions and cited in the case of Bachrach
Motor Co., Inc. vs. Antonio Lejano, 56 O.G. 3278,
still the action has already prescribed because from the last promissory note
dated October 27, 1943, which became due on Octo­ber 27, 1944 to March 30,
1962, the date when the complaint was filed, a period of 17 years 5 months and
3 days had elapsed, and deducting from this the period of moratorium of 3
years, 4 months and 16 years, there remains a period of 14 years and 17 days.

“Wherefore, judgment is hereby rendered dismissing the
complaint, without special pronouncement as to costs.”

The Government’s motion for the reconsideration of this decision
proved unavailing; hence, this appeal from the said decision directly taken to
this Court.

The sole issue presented for resolution under the lone assignment
of error is whether or not the action of the Republic had really
prescribed.  It is the position of the
Solicitor General that it has not.  We
agree.  This Court has had occasions to
turn down such plea of prescription in situations similar to the one now pre­sented
before Us, and We find the rulings laid then squarely applicable here.  Thus, this Court explained in the case of
Republic of the Philippines
vs. Jose Grijaldo:^[1]

x x x [T]he
appellant maintains that the action of the appellee
had prescribed.  The appellant points out
that the loans became due on June 1,
1944; and when the complaint was filed on January 17, 1961 a period of more than 16 years
had already elapsed – far beyond the period of ten years when an action based
on a written contract should be brought to court.

“This contention of the appellant has no merit.  Firstly, it should be considered that the
complaint in the present case was brought by the Republic of the Philippines
not as a nominal party but in the exercise of its sovereign functions, to
protect the interests of the State over a public property.  Under paragraph 4 of Article 1108 of the
Civil Code prescription, both acquisitive and extinctive, does not run against
the State.  This Court has held that the
statute of limitations does not run against the right of action of the
Government of the ‘Philippines
(Government of the Philippine Islands vs. Monte de Piedad,
etc. 35 Phil. 738-751).  Secondly, the
running of the period of prescription of the action to collect the loan from
the appellant was interrupted by the moratorium laws (Executive Orders Nos. 25,
dated November 18, 1944; Executive Order No. 32, dated March 10, 1945; and
Republic Act No. 342, approved on July 26, 1948).  The loan in question, as evidenced by the
five promissory notes, were incurred in the year 1943, or during the period of
Japanese occupation of the Philippines.  This case is squarely covered by Executive Order
No. 25, which became effective on November
18, 1944, providing for the suspension of payments of debts incurred
after December 31, 1941.  The period of prescription was, therefore,
suspended beginning November 18, 1944.  This Court, in the case of Rutter vs. Esteban (L-3708, May 18, 1953; 93 Phil. 68),
declared on May 18, 1953
that the Moratorium Laws, R.A. No. 342 and Exe­cutive Orders Nos. 25 and 32,
are unconstitutional; but in that case this Court ruled that the moratorium
laws had sus­pended the prescriptive period until May 18, 1953.  This
ruling was catego­rically reiterated in the decision in the case of Manila
Motors vs. Flores, L-9396, August 16, 1956.  It
follows, therefore, that the prescriptive period in the case now before Us was
suspended from November 18, 1944, when Executive Order No. 25 took effect,
until May 18, 1953 when R.A. 342 along with Executive Orders Nos. 25 and 32
were declared unconstitutional by this Court. 
Computed accordingly, the prescriptive period was suspended for 8 years
and 6 months.  By the appellant’s own
admission, the cause of action on the five promissory notes in question arose
on June 1, 1944.  The complaint in the present case was filed
on January 17, 1961, or
after a period of 16 years 6 months and 16 days when the cause of action
arose.  If the prescriptive period was
not interrupted by the mora­torium laws, the action would have prescribed
already; but, as We have stated, the prescriptive period was suspended by the
moratorium laws for a period of 8 years and 6 months.  If we deduct the period of suspension (8
years and 6 months) from the period that elapsed from the time the cause of
action arose to the time when the complaint was filed (16 years, 6 months and
16 days) there remains a period of 8 years and 16 days.  In other words, the prescriptive period ran
for only 8 years and 16 days.  There
still re­mained a period of one year, 11 months and 14 days of the prescriptive
period when the complaint was filed.”

The above ruling was later reiterated in the case of Republic vs.
Rodriguez,^[2]
the facts of which, except that the loans there involved were contracted by
therein defendant himself, are on all fours with those of the one here
present.  There, defendant Gregorio
Rodriguez obtain­ed loans, evidenced by two promissory notes and secured by a
chattel mortgage, from the Bank of Taiwan, Ltd. in the year 1943.  The loans remained unpaid until January 21, 1946, when they 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.  Later, on July 20, 1954, said unpaid accounts together with other
assets of the Bank of Taiwan were 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.  In June, 1960, the Republic sued on the
notes; but the action was dismissed on the ground of prescription, first, by
the justice of the peace of La Carlota, Negros Occidental
and, later, by the Court of First Instance of Negros
Occidental.  On appeal to this Court,
however, the order of dismissal was reversed and the record remanded for
further proceedings.  Speaking thru Mr.
Chief Justice Bengzon, this Court ruled:

“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.

“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 toiled.  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.

“Prescription does not run against the State (Art. 1108, New
Civil Code).

“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 (Rutter
vs. Esteban, 93 Phil. 68).  So the period
between July, 1946 to May, 1953 (about 7 years) should be deducted in computing
the period of prescription.  x x x“

Applying the precedents above-quoted to the problem on hand, it
is clear that the right of action of the Republic had not prescribed when it
filed its complaint in this case.  The
first of the promissory notes here involved matured on April 7, 1944, whereupon, a right of action to
enforce the obligation thereunder accrued in favor of
the Bank of Taiwan.  At that time, the
said bank was free to sue herein appellees to recover
the debt; but since it did not choose to do so, the period of prescription
commenced to run against it, and seven (7) months and eleven (11) days elapsed
before the running of the statute of limitations against it was suspended on
November 18, 1944, when it was tolled, first, by Executive Order No. 25 which
provided for the suspension of payments of debts incurred after December 31,
1941 and, later, by Executive Order No. 32, dated March 10, 1945, which suspended
the enforcement of payments not only of all debts and monetary obligations
incurred before December 8, 1941, but also of all debts contracted during the
Japanese occupation.^[3]
On January 21, 1946, the
assets of the Bank of Taiwan in the Philippines,
including the promissory notes referred to, became vested in the Government of
the United States of America
by virtue of its Vesting Order No. P-4, issued under authority of its Trading
with the Enemy Act.  Granting, argumenti gratia,
herein appellees‘ claim that the period of
prescription then commenced to run against the U.S. Government because the
moratorium provided for in the executive orders above-mentioned did not bind
it, still, the running of the statute of limitations was suspended for a second
time on July 4, 1946, when the Philippines obtained independence and the United
States became a foreign country in this jurisdiction and could not sue, by
reason of the moratorium laws,^[4]
with the resultant effect that four (4) months and thirteen (13) days of the
prescriptive period again elapsed.  The
moratorium laws were declared unconstitutional and lost their binding effect on
May 18, 1953 (Rutter vs. Esteban, supra),
after which the period of prescription started to run anew against the United
States Government; but on July 20, 1954, after the lapse of one (1) year, one
(1) month and two (2) days, the running thereof was suspended for the third
time when the obligation under consideration was transferred and assigned to
the Govern­ment of the Philippines by the Attorney General of the United States
by virtue of the corresponding transfer agreements entered into between the two
governments pursuant to the Philippine Property Act of 1946.  And there is no gainsaying that from that
date (July 20, 1954), the
statute of limitations ceased to run against the Republic of the Philippines
since prescription does not run against the State which, in this case, seeks to
enforce the said obligation in the exercise of its sovereign role.^[5]
In fine, a total of only two (2) years and twenty-six (26) days, i.e., 7 months
and 11 days during the period from April 7, 1944 to November 18, 1944, added to
4 months and 13 days during the period from January 21, 1946 to July 4, 1946,
plus 1 year, 1 month and 2 days during the period from May 18, 1953 to July 20,
1954, had elapsed when the ownership of the first note fell into the hands of
the Republic of the Philippines, and as against whom no prescription had run
thereafter up to the time the present case was filed on March 30, 1962.  This conclusion applies with greater force in
respect of the other promissory notes here involved which matured much
later.  Accordingly, We hold that the
lower court erred in holding that the action of the Republic of the Philippines
in this case had pres­cribed.

Appellee Pedro C. Hernaez,
however, interposes his own assignment of errors in his brief, claiming that:

“I. THE LOWER COURT
ERRED IN DECLARING THAT THERE EXISTED A NEGOTIORUM GESTIO RELATION BETWEEN
DEFENDANT PEDRO C. HERNAEZ AND DEFENDANT RAMON DE LA RAMA;

“II. THE LOWER COURT
LIKEWISE ERRED IN DECLARING THAT DEFENDANT PEDRO C. HERNAEZ RATIFIED THE ACTS
OF MANAGEMENT OF THE GES­TOR;

“III. THE LOWER COURT
ERRED IN NOT DECLA­RING THAT ON THE SUPPOSITION THAT DEFENDANT DE LA RAMA WAS
THE NEGOTIORUM GESTOR OF DEF­ENDANT HERNAEZ, THE SUMS OF MONEY SUPPOSEDLY
LOANED BY THE TAIWAN BANK, LTD., TO RAMON DE LA RAMA REPRESENTED THE MONEY
PROCEEDS OF SUGAR BELONGING TO DEFENDANT HERNAEZ.” (Pp. 79-80, R.A.)

Of course, it is permissible for an appellee
who has not himself appealed to assign what he believes to be errors committed
by the trial court in its decision, if his purpose in doing so is not to have
the appealed judgment modified or reversed in any way but only to be sure that
it is affirmed on other grounds, just in case it cannot be sustained on the
ground upheld by the trial judge. 
Indeed, to that end, it is not even necessary for him to make any
assignment of error, all he has to do is to point out in the discussion in his
brief the errors allegedly committed by the trial court against him.  (2 Moran, Comments on the Rules of Court, pp.
427-428, 1963 ed.)

We cannot, however apply these observations to the above
assignment of errors of appellee Hernaez
in this case.  True, said assignment is
intended for no other purpose than to sustain the judgment of dismissal of the court
a quo in his favor, but it will be noted that said assignment
raises issues of fact which require a review of the evidence, and as plaintiff-appellee has appealed directly to this Court on a question
of law, namely, whether or not the trial court erred in dismissing its
complaint on the ground of prescription, upon the factual premises found by His
Honor from the evidence submitted by the parties after due trial, the record on
appeal here does not incorporate such evidence, hence the same cannot be reviewed.  Upon the other hand, even if appellee Hernaez had himself
perfected his own appeal, which understandably he could not have done since the
judgment of the trial court was in his favor, this Court would still be unable
to pass on issues of fact he raised, for they properly belong to the
jurisdiction of the Court of Appeals, even under the former law in force at the
time the present case was appealed. 
Under these circumstances, We hold that the appropriate procedure is for
appellee to take up the above assignment of errors in
the appeal he may make, if necessary, from the judgment that the court a
quo will render after this case is remanded to it.

IN VIEW OF ALL THE FOREGOING, the judgment of dismissal
rendered by the trial court is hereby reversed, the motion of appellee for the dismissal of the complaint on the ground
of prescription is denied, and this case is ordered remanded to the trial court
in order that said court may render judg­ment on the merits and pass on all
issues between the parties other than that of prescription resolved herein,
with costs against appellees.

Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Sanchez,
Fernando, and Teehankee,
JJ., concur.

Makalintal and Castro, JJ., in the result.

^[1]
L-20240, December 31, 1965.

^[2]
L-18967, January 31, 1966,
16 SCRA 53, 55-56.

^[3]
See Nielson & Co., Inc. vs. Lepanto
Consolidated Mining Company, L-21601 (Resolution of Motion for Reconsideration
of the decision of this Court in that case on December 17, 1966, 18 SCRA 1040),
December 28, 1968, 26 SCRA 540, 561.

^[4]
Republic vs. Rodriguez, supra.

^[5]
Republic of the Philippines
vs. Grijaldo, supra.