G.R. No. 29390 April 12, 1989
Republic of the Philippines (represented by the Land Tenure Administration, now Land Authority), petitioner-appellant, vs. Hon. Court of Appeals and the Philippine National Bank, respondents-appellees.

FACTS

The Republic, through its predecessor the Rural Progress Administration, purchased the Bahay Pare Estate from Roman R. Santos in 1940. The estate was encumbered by a P200,000 mortgage credit assigned to the Philippine National Bank (PNB). Out of the total purchase price of P1,000,000, P200,000 was paid directly to PNB. The Deed of Sale stated the property was free from liens. However, due to the loss of payment receipts during the war, the mortgage lien was not cancelled and remained annotated on the new titles issued to the government. The Republic later demanded cancellation of the lien, but PNB refused, claiming the debt was not fully paid.
The Republic filed an action for cancellation, arguing that PNB’s right to enforce the mortgage credit had prescribed. The four promissory notes securing the debt matured annually from 1939 to 1942. The Republic contended that more than ten years had passed since the lifting of the moratorium laws in 1948, barring PNB’s claim. PNB countered that the prescriptive period was interrupted by the moratorium laws (Executive Order No. 32) and the Japanese occupation, and that its counterclaim, filed in 1958, was timely.

ISSUE

Whether the right of the Philippine National Bank to enforce the mortgage credit had prescribed.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals’ decision, ruling that PNB’s right had not prescribed. The legal logic centered on the proper computation of the prescriptive period, considering statutory interruptions. The action upon a written contract prescribes in ten years from the time the right of action accrues. The Court held that this period was legally interrupted.
First, the outbreak of war in December 1941 suspended the running of prescription. Second, and more significantly, the moratorium laws (Executive Order No. 32) issued after liberation suspended the enforcement of pre-war obligations. This moratorium was in effect from March 10, 1945, until it was declared unconstitutional in the case of Rutter v. Esteban on May 18, 1953—a period of 8 years, 2 months, and 8 days. This entire period was excluded from the computation of prescription. The Republic, as the successor-in-interest to the original debtor Santos, was bound by this moratorium applicable to private parties. Deducting this interruption and the war period from the time the notes matured, the Court found that when PNB filed its counterclaim in 1958, less than ten years of actionable period had lapsed for the relevant obligations. Therefore, prescription had not set in, and PNB retained a valid claim for the unpaid balance of the mortgage credit.