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 purchase price was P1,000,000, of which P200,000 was paid directly to the Philippine National Bank (PNB) to settle a mortgage credit assigned to it by Santos. 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 remained annotated on the new titles issued to the government. The Republic later demanded cancellation of the lien, but PNB refused, claiming the credit remained unpaid. The Republic filed an action for cancellation, arguing that PNB’s right to enforce the mortgage credit had prescribed, as the promissory notes matured between 1939 and 1942 and more than ten years had passed since the lifting of the moratorium laws.
PNB countered that the right had not prescribed. It argued that the running of the prescriptive period was interrupted by the moratorium laws (Executive Order No. 32) from March 10, 1945, to May 18, 1953 (the date of the Rutter v. Esteban decision), a period of 8 years, 2 months, and 8 days. It further contended that the outbreak of war in December 1941 also suspended the statute of limitations. The trial court ruled in favor of PNB, ordering the Republic to pay the balance of P150,000. The Court of Appeals affirmed this decision.

ISSUE

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

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. The prescriptive period for enforcing the credit had not lapsed. The legal logic centered on the proper computation of the ten-year prescriptive period under the statute of limitations, accounting for periods of legal interruption.
The Court held that the moratorium laws effectively suspended the running of the prescriptive period. Following established jurisprudence, the suspension lasted from March 10, 1945, to May 18, 1953—the period when Executive Order No. 32 was in force—totaling 8 years, 2 months, and 8 days. This interruption applied to the Republic, which, as the subrogee of the original debtor Santos, stepped into his obligations and was also considered a war sufferer. Additionally, the outbreak of the Pacific War in December 1941 constituted another interruption for the obligations not yet due at that time.
After deducting these aggregate periods of interruption from the time that lapsed between the maturity of the promissory notes and PNB’s filing of its counterclaim in 1958, the net elapsed time for each note was less than ten years. For instance, for the note maturing in 1940, only 9 years, 8 months, and 23 days had effectively run. For the note maturing in 1942, only 7 years and 16 days had run. Consequently, PNB’s action to collect the mortgage debt was filed within the prescriptive period. The Republic’s obligation to pay the balance, therefore, remained enforceable.