G.R. No. L-20240 December 31, 1965
Republic of the Philippines, plaintiff-appellee, vs. Jose Grijaldo, defendant-appellant.

FACTS

In 1943, defendant-appellant Jose Grijaldo obtained five loans totaling P1,281.97 in Japanese war notes from the Bank of Taiwan, Ltd., Bacolod branch, evidenced by promissory notes and secured by a chattel mortgage on standing crops on his land. The loans were due one year after incurrence. Under Vesting Order No. P-4 (1946) and the Trading with the Enemy Act, the bank’s assets were vested in the U.S. Government, which later transferred them to the Republic of the Philippines under a 1954 Transfer Agreement. On September 29, 1954, the Republic, through the Board of Liquidators, made an extrajudicial demand on Grijaldo, which he received but failed to pay. The aggregate principal, computed under the Ballantyne scale as of June 1943, was P889.64 in Philippine currency, with interest due of P2,377.23 as of December 31, 1959. The Republic filed a collection complaint in the Justice of the Peace Court of Hinigaran on January 17, 1961. The case was dismissed due to prescription, but on appeal, the Court of First Instance of Negros Occidental rendered a decision on March 26, 1962, ordering Grijaldo to pay P2,377.23 as of December 31, 1959, plus 6% interest per annum compounded quarterly from the filing of the complaint, attorney’s fees, and costs. Grijaldo appealed directly to the Supreme Court. During the appeal, Grijaldo died, and his legal heirs were substituted as appellants.

ISSUE

1. Whether the Republic of the Philippines has a cause of action against Grijaldo.
2. Whether the action to collect the loan had prescribed.
3. Whether the lower court erred in ordering payment of P2,377.23 based on the Ballantyne scale as of the time the loans were incurred.

RULING

1. Yes, the Republic of the Philippines has a cause of action. The Republic is a privy to the original contracts of loan due to the successive transfers of rights from the Bank of Taiwan, Ltd. (an enemy entity) to the U.S. Government and then to the Republic under the Trading with the Enemy Act and related laws. This created privity of contract. The chattel mortgage did not extinguish the obligation upon loss of the crops, as the obligation was to pay a generic sum of money, not to deliver determinate crops, and the mortgage was merely security under Article 1263 of the Civil Code.
2. No, the action had not prescribed. First, prescription does not run against the State under Article 1108(4) of the Civil Code. Second, the running of the prescriptive period was interrupted by the moratorium laws (Executive Orders Nos. 25 and 32, and Republic Act No. 342). Applying the ruling in Rutter vs. Esteban, the prescriptive period was suspended from November 18, 1944, until May 18, 1953 (8 years and 6 months). From the time the cause of action arose (June 1, 1944) to the filing of the complaint (January 17, 1961), 16 years, 6 months, and 16 days elapsed. Deducting the suspension period leaves 8 years and 16 days of actual running, meaning the 10-year prescriptive period had not expired when the complaint was filed.
3. No, the lower court did not err. The application of the Ballantyne scale of values as of June 1943 (when the loans were incurred) to convert the Japanese war notes to Philippine currency is correct, following the precedent in Hilado vs. De la Costa, which holds that the value should be determined at the place and time the obligation was incurred unless otherwise agreed.
The Supreme Court affirmed the lower court’s decision, with costs against the appellant, and ruled that Grijaldo’s estate must answer for the judgment.