G.R. No. L-18967 January 31, 1966
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. GREGORIO RODRIGUEZ, defendant-appellee.

FACTS

On June 30, 1943, defendant Gregorio Rodriguez obtained a loan of P172.00 from the Bank of Taiwan, Ltd., payable on June 30, 1944. On November 1, 1943, he obtained another loan of P150.00 from the same bank without a maturity date (hence payable on demand). These loans were evidenced by promissory notes secured by a chattel mortgage. The loans remained unpaid. On January 21, 1946, the unpaid loans became vested in the United States of America through its Alien Property Custodian under Vesting Order No. P-4 pursuant to the Trading with the Enemy Act. On July 20, 1954, these unpaid accounts, along with other assets, were transferred to the Government of the Philippines via a Transfer Agreement between the U.S. and Philippine governments. The Republic made written demands for payment on October 1, 1954, and November 17, 1958. Upon defendant’s failure to pay, the plaintiff filed a complaint in the justice of the peace court of La Carlota, Negros Occidental, in June 1960. The defendant moved to dismiss on the ground of prescription. After a hearing, the justice of the peace court dismissed the complaint on that ground. Plaintiff appealed to the Court of First Instance of Negros Occidental, which also dismissed the case on the ground of prescription, prompting this appeal.

ISSUE

Whether the action to recover the sums under the promissory notes had already prescribed.

RULING

No, the action has not prescribed. The Supreme Court held that the statute of limitations does not run against the Republic of the Philippines when it enforces a right in its sovereign capacity. While the prescriptive period for the action is ten years, the running of the prescriptive period was tolled or suspended during the effectivity of the Moratorium Law (Executive Orders Nos. 25 and 32) as it bound the original creditor, the Bank of Taiwan, Ltd. The Moratorium Law was in force from November 18, 1944, until it lost its force on May 18, 1953. Furthermore, after the Philippines gained independence in July 1946, the United States Government, as a foreign country, could not sue due to the Moratorium Law. Therefore, the period from the effectivity of the Moratorium Law until May 18, 1953, should be deducted in computing the prescriptive period. Consequently, less than ten years had elapsed from the maturity of the notes (1943-1944) until the Republic acquired ownership (July 20, 1954), after which prescription ceased to run against the State. The order of dismissal was reversed, and the record was remanded for further proceedings.