GR L 25012; (July 1975) (Digest)
G.R. No. L-25012 July 22, 1975
REPUBLIC OF THE PHILIPPINES, petitioner, vs. THE HON. COURT OF APPEALS and LUIS D. CUAYCONG (substituted by LUIS E. CUAYCONG, JR.), respondents.
FACTS
The Republic of the Philippines filed a suit against Luis D. Cuaycong to recover the value of twenty promissory notes he executed in favor of the Bank of Taiwan during the Japanese occupation. These enemy assets were confiscated after liberation and subsequently transferred to the Philippine Government. The trial court ruled in favor of the Republic, ordering Cuaycong to pay the principal and accumulated interest. On appeal, the Court of Appeals reversed the trial court’s decision and dismissed the complaint.
During the Japanese occupation, the military administration in Negros Occidental commandeered sugar stocks, including those belonging to Cuaycong. The sugar was sold, and the proceeds were retained by the Bank of Taiwan to form a “Farmers Rehabilitation Fund.” Under a directive, planters’ old crop loans were to be set off against these proceeds, and they could then borrow new loans from the Fund within the limit of their individual deposits. Cuaycong executed the promissory notes in question under this financing scheme between 1943 and 1944.
ISSUE
The primary issues were whether the government’s right to collect on the promissory notes had prescribed and whether Cuaycong’s indebtedness could be set off against his deposit with the Bank of Taiwan.
RULING
The Supreme Court affirmed the decision of the Court of Appeals. On the issue of prescription, the Court cited Republic vs. Grijaldo, ruling that the statute of limitations does not run against the government when it acts in its sovereign capacity to protect state property. Therefore, the action was not barred by prescription.
However, the Court upheld the set-off. It found that the proceeds from the sale of Cuaycong’s sugar were retained by the Bank of Taiwan as his deposit, forming part of the Farmers Rehabilitation Fund. The military directive explicitly provided for setting off old crop loans against these proceeds. The relationship between Cuaycong and the bank was that of creditor and debtor. Since all requisites for legal compensation were present—mutual debts between the same parties acting in the same capacity—compensation took place by operation of law. The loans obtained by Cuaycong under the notes were effectively withdrawals from his own deposit. Thus, his obligation to the bank was extinguished by compensation, and the Republic, as the bank’s successor, had no valid claim.