G.R. No. L-29725. January 27, 1983.
Republic of the Philippines, plaintiff-appellant, vs. The Court of First Instance, Branch III, Negros Occidental, and Dolores Infante, defendants-appellees.

FACTS

In 1943, defendant Dolores Infante obtained loans totaling P683.10 from the Bank of Taiwan, Ltd., payable in Bacolod City. On September 15, 1961, the Republic of the Philippines filed a complaint in the Justice of the Peace Court of Villadolid, Negros Occidental, to collect the debt. The defendant moved to dismiss on the ground of prescription, arguing the action was filed beyond the ten-year period for written contracts. Both the Justice of the Peace Court and, on appeal, the Court of First Instance of Negros Occidental, dismissed the case, sustaining the defense of prescription.
The Republic appealed directly to the Supreme Court. It asserted its right to collect as the successor-in-interest to the Bank of Taiwan, Ltd., whose assets were vested first in the United States Government and subsequently transferred to the Philippine Government pursuant to post-war agreements. The core dispute centered on whether the action to collect the 1943 loan had prescribed by the time the complaint was filed in 1961.

ISSUE

Whether or not the action for collection of sum of money filed by the Republic of the Philippines against Dolores Infante had already prescribed.

RULING

The Supreme Court reversed the lower courts and held that the action had not prescribed. The Court applied the doctrine established in Republic vs. Grijaldo. First, it recognized the Republic as the legitimate successor to the rights of the Bank of Taiwan, Ltd., creating privity of contract with the debtor. On the pivotal issue of prescription, the Court ruled that the ten-year prescriptive period was suspended by the moratorium laws (Executive Orders Nos. 25 and 32, and Republic Act No. 342 ).
Although these moratorium laws were later declared unconstitutional in Rutter vs. Esteban, they were in force until May 18, 1953. Legal principles dictate that laws, until annulled, produce legal consequences. Consequently, the running of the prescriptive period was legally interrupted during the moratorium’s effectivity. The ten-year period, therefore, commenced only on May 19, 1953, the day after the moratorium was lifted.
Furthermore, the loans were payable on demand. The Republic made an extra-judicial demand on September 27, 1954, which is when the cause of action accrued and the prescriptive period began to run. Counting from that date, the period would expire on September 27, 1964. Since the complaint was filed on September 15, 1961, it was well within the prescriptive period. The order of dismissal was set aside, and the case was remanded to the lower court for further proceedings.