No. L-20240.

December 31, 1965

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE GRIJALDO, defendant-appellant.
Obligations and contracts; Crop loans obtained from the Bank of Taiwan, Ltd.; Right of Philippine Government to collect
the loans.—In 1943, appellant obtained crop loans from the Bank of Taiwan, Ltd., Bacolod City Branch, evidenced by
promissory notes. To secure payment of the loans, appellant executed a chattel mortgage over the standing crops on
his land. After the war, the Republic of the Philippines brought the present action to collect from appellant the unpaid
account. Held: It is true that the Bank of Taiwan, Ltd. was the original creditor and the transaction between the
appellant and the Bank of Taiwan was a private contract of loans. However, pursuant to the Trading with the Enemy
Act, as amended, and Executive Order No. 9095 of the United States; and under Vesting Order No. P-4, dated January
21, 1946, the properties of the Bank of Taiwan, Ltd., were vested in the United States Government. Pursuant, further,
to the Philippine Property Act of 1946 and Transfer Agreements dated July 20, 1954 and June 15, 1957, between the
United States Government and the Republic of the Philippines, the assets of the Bank of Taiwan, Ltd. were transferred
to and vested in the Republic of the Philippines. The successive transfers of the rights over the loans in question from
the Bank of Taiwan, Ltd. to the United States Government, and from the United States Government to the government
of the Republic of the Philippines, made the Republic of the Philippines the successor of the rights, title and interests in
said loans, thereby creating a privity of contract between the appellee and the appellant.
Same; Same; Same; Destruction of crop through enemy action; Effect on the obligation.—Appellant maintains, in
support of his contention that the appellee has no cause of action, that because the loans were secured by a chattel
mortgage on the standing crops on the land owned by him and those crops were lost or destroyed through enemy
action his obligation to pay the loans was thereby extinguished. Held: This argu ment is untenable. The obligation of
the appellant under the promissory notes was not to deliver a determinate thing. namely, the crops to be harvested
from his land, but to pay a generic thing—the amount of money representing the total sum of his loans, with interest.
The chattel mortgage on the crops simply stood as a security for the fulfillment of appellant's obligation covered by
the, promissory notes, and the loss of the crops did not 'extinguish his obligation to pay, because the account could
still be paid from other sources aside from the mortgaged crops.
Same; Same; Same; Prescription of actions; Prescription does not run against the government.— The complaint in the
present case was brought by the Republic of the Philippines not as a nominal party but in the exercise of its sovereign
functions, to protect the interests of the State ever a public property. This Court has held that the statute of limitations
does not run against the right of action of the Government of the Philippines (Government of the Philippine Islands vs.
Monte de Piedad, etc., 35 Phil. 738-751).
Same; Same; Same; Same; Effect of moratorium laws.—Moreover, the running of the period of prescription of the
action to collect the loan from the appellant was interrupted by the moratorium laws (Executive Orders Nos. 25, dated
November 18. 1944; Executive Order No. 32, dated March 10, 1945; and Republic Act No. 432, approved on July 26,
1948). Computed accordingly, the prescriptive period was suspended for 8 years and 6 months. Hence, appellee's
action had not yet prescribed.
Same; Same; Same; Payment in Japanese war notes; Application of Ballantyne scale of values.—Contracts stipulating
for payments presumably in Japanese war notes may be enforced after the liberation to the extent of the just
obligation of the contracting parties and, as said notes have become worthless, in order that justice may be done and
the party entitled to be paid can recover their actual value in Philippine Currency, what the debtor or defendant bank
should return or pay is the value of the Japanese military notes in relation to the peso in Philippine Currency obtaining
on the date when and at the place where the obligation was incurred unless the parties had agreed otherwise. (Hilado
vs. De la Costa L-150 April 30. 1049, 46 Off. Gaz. 5472.)
APPEAL from a decision of the Court of First Instance of Negros Occidental Querubin, J.
The facts are stated in the opinion of the Court.
     Solicitor General for plaintiff-appellee.
     Isabelo P. Samson for defendant-appellant.
ZALDIVAR, J.:
In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the Bank of Taiwan,
Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded
quarterly. These loans are evidenced by five promissory noteexecuted by the appellant in favor of the
Bank of Taiwan, Ltd., as follows: On June 1, 1943, P600.00; on June 3, 1948, P159.11; on June 18, 1943.
P22.86; on August 9, 1943, P300.00; on August 13, 1943, P200.00, all notes without due dates, but
because the loans were crop loans it was considered that 'the loans were due one year after they were
incurred. To secure the payment of the loans the appellant executed a chattel mortgage on the standing
crops on his land, Lot No. 1494 known as Hacienda Campugas in Hinigaran. Negros Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for in the
Trading with the Enemy Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were
vested in the Government of the United States. Pursuant to the Philippine Property Act of 1946 of the
United States, these assets, including the loans in question, were subsequently transferred to the Republic
of the Philippines by the Government of the United States under Transfer Agreement dated July 20, 1954.
These assets were among the properties that were placed under the administration of the Board of
Liquidators created under Executive Order No. 372, dated November 24, 1950, and in accordance with
Republic Acts Nos. 8 and 477 and other pertinent laws.
On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman of the
Board of Liquidators, made a written extrajudicial demand upon the appellant for the payment of the
account in question. The record shows that the appellant had actually received the written demand for
payment, but he failed to pay.
The aggregate amount due as principal of the five loans in question, computed under the Ballantyne scale
of values as of the time that the loans were incurred in 1943, was P889.64; and the interest due thereon at
the rate of 6% per annum compounded quarterly, computed as of December 31, 1959. was P 1,457.39; so
that the total account as of December 31, 1959 was P2,377.23.
On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros
Occidental, to collect from the appellant the unpaid account in question. The Justice of the Peace of
Hinigaran, after hearing, dismissed the case on the ground that the action had prescribed. The appellee
appealed to the Court of First Instance of Negros Occidental and on March 26, 1982 the court a quo
rendered a decision ordering the appellant to pay the appellee the sum of P2,377.23 as of December 31,
1959, plus interest at the rate of 6% per annum compounded quarterly from the date of the filing of the
complaint until full payment was made. The appellant was also ordered to pay the sum equivalent to 10%
of the amount due as attorney's fees and the costs.
The appellant appealed directly to this Court. During the pendency of this appeal the appellant Jose
Grijaldo died. Upon motion by the Solicitor General this Court, in a resolution of May 13, 1963, required
Manuel Lagtapon, Jacinto Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose
Grijaldo, to appear and be substituted as appellants in accordance with Section 17 of Rule 3 of the Rules of
Court.
In the present appeal the appellant contends: (1) that the appellee has no cause of action against the
appellant; (2) that if the appellee has a cause of action at all, that action had prescribed; and (3) that the
lower court erred in ordering the appellant to pay the amount of P2,377.23.
In discussing the first point of contention, the appellant maintains that the appellee has no privity of
contract with the appellant. It is claimed that the transaction involved in this case was a private
transaction between the Taiwan Bank, Ltd, and the appellant, so that the appellee, Republic of the
Philippines, could not legally bring action against the appellant for the enforcement of the obligation
involved in said transaction. This contention has no merit, It is true that the Bank of Taiwan, Ltd. was the
original creditor and the transaction between the appellant and the Bank of Taiwan was a private contract
of loan. However, pursuant to the Trading with the Enemy Act, as amended, and Executive Order No. 9095
of the United States; and under Vesting Order No. P-4, dated January 21, 1946, the properties of the Bank
of Taiwan, Ltd., an entity which was declared to be under the jurisdiction of the enemy country (Japan),
were vested in the United States Government, Pursuant, further, to the Philippine Property Act of 1946 and
Transfer Agreements dated July 20, 1954 and June 15, 1957, between the United States Government and
the Republic of the Philippines, the assets of the Bank of Taiwan, Ltd, were transferred to and vested in the
Republic of the Philippines. The successive transfer of the rights over the loans in question from the Bank
of Taiwan, Ltd. to the United States Government, and from the United States Government to the
government of the Republic of the Philippines, made the Republic of the Philippines the successor of the
rights, title and interest in said loans, thereby creating a privity of contract between the appellee and the
appellant. In defining the word "privy" this Court, in a case, said:
"The word 'privy' denotes the idea of succession x x x hence an assignee of a credit, and one subrogated
to it, etc. will be privies; in short, he who by succession is placed in the position of one of those who
contracted the judicial relation and executed the private document and appears to be substituting him in
the personal rights and obligation is a privy" (Alpuerto vs. Perez, 38 Phil. 785, 790).
The United States of America acting as a belligerent sovereign power seized the assets of the Bank of
Taiwan, Ltd, which belonged to an enemy country, The confisca tion of the assets of the Bank of Taiwan,
Ltd being an involuntary act of war, and sanctioned by international law, the United States succeeded to
the rights and interests of said Bank of Taiwan, Ltd, over the assets of said bank. As successor in interest
in, and transferee of, the property rights of the United States of America over the loans in question, the
Republic of the Philippines had thereby become a privy to the original contracts of loan between the Bank
of Taiwan, Ltd. and the appellant. It follows, therefore, that the Republic of the Philippines has a legal right
to bring the present action against the appellant Jose Grijaldo.
The appellant likewise maintains, in support 01 his contention that the appellee has no cause of action,
that because the loans were secured by a chattel mortgage on the standing crops 011 a land owned by
him and these crops were lost or destroyed through enemy action his obligation to pay the loans was
thereby extinguished. This argument is untenable. The terms of the promissory notes and the chattel
mortgage that the appellant executed in favor of the Bank of Taiwan, Ltd. do not support the claim of
appellant. The obligation of the appellant under the five promissory notes was not to deliver a determinate
thing namely, the crops to be harvested from his land, or the value of the crops that would be harvested
from his land, Rather, his obligation was to pay a generic thing—the amount of money representing the
total sum of the five loans, with interest. The transaction between the appellant and the Bank of Taiwan,
Ltd. was a series of five contracts of simple loan of sums of money. "By a contract of (simple) loan, one of
the parties delivers to another x x x money or other consumable thing upon the condition that the same
amount of the same kind and quality shall be paid," (Article 1933, CiviI Code) The obligation of the
appellant under the five promissory notes evidencing the loans in questions is to pay the value thereof;
that is, to deliver a sum of money—a clear case of an obligation to deliver a generic thing. Article 1263 of
the Civil Code provides:
"In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not
extinguish the obligation,"
The chattel mortgage 011 the crops growing on appellant's land simply stood as a security for the f
ulfillment of appellant's obligation covered by the five promissory notes, and the loss of the crops did not
extinguish his obligation to pay, because the account could still be paid from other sources aside from the
mortgaged crops.
In his second point of contention, the appellant maintains that the action of the appellee had prescribed.
The appellant points out that the loans became due on June 1, 1944; and when the complaint was filed on
January 17, 1961 a period of more than 16 years had already elapsed—far beyond the period of ten years
when an action based on a written contract should be brought to court.
This contention of the appellant has no merit. Firstly, it should be considered that the complaint in the
present case was brought by the Republic of the Philippines not as a nominal party but in the exercise of
its sovereign functions, to protect the interests of the State over a public property. Under paragraph 4 of
Article 1108 of the Civil Code prescription, both acquisitive and extinctive, does not run against the State.
This Court has held that the statute of limitations does not run against the right of action of the
Government of the Philippines (Government of the Philippine Islands vs. Monte de Piedad, etc., 35 Phil.
738-751). Secondly, the running of the period of prescription of the action to collect the loan from the
appellant was interrupted by the moratorium laws (Executive Orders No. 25, dated November 18, 1944;
Executive Order No. 32, dated March 10, 1945; and Republic Act No. 342, approved on July 26, 1948). The
loan in question, as evidenced by the five promissory notes, were incurred in the year 1943, or during the
period of Japanese occupation of the Philippines, This case is squarely covered by Executive Order No. 25,
which became effective on November 18, 1944, providing for the suspension of payments of debts
incurred after December 31, 1941. The period of prescription was, therefore, suspended beginning
November 18, 1944. This Court, in the case of Rutter vs. Esteban (L-3708, May 18, 1953, 93 Phil. 68),
declared on May 18, 1953 that the Moratorium Laws, R.A. No. 342 and Executive Orders Nos, 25 and 32,
are unconstitutional; but in that case this Court ruled that the moratorium laws had suspended the
prescriptive period until May 18, 1953. This ruling was categorically reiterated in the decision in the case of
Manila Motors vs. Flores, L-9396, August 16, 1956. It follows, therefore, that the prescriptive period in the
case now before Us was suspended from November 18, 1944, when Executive Order No. 25 took effect,
until May 18, 1953 when R.A. 342 along with Executive Orders Nos. 25 and 32 were declared
unconstitutional by this Court. Computed accordingly, the prescriptive period was suspended for 8 years
and 6 months, By the appellant's own admission, the cause of action 011 the five promissory notes in
question arose on June 1, 1944. The complaint in the present case was filed on January 17, 1961, or after a
period of 16 years, 6 months and 16 days when the cause of action arose. If the prescriptive period was
not interrupted by the moratorium laws, the action would have prescribed already; but, as We have stated,
the prescriptive period was suspended by the moratorium laws for a period of 8 years and 6 months. If we
deduct the period of suspension (8 years and 6 months) from the period that elapsed from the time the
cause of action arose to the time when the complaint was filed (16 years, 6 months and 16 days) there
remains a period of 8 years and 16 days, In other words, the prescriptive period ran for only 8 years and
16 days, There still remained a period of one year, 11 months and 14 days of the prescriptive period when
the complaint was filed.
In his third point of contention the appellant maintains that the lower court erred in ordering him to pay
the amount of P2,377.23. It is claimed by the appellant that it was error 011 the part of the lower court to
apply the Ballantyne Scale of values in evaluating- the Japanese war notes as of June 1943 when the loans
were incurred, because what should be done is to evaluate the loans on the basis of the Ballantyne Scale
as of the time the loans became due, and that was in June 1944. This contention of the appellant is also
without merit.
The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as of December 31,
1959, plus interest at the rate of 6% per annum compounded quarterly from the date of the filing of the
complaint. The sum total of the five loans obtained by the appellant from the Bank of Taiwan, Ltd. was P1 ,
281.97 in Japanese war notes. Computed under the Ballantyne Scale of values as of June 1943, this sum of
P1 ,281.97 in Japanese war notes in June 1943 is equivalent to P889.64 in genuine Philippine currency. It is
this amount of P889.64 in genuine Philippine currency which was considered the aggregate amount due as
principal of the five loans, ,and the amount of P2,377.23. as of December 31, 1959 was arrived at after
computing the interest on the principal sum of P889.64 compounded quarterly from the time the
obligations were incurred in 1943.
It is the stand of the appellee that the Ballantyne scale of values should be applied as of the time the
obligation was incurred, and that was in June 1943. This stand of the appellee was upheld by the lower
court; and the decision of the lower court is supported by the ruling of this Court in the case of Hilado vs.
De la Costa (G.R. No. L-150, April 30. 1949:46 O.G. 5472), which states:
"x x x Contracts stipulating for payments presumably in Japanese war notes may be enforced in our Courts
after the liberation to the extent of the just obligation of the contracting parties and, as said notes have
become worthless, in order that justice may be done and the party entitled to be paid can recover their
actual value in Philippine Currency, what the debtor or defendant bank should return or pay is the value of
the Japanese military notes in relation to the peso in Philippine Currency obtaining on the date when and
at the place. where the obligation was incurred unless the parties had agreed otherwise. x x x." (italics
supplied)
IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs against the appellant
Inasmuch as the appellant Jose Grijaldo died during the pendency of this appeal, his estate must answer in
the execution of the judgment in the present case.
Bengzon, C.J., Concepcion, Barrera, Regala, Bautista Angelo, Reyes, J.B.L., Dizon, Makalintal and Bengzon.
J.P., JJ., concur.
Decision affirmed.