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Agbayani vs PNB [G.R. No. L-23127 April 29, 1971]

FACTS: Plaintiff obtained a loan from PNB dated July 19, 1939, maturing on July 19, 1944, secured by real estate
mortgage. On July 13 1959 or 15 years after maturity of the loan, defendant instituted extra-judicial foreclosure
proceedings for the recovery of the balance of the loan remaining unpaid. Plaintiff countered with his suit against both
alleging that the mortgage sought to be foreclosed had long prescribed, fifteen years having elapsed from the date of
maturity. PNB on the other hand claims that the defense of prescription would not be available if the period from March
10, 1945, when Executive Order No. 321was issued, to July 26, 1948, when the subsequent legislative act2extending
the period of moratorium was declared invalid, were to be deducted from the computation of the time during which the
bank took no legal steps for the recovery of the loan. The lower court did not find such contention persuasive and
decided the suit in favor of plaintiff.

ISSUE: W/N the period of the effectivity of EO 32 and the Act extending the Moratorium Law before the same were
declared invalid tolled the period of prescription (Effect of the declaration of Unconstitutionality of a law)

HELD: YES. In the language of an American Supreme Court decision: The actual existence of a statute, prior to such a
determination [of unconstitutionality], is an operative fact and may have consequences which cannot justly be ignored.
The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may
have to be considered in various aspects, with respect to particular relations, individual and corporate, and particular
conduct, private and official.4

The now prevailing principle is that the existence of a statute or executive order prior to its being adjudged void is an
operative fact to which legal consequences are attached. Precisely because of the judicial recognition that moratorium
was a valid governmental response to the plight of the debtors who were war sufferers, this Court has made clear its
view in a series of cases impressive in their number and unanimity that during the eight-year period that Executive
Order No. 32 and Republic Act No. 342 were in force, prescription did not run.

The error of the lower court in sustaining plaintiffs suit is thus manifest. From July 19, 1944, when her loan matured, to
July 13, 1959, when extra-judicial foreclosure proceedings were started by appellant Bank, the time consumed is six
days short of fifteen years. The prescriptive period was tolled however, from March 10, 1945, the effectivity of
Executive Order No. 32, to May 18, 1953, when the decision ofRutter v. Estebanwas promulgated, covering eight years,
two months and eight days. Obviously then, when resort was had extra-judicially to the foreclosure of the mortgage
obligation, there was time to spare before prescription could be availed of as a defense.