G.R. No. L-24137 - Republic vs. Hernaez

The case involves the Republic of the Philippines filing a suit for the collection of loans obtained during the Japanese occupation of the Philippines in 1943.
The loans were evidenced by ten promissory notes executed by defendant Ramon M. de la Rama (acting also as negotiorum gestor for co-defendant Pedro C. Hernaez) with specified amounts and dates, including:

The promissory notes carried an annual interest rate of 6% compounded quarterly.

In addition to the promissory notes, to secure payment, defendant de la Rama executed two chattel mortgages on standing crops growing on lots identified as numbers 1089 and 1090 (part) based on the records contained in the Certificate of Title Nos. 16164 and 16165.
These chattel mortgages were registered at the Register of Deeds of Negros Occidental in compliance with the Chattel Mortgage Law.

Under the transfer agreements dated July 20, 1954, and June 5, 1957, the assets of the Bank of Taiwan, Ltd. – which included the promissory notes and chattel mortgages – were transferred by the United States Government (through its Attorney General) to the Republic of the Philippines as successor of the Philippine Alien Property Administration.
The assets were then administered by the Board of Liquidators under the Office of the President.
The Ballantyne Schedule was applied to reduce the amount from P14,786.61 to P10,652.49, and interest accumulated at 6% per annum as of December 31, 1961, amounted to P21,248.42, making the total principal and interest due P31,900.91.
Despite repeated demands for payment, the Government had not been paid the amount due.

The Court of First Instance of Manila dismissed the complaint on the ground that the Government’s action had prescribed.
The lower court’s ruling was based on:

The notion that the promissory notes, due to be paid one year after execution (implied by the nature of the yearly crops mortgaged), had already lapse because the complaint (filed on March 30, 1962) came well after maturity of the notes.
A computation that showed a lapse of 17 years, 5 months, and 3 days from the date of the last note’s maturity (October 27, 1944) until the filing of the complaint, even when a moratorium period of three years, four months, and sixteen days was deducted.

The Government, represented by the Solicitor General, directly appealed the dismissal on the sole ground of prescription.
Along with the petition, appellee Hernaez submitted his own assignment of errors concerning:

The existence of a negotiorum gestio relationship between himself and de la Rama.
The alleged ratification by him of the gestor’s acts of management.
The contention that the alleged loans represented proceeds from sugar belonging to him.

The Court noted that such assignments of errors by Hernaez raised issues of fact which were not reviewable in this petition on a pure question of law.

Whether the Government’s action for collection had really prescribed despite the long lapse of time between the maturity of the promissory notes and the filing of the complaint.
Whether the suspension of the prescriptive period due to the moratorium laws (Executive Orders Nos. 25 and 32, and Republic Act No. 342) effectively tolled the running of prescription.
Whether prescription runs against the State in the exercise of its sovereign functions, particularly when enforcing obligations over public property.
The propriety of addressing appellee Hernaez’s assignment of errors regarding negotiorum gestio and alleged consent to the gestor’s management, given that these contained issues of fact not properly reviewable on direct appeal.