Francisco Serrano de Agbayani vs Philippine National Bank

written by Howard

G.R. No. L-23127 – 148 Phil. 443 – Political Law – Constitutional Law – The Judicial Department – Judicial Power – Constitutionality of Laws – Operative Fact Doctrine

After the war, the Philippine economy was in shambles. To help those that were indebted, President Sergio Osmeña issued E.O. No. 32 in 1945 which mandated a moratorium on loan repayments – meaning, creditors may not collect from debtors. In 1948, EO 32 was reinforced by R.A. No. 342 which provided that the moratorium will be for 12 years or until 1957.

In 1939, Francisco Agbayani obtained a loan from the Philippine National Bank. The loan, secured by mortgage, matured in 1944. War broke out. War ended. Then the moratorium was issued. Hence, PNB never collected. In 1953, RA 342 and EO 32 were declared unconstitutional.

In 1959, PNB foreclosed the property of Agbayani but the subsequent public auction was enjoined by a trial court in Pangasinan. The court agreed with Agbayani that the foreclosure was filed beyond the ten-year prescriptive period. The PNB argued that the moratorium period should not be counted in the counting of the prescriptive period.

The trial court ruled that since the moratorium laws were declared unconstitutional, they created no force and effect; that void laws create no legal effect. Hence, it was as if those laws never existed – that being, the bank’s right to collect expired in 1954.

ISSUE: Whether or not the trial court is correct.

HELD: No. The trial court failed to consider the Operative Fact Doctrine: 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. In this case, when EO 32 and RA 342 were in effect, PNB had to comply, hence, PNB was not expected to collect from Agbayani as it had to comply with the laws. The moratorium laws were in effect from 1945 to 1953 or for eight years. It is thus deemed that the prescriptive period was stalled by eight years. Hence, the filing of the foreclosure in 1959 is still within the prescriptive period as it is deemed that only seven years have lapsed from 1944 to 1959.

Read full text.