Case Digest: De Agbayani vs.

PNB
G.R. No. L-23127 April 29, 1971

FACTS:

Agbayani obtained a loan of P450 from PNB dated July 19, 1939, maturing on July 19,
1944, secured by real estate mortgage. On March 10, 1945, Pres. Osmena signed EO
No. 32 or the Debt Moratorium Law suspending the payment of loans for four years due
to the ravages of war. In 1948, RA No. 342 extended the Debt Moratorium Law for another
eight years.

In 1953, the SC declared RA No. 342 as unconstitutional in the case of Rutter vs. Esteban.
On July 13, 1959 or 15 years after maturity of the loan, PNB instituted extra-judicial
foreclosure proceedings for the recovery of the balance of the unpaid loan.

Agbayani countered with suit against PNB 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 EO No. 32 was issued, to July 26, 1948, when the
RA No. 342 was declared unconstitutional, 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 the contention of PNB to be persuasive and decided the suit in favor of
De Agbayani.

Issue: Whether or not the period of the effectivity of EO No. 32 and RA No. 342 should
be counted in the period of prescription?

No. It should not be counted. The decision of the SC on appeal reflects the orthodox
view that an unconstitutional act, in this case an executive order which was ruled to be
unconstitutional, cannot be the source of any legal rights or duties. Nor can it justify any
official act taken under it. Administrative or executive acts, orders and regulations shall
be valid only when they are not contrary to the laws of the Constitution. It is
understandable why it should be so, the Constitution being supreme and paramount.
Any legislative or executive act contrary to its terms cannot survive.

The period from 1945 when EO No. 32 was issued, to 1953 when it was declared
unconstitutional should not be counted for the purpose of prescription since the Debt
Moratorium Law was operative during this time. In effect, only 7 years had elapsed
(1944-45, 1953-59). Indeed, it would be unjust to punish the creditor who could not
collect prior to 1953 because the Debt Moratorium Law was effective, only to be told
later that his respect for an apparently valid law made him lose his right to collect.