De Agbayani vs.
PNB (1971)
Summary Cases:
● De Agbayani vs. Philippine National Bank (PNB) 38 SCRA 429
Subject: Doctrine of Operative Fact (Effect of unconstitutional statutes); Rational basis test; Tolling of
prescription
Facts:
De Agbayani obtained a loan of P450 secured by a real estate mortgage from PNB. The loan was
obtained in July 19, 1939 and would mature in 5 years (July 19, 1944).
In 1959, PNB extra-judicially foreclosed the property to recover the balance of the loan. De Agbayani
countered with a suit against PNB and the Provincial Sheriff stating that the mortgage sought to be
foreclosed had long prescribed, fifteen years having elapsed from the date of maturity, July 19, 1944.
PNB sought to dismiss the suit stating that prescription as a defense would not be available if the period
from 1945, (when EO No. 32 was issued) to 1948 (when the RA 342, the subsequent legislative act
extending the moratorium period, 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, in ruling in favor of De Agbayani, took the view that an unconstitutional act is not a law,
creating no rights and imposing no duties, and thus as inoperative as if it had never been. (The court
reasoned that since the moratorium law was declared unconstitutional, it should be treated as if it had
never been passed, hence, it was as if no moratorium took place to prevent the bank from foreclosing on
the petitioner’s mortgage)
Held:
Doctrine of Operative Fact (Effect of unconstitutional statutes)
1. Administrative or executive acts, orders and regulations shall be valid only when not contrary to the
Constitution, the latter being supreme and paramount.
2. However, prior to the declaration of nullity, such challenged legislative or executive act was in force
and thus, entitled to obedience and respect.
3. The operative fact principle states 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.
Rational basis test
4. While the act can be assailed on due process, equal protection and non-impairment grounds, all that
is required to avoid the corrosion of invalidity is that the rational basis or reasonable test is satisfied.
5. Meanwhile, the measure has been acted upon by the public and accepted as valid. Moreover,
because the constitutionality of the statute is conditioned on its being fair and reasonable, an act valid
when enacted may subsequently be stricken down due to altered circumstances.
6. EO 32, and RA 342 which continued the moratorium legislation, suspended the enforcement of
| Page 1 of 2
payment of all debts and other monetary obligations payable by war sufferers. At the time of its issuance,
there was factual justification for the moratorium because the Philippines was in a state of emergency at
the time of its liberation from the Japanese forces in 1945. Businesses were at a standstill and radical
measures were devised to tide over the country until the economy reached some semblance of normalcy.
However, time passed and conditions changed. Thus, when the moratorium legislation was brought to
court in 1953, it was then found unreasonable. The court, applying the rational basis test at that point in
time, held that the right to non-impairment of contractual obligations must prevail. The relief accorded by
the moratorium law works injustice to creditors who are practically left at the mercy of the debtors. Their
hope to effect collection becomes extremely remote, more so if the credits are unsecured. And the
injustice is more patent when, under the law, the debtor is not even required to pay interest during the
operation of the relief.
Tolling of prescription
7. The moratorium was then a valid government response to the plight of debtors who were war sufferers.
Therefore, during the eight-year period that E.O. No. 32 (1945) and RA 342 (1953) were in force,
prescription did not run.
| Page 2 of 2
