One of the key principles enshrined in our Philippine Constitution is laid down in Section 2, Article XI, which mandates that “public office is a public trust.” Simply put, all government officials and employees are required to be, at all times, accountable to the people, serve them with utmost responsibility, integrity, loyalty and efficiency, act with patriotism and justice, and lead modest lives. It is in furtherance of this principle that the right of the state to recover properties unlawfully acquired is deemed to be imprescriptible and shall not be subject to the defense of laches or estoppel.

Meanwhile, both the Civil Code and jurisprudence provide that in loan contracts secured by a mortgage, the creditor-mortgagee has a single cause of action against the debtor-mortgagor — to recover the debt, either through the filing of a personal action for collection of a sum of money, or to institute foreclosure proceedings. Such action must be taken within 10 years from the time the principal loan matures, otherwise, the action will be barred by prescription. In the case of subrogation, the subrogee merely steps into the shoes of the original creditor and is also susceptible to the defenses available to the debtor, including the defense of prescription.

Considering the foregoing, what happens if a property (i.e. shares of stock) used as a security in a mortgage contract is later adjudged to be part of the ill-gotten wealth of a public official? Can the State, who becomes the subrogee, unilaterally sell the property to satisfy the loan? And in the negative, is the State duty-bound to institute the necessary action (either foreclosure or collection) within 10 years as provided under the Civil Code?

In a recent case decided by the Supreme Court (G.R. No. 247439, 23 August 2023), it was clarified that in case a mortgaged property is later adjudged to be part of the ill-gotten wealth of a public official, such judgment will not automatically cause the transfer of ownership of the mortgaged property to the State. Instead, the State will only be subrogated to the rights of the original creditor in the loan contract as well as of the mortgagee in the mortgage contract and thus, susceptible to defenses that the debtor may have against the original owner, including payment of loan obligations.

However, while the defense of prescription, estoppel, and laches may be obtained against an ordinary creditor, such will not be applicable in case the State becomes the subrogee in order to recover ill-gotten wealth, as the Constitution itself provides that such a right does not prescribe nor do laches and estoppel bar the right of the State to institute an action to recover the same. This interpretation, to the mind of the Supreme Court, is more in accordance with the well-settled principle of constitutional supremacy, as well as the rule in statutory construction that a special law (the Anti-Plunder Law) prevails over a general law (Civil Code).

Furthermore, the imprescriptibility provided under the law and Constitution extends to the recovery of ill-gotten wealth from the transferees of the erring public officers. Here, considering that the Court has already pronounced with finality that the amount loaned by ABC is part of the ill-gotten wealth of a former president, ABC is then a transferee within the contemplation of the law.

Lastly, the defense of ABC as a transferee-in-good-faith will also not hold water in view of the principle that no distinction should be made in the application of the law where none has been indicated. Verily, the recovery of ill-gotten wealth belonging to the people or to the nation is superior to any supposed rights of a transferee, even if he or she claims to have acted in good faith.

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