G.R. No. 153267 ; June 23, 2005
CHINA BANKING CORPORATION, petitioner, vs. HON. COURT OF APPEALS and ARMED FORCES AND POLICE SAVINGS & LOAN ASSOCIATION, INC. (AFPSLAI), respondents.

FACTS

Armed Forces and Police Savings and Loan Association, Inc. (AFPSLAI) filed a complaint for a sum of money against China Banking Corporation (CBC) before the Regional Trial Court. The claim was based on Home Notes, which are instruments of indebtedness issued in favor of Fund Centrum Finance, Inc. (FCFI) and subsequently assigned to AFPSLAI. CBC, as the registered owner and trustee, moved to dismiss the complaint on various grounds, including the failure to join an indispensable party and, subsequently, on the ground of prescription.
CBC argued that the action had prescribed, contending that the ten-year prescriptive period for actions upon a written contract began to run from the uniform maturity date of the Home Notes, December 2, 1983. Since the complaint was filed only on September 24, 1996, CBC asserted it was barred. The trial court denied the motion to dismiss, finding that prescription was not apparent from the face of the complaint and that a full trial was necessary to resolve the conflicting claims on when the cause of action accrued. The Court of Appeals affirmed this denial.

ISSUE

Whether the Court of Appeals committed grave abuse of discretion in affirming the trial court’s denial of the motion to dismiss on the ground of prescription.

RULING

The Supreme Court denied the petition and affirmed the appellate court’s decision. The Court held that no grave abuse of discretion attended the lower courts’ rulings. The core legal principle is that a cause of action accrues only when the act or omission constituting a violation of a plaintiff’s right occurs. For a written contract, this means the cause of action arises from an actual breach, not merely from the maturity date of the obligation.
Applying this to the case, the Court ruled that AFPSLAI’s cause of action accrued not on the Home Notes’ maturity date of December 2, 1983, but on July 20, 1995, when CBC refused AFPSLAI’s demand for payment. The terms of the Notes themselves stipulated that payment was due only “upon presentation for notation and/or surrender for cancellation.” Therefore, the maturity date signified when the obligation became due, but the breach—and hence the accrual of the right to sue—happened only upon a demand for payment and subsequent refusal. Since the complaint was filed in 1996, well within the ten-year prescriptive period from the 1995 accrual, the action was not time-barred. The trial court correctly required a full trial to determine this factual issue, and its decision constituted an exercise of judgment, not a grave abuse of discretion correctible by certiorari.