G.R. No. 159831 October 14, 2005
PILIPINAS SHELL PETROLEUM CORPORATION, Petitioner, vs. JOHN BORDMAN LTD. OF ILOILO, INC., Respondent.

FACTS

Respondent John Bordman Ltd. of Iloilo, Inc. purchased bunker oil from petitioner Pilipinas Shell Petroleum Corporation, initially through its distributor Arabay, Inc., and later directly from 1975 onward. From 1955 to 1974, John Bordman was billed at a rate of 210 liters per drum. Suspecting short deliveries, it conducted volumetric tests in 1974 and 1975, which indicated the drums could only hold 190 and 187.5 liters, respectively. Further tests in 1977 measured a capacity of only 180 liters. Consequently, John Bordman filed a complaint in 1980 for specific performance, demanding the delivery of the alleged shortfall in fuel oil and the payment of damages.
Petitioner Pilipinas Shell, in its defense, denied the allegations of short delivery, asserting that the drums used in the tests were not representative. It interposed the affirmative defenses of prescription, laches, and estoppel, arguing that the cause of action, if any, had long prescribed since the deliveries and payments occurred years before the suit was filed. The trial court ruled in favor of the respondent, a decision affirmed by the Court of Appeals with modifications to the awarded damages.

ISSUE

The core issue is whether the action for recovery of the alleged short deliveries had already prescribed at the time the complaint was filed.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals’ decision. The Court held that the action had not prescribed. While the general rule is that an action upon a written contract prescribes in ten years from the time the right of action accrues, the peculiar circumstances of this case warranted an exception regarding the reckoning point for prescription.
The legal logic centers on the application of the “discovery rule.” The Court ruled that the prescriptive period began to run not from the date of each individual delivery and payment, but from the time the respondent discovered, or could have reasonably discovered, the shortfall with certainty. The respondent’s right to sue accrued only upon its discovery of the fraud or breach through the volumetric tests conducted in 1974, 1975, and 1977. Prior to these empirical tests, the respondent had no sufficient factual basis to assert a claim, as it was merely billed based on a standard volume representation. The filing of the complaint in 1980 was, therefore, within the ten-year prescriptive period counted from the time of discovery. The Court found no merit in the defenses of laches and estoppel, upholding the factual findings of the lower courts that short deliveries were sufficiently proven.