CHINA BANKING CORPORATION vs.

CA
June 23, 2005 | Quisimbing, J. | Pleadings; Cause of Action

PETITIONERS: CHINA BANKING CORPORATION

RESPONDENTS: HON. COURT OF APPEALS and ARMED FORCES AND POLICE SAVINGS &
LOAN ASSOCIATION, INC. (AFPSLAI)

SUMMARY:
AFPSLAI is the buyer/assignee of debt instruments issued by CBC. CBC refused to pay upon demand,
thus AFPSLAI filed a complaint for sum of money. CBC alleges that action has prescribed, but lower
courts held that issue re: prescription cannot be resolved since the cause of action (i.e., date when the
prescriptive period begins) is not apparent on the complaint. CBC argues that cause of action is from the
maturity date of the notes. AFPSLAI argued that cause of action is from the time of demand of payment
(and refusal of CBC to pay). Court held that cause of action arose from the time of the breach/violation of
obligation, i.e., time of demand and refusal of CBC to pay. Therefore, action has not prescribed, since it
was filed within 10 years from demand.

DOCTRINE: Cause of action for a written contract arises at the time of breach thereof.
Three elements of cause of action
Right in favor of plaintif
Obligation of defendant to respect/not violate such right
Act/omission of defendant violating such right / constituting a breach
of obligation of defendant to plaintif
FACTS:
 China Banking Corp. (CBC) is the registered owner of Home Notes (which are debt instruments)
issued in favor of Fund Centrum Finance, Inc. (FCI) and eventually sold, transferred and assigned
to Armed Forces and Police Savings & Loan Association, Inc. (AFPSLAI).
AFPSLAI demanded payment, CBC refused to pay.
AFPSLAI filed a complaint for a sum of money against CBC in the RTC of QC.
CBC filed an MTD alleging that the real party in interest was FCFI which was not joined in the
complaint, and that AFPSLAI was a mere trustee of FCFI.
TC denied MTD and MR. CA denied Petition for Certiorari and Prohibition. SC denied Petition for
Certiorari under R65 for being an improper remedy.
CBC filed another MTD, this time invoking prescription. Lower court denied MTD and ordered
CBC to present evidence. CBC filed MR instead, which was denied by lower court, stating that:
This Court finds that there are conflicting claims on the issue of whether or not the action has
already prescribed. A full blown trial is in order to determine fully the rights of the contending
parties.
CBC filed a petition under R65 with CA. CA dismissed, agreeing with the TC that more evidence
should be presented in order to properly determine WON action has prescribed.
CBC insists that prescription is apparent on the complaint.
o The maturity date of the Home Notes annexed to the pleading indicate the date of accrual
of the cause of action. [Dec. 2, 1983]
o AFSPLAI filed complaint for sum of money on Sep. 24, 1996, which is beyond the
prescriptive period of 10 years from when the creditor may file an action.

AFSPLAI argues that prescription is NOT apparent in the complaint.

o Maturity date stated in the Home Notes is NOT the time of accrual of action.

o Action accrued on time of demand to pay: July 20, 1995

ISSUES/HELD

Whether cause of action accrued on the maturity date of the instruments or on the date of
demand for payment? DATE of DEMAND for PAYMENT.
RATIO:
Cause of action accrued on the date when demand for payment of the Home Notes was refused
by CBC [July 20, 1995].
Cause of action requires:
o Legal right of plaintif (with duty of defendant to respect that right)
o Act/omission of defendant violating that right
Cause of action does not accrue until party obligated refuses (expressly or impliedly) to comply
with its duty
Three elements of cause of action
Right in favor of plaintif
Obligation of defendant to respect/not violate such right
Act/omission of defendant violating such right / constituting a breach of
obligation of defendant to plaintif
It is only when the last element occurs that a cause of action arises
In a written contract, cause of action accrues only when an actual breach or violation occurs.
In this case, breach occurred when demand was made by AFSPLAI and CBC refused to
pay.
Maturity date of notes [Dec. 2, 1983] NOT the accrual of cause of action because the 3 rd element
(violation/breach) was not present at this date.
Date for computing when prescription begins is therefore from the time of actual demand (and
refusal to comply thereof) and not from maturity date.
Action was filed (Sep. 24, 1996) before the end of 10 yrs from cause of action (July 20, 1995).
Therefore, action is NOT barred by prescription.