FIRST DIVISION

G.R. No. 153267               June 23, 2005

DECISION
QUISUMBING, J.:

For review is the D E C I S I O N1 dated November 23, 2001 of the Court of Appeals in CA-
G.R. SP No. 65740, affirming the Orders2 dated August 25, 2000 and April 17, 2001, of the
Regional Trial Court of Quezon City, Branch 216, which denied petitioner’s motion to
dismiss the civil action for a sum of money filed by private respondent. Likewise impugned is
the Resolution3 dated April 24, 2002 of the Court of Appeals denying petitioner’s motion for
reconsideration of said decision.

The antecedent facts, as summarized by the appellate court, are as follows:

On September 24, 1996, private respondent Armed Forces and Police Savings and Loan
Association, Inc. (AFPSLAI) filed a complaint for a sum of money against petitioner China
Banking Corporation (CBC) with the Regional Trial Court of Quezon City, Branch 216.

In its Answer,4 the petitioner admitted being the registered owner of the Home Notes, the
subject matter of the complaint. These are instruments of indebtedness issued in favor of a
corporation named Fund Centrum Finance, Inc. (FCFI) and were sold, transferred and
assigned to private respondent. Thus, the petitioner filed a Motion to Dismiss alleging that
the real party in interest was FCFI, which was not joined in the complaint, and that petitioner
was a mere trustee of FCFI.

The trial court denied the motion to dismiss. Petitioner filed a motion for reconsideration,
which the court a quo again denied. Petitioner elevated the case to the Court of Appeals
through a Petition for Certiorari and Prohibition. The appellate court denied the petition for
lack of merit. The petitioner then brought the matter to this Court via a Petition for Certiorari,
under Rule 65. We dismissed the petition for being an improper remedy.

Petitioner filed another Motion to Dismiss, this time invoking prescription. The lower court
denied said motion to dismiss for lack of merit. It held that it was not apparent in the
complaint whether or not prescription had set in. Thus, the trial judge directed petitioner to
present its evidence. However, petitioner instead filed a motion for reconsideration, which
the trial court denied, ratiocinating thus:
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.5

Undeterred, petitioner impugned, through a petition under Rule 65, the two orders of the trial
court claiming before the appellate court that:

RESPONDENT COURT GROSSLY ERRED OR GRAVELY ABUSED ITS DISCRETION

In its assailed Decision, the Court of Appeals dismissed the petition, ruling that:

Since the defense of prescription under the facts obtaining did not rest on solid ground, the
trial court took a more judicious move to direct the defendant therein, herein petitioner, to
present its evidence. It is self-evident that with the evidence of both parties adduced, the
trial court could proceed to decide on the merits of the case including prescription, and thus
avoid collateral proceedings such as the one at bar that unduly prolong the final
determination of the controversy. After all, prescription subsists as a valid issue in the
decision process. The trial court wanted precisely a definite and definitive-factual premise to
determine whether or not the action has prescribed. Surely, such exercise of judgment is not
grave abuse of discretion correctible by writ of certiorari. If ever he erred, it was error in
judgment. Errors of judgment may be reviewed only by appeal.7

Undaunted, petitioner now comes to this Court raising a simple issue:

WHETHER [OR] NOT THE DATE OF MATURITY OF THE INSTRUMENTS IS THE DATE
OF ACCRUAL OF CAUSE OF ACTION.8

Petitioner insists that upon the face of the complaint, prescription has set in. It claims that
the Home Notes annexed to the pleading bearing a uniform maturity date of December 2,
1983 indicate the date of accrual of the cause of action. Hence, argues petitioner, private
respondent’s filing of the complaint for sum of money on September 24, 1996, is way
beyond the prescriptive period of ten years under Article 11449 of the Civil Code.
Citing Soriano v. Ubat,10 petitioner maintains the prescription period starts from the time
when the creditor may file an action, not from the time he wishes to do so.

However, private respondent counters that prescription is not apparent in the complaint
because the maturity date of the Home Notes attached thereto is not the time of accrual of
petitioner’s action. Relying on Elido, Sr. v. Court of Appeals,11 private respondent insists
that the action accrued only on July 20, 1995, when demand to pay was made on petitioner.
Private respondent also points out that since both the trial court and the appellate court
found that prescription is not apparent on the face of the complaint, such factual finding
should therefore be binding on this Court.

We find the petition without merit. The Court of Appeals validly dismissed the petition, there
being no grave abuse of discretion committed by the trial court in denying petitioner’s motion
to dismiss the complaint on the ground of prescription.
Well-settled is the rule that since a cause of action requires, as essential elements, not only
a legal right of the plaintiff and a correlative duty of the defendant but also "an act or
omission of the defendant in violation of said legal right," the cause of action does not
accrue until the party obligated refuses, expressly or impliedly, to comply with its duty.12

Otherwise stated, a cause of action has three elements, to wit, (1) a right in favor of the
plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation
on the part of the named defendant to respect or not to violate such right; and (3) an act or
omission on the part of such defendant violative of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the plaintiff.13

It bears stressing that it is only when the last element occurs that a cause of action arises.
Accordingly, a cause of action on a written contract accrues only when an actual breach or
violation thereof occurs.14

Applying the foregoing principle to the instant case, we rule that private respondent’s cause
of action accrued only on July 20, 1995, when its demand for payment of the Home Notes
was refused by petitioner. It was only at that time, and not before that, when the written
contract was breached and private respondent could properly file an action in court.

The cause of action cannot be said to accrue on the uniform maturity date of the Home
Notes as petitioner posits because at that point, the third essential element of a cause of
action, namely, an act or omission on the part of petitioner violative of the right of private
respondent or constituting a breach of the obligation of petitioner to private respondent, had
not yet occurred.

The subject Home Notes, in fact, specifically states that payment of the principal and
interest due on the notes shall be made only upon presentation for notation and/or
surrender for cancellation of the notes, thus:

Payment of the principal amount and interest due on this Note shall be made by the
Company at the principal office of the Trustee herein referred to or at such other office or
agency that the Company may designate for the purpose, in such coin or currency of the
Republic of the Philippines as at the time of payment shall be legal tender for payment of
public and private debts, upon presentation for notation and/or surrender for cancellation of
this Note. . . .15 (Emphasis supplied.)

Thus, the maturity date of the Home Notes is not controlling as far as accrual of cause of
action is concerned. What said date indicates is the time when the obligation matures, when
payment on the Notes would commence, subject to presentation, notation and/or
cancellation of those Notes. The date for computing when prescription of the action for
collection begins to set in is properly a function related to the date of actual demand by the
holder of the Notes for payment by the obligor, herein petitioner bank.

Since the demand was made only on July 20, 1995, while the civil action for collection of a
sum of money was filed on September 24, 1996, within a period of not more than ten years,
such action was not yet barred by prescription.

WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision dated
November 23, 2001, and the Resolution dated April 24, 2002, of the Court of Appeals are
AFFIRMED. Costs against petitioner.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

Footnotes
1 Rollo, pp. 34-38. Penned by Associate Justice Buenaventura J. Guerrero, with Associate
Justices Marina L. Buzon, and Alicia L. Santos concurring.
2 Id. at 56-58.
3 Id. at 40. Penned by Associate Justice Buenaventura J. Guerrero, with Associate Justices
Roberto A. Barrios (vice Associate Justice Alicia L. Santos, retired), and Marina L. Buzon
concurring.
4 Id. at 81-90.
5 Id. at 58.
6 Id. at 37.
7 Id. at 37-38.
8 Id. at 234.
9 ART. 1144. The following actions must be brought within ten years from the time the right
of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
10 No. L-11633, 31 January 1961, 1 SCRA 366, 370.
11 G.R. No. 95441, 16 December 1992, 216 SCRA 637, 644.
12 Texon Manufacturing v. Millena, G.R. No. 141380, 14 April 2004, 427 SCRA 377, 380.
13 Serrano v. Court of Appeals, G.R. No. 139420, 15 August 2001, 363 SCRA 223, 231.
14 Lim Tay v. Court of Appeals, G.R. No. 126891, 5 August 1998, 293 SCRA 634, 655.
15 Rollo, pp. 65-77.