Alba vs. Arollado

An action upon an oral contract must be commenced within six years from the date the cause of action accrues, which is the date of breach; checks issued in payment of an oral credit sale do not convert the agreement into a written contract for purposes of the ten-year prescriptive period, and only a written acknowledgment of the debt can interrupt prescription under Article 1155 of the Civil Code.

Regina Q. Alba is the sole proprietor of Libra Fishing, a business engaged in selling crude oil, petroleum products, and related merchandise. Nida Arollado was a customer who purchased petroleum products on credit from Libra Fishing under a verbal agreement whereby Nida would sell Regina's products and, in turn, receive ₱2.00 per liter of the products sold. The parties' arrangement was not evidenced by any formal written agreement.

Regina Q. Alba is the sole proprietor of Libra Fishing, a business engaged in selling crude oil, petroleum products, and related merchandise. On various dates beginning in 2000, Nida Arollado purchased on credit from Libra Fishing crude oil and other petroleum products under a verbal agreement whereby Nida would sell Regina's products and, in turn, receive ₱2.00 per liter of the products sold. The purchases included transactions on August 22, 2000 (₱616,169.78), July 26, 2000 (₱60,000.00), November 12, 2000 (₱44,092.00), November 27, 2000 (₱66,168.50), November 29, 2002 (₱156,662.00), and December 21, 2002 (₱150,996.00).

As payment for the July 26, 2000, November 12, 2000, and November 27, 2000 purchases, Nida issued three checks: a Chinabank check (No. A0156896) for ₱60,000.00 dated July 26, 2000, a Maybank check (No. 0001386418) for ₱44,092.00 dated November 12, 2002, and a Maybank check (No. 0001386598) for ₱66,168.50 dated November 27, 2002. All three checks were dishonored by the drawee banks—the first on August 25, 2000, and the latter two on April 4, 2003.

On May 15, 2013, Regina sent a demand letter to Nida for payment of the outstanding balance, but Nida failed to heed the demand. Regina thereupon filed a complaint for sum of money on June 4, 2013. In her answer, Nida admitted issuing the three dishonored checks but claimed she had already settled the amounts through installment payments. She denied any outstanding liability and argued that, assuming unpaid amounts remained, Regina's right to collect had already prescribed since the transactions took place more than ten years prior.

The RTC rendered judgment on August 18, 2014, finding Nida liable but limiting her obligation to the total value of the dishonored checks—₱170,260.50—plus ₱20,000.00 in attorney's fees and litigation expenses. Regina did not appeal the RTC's limitation of liability to the value of the checks, nor did she seek reconsideration of the RTC's ruling that she failed to prove the existence of the larger unpaid amounts. On appeal, the CA reversed and dismissed the complaint on the ground of prescription, reckoning the six-year prescriptive period from the dates of dishonor of the checks. The last receipt issued to Nida for payment of purchases on credit was dated November 21, 2006 for ₱2,000.00.

• Reckoning Date of Prescription: Regina argued that the prescriptive period should be reckoned from the date of the last partial payment by the debtor or from the date of extrajudicial demand. She maintained that the complaint was filed barely seven months after the last payment on November 8, 2012, or several days after the demand on May 15, 2013, so prescription had not yet set in.
• Acknowledgment of Debt: Regina contended that Nida acknowledged her obligation when she made partial payments on November 8, 2012, which should interrupt the prescriptive period and commence a new reckoning from that date.

• Prescription: Nida argued that, assuming unpaid amounts remained, Regina's right to collect had already prescribed since the transactions took place more than ten years ago.
• Payment: Nida admitted issuing the three dishonored checks but claimed she had already settled the amounts through installment payments, denying any outstanding liability.

• Nature of the Contract: Whether the issuance of checks in payment of purchases made on credit under a verbal agreement converted the transaction into a written contract subject to the ten-year prescriptive period.
• Reckoning Date of Prescription: Whether the six-year prescriptive period for an action based on an oral contract should be reckoned from the date of dishonor of the checks, the date of alleged partial payments, or the date of extrajudicial demand.
• Interruption of Prescription: Whether the alleged partial payments made by the debtor and the extrajudicial demand by the creditor interrupted the prescriptive period.

• Nature of the Contract: No. The checks issued did not convert the parties' verbal agreement into a written contract; a contract partly in writing and partly oral is, in legal effect, an oral contract subject to the six-year prescriptive period under Article 1145 of the Civil Code.
• Reckoning Date of Prescription: The prescriptive period is reckoned from the date of dishonor of the checks, which constituted the breach giving rise to the cause of action. Counting six years therefrom, the complaint filed on June 4, 2013 was time-barred.
• Interruption of Prescription: No. The alleged partial payments and extrajudicial demand, both made after the prescriptive period had already lapsed, could not interrupt prescription. Under Article 1155 of the Civil Code, only a written acknowledgment of the debt interrupts prescription.

• Nature of the Contract: The sale of petroleum products on credit was not evidenced by a formal written agreement. The parties verbally agreed that Nida would sell Regina's products and receive ₱2.00 per liter. The three checks issued by Nida did not constitute the kind of "writing" contemplated by law for the ten-year limitation to apply. Citing Manuel vs. Rodriguez, a contract partly in writing and partly oral is, in legal effect, an oral contract. Drawing from Philippine National Bank vs. Buenaseda, a "writing" for purposes of the ten-year statute of limitations must contain either an express promise to pay or language from which a promise to pay arises by fair implication; the promise must appear on the face of the writing itself, and if it arises only upon proof of extrinsic facts, the writing is not within the purview of the statute. The checks contained no such promise to pay the underlying obligation; they were merely instruments for payment. Accordingly, the six-year prescriptive period under Article 1145 of the Civil Code for oral contracts governs.
• Reckoning Date of Prescription: Under Article 1150 of the Civil Code, the prescriptive period is counted from the day the action may be brought, which is when the cause of action accrues. A cause of action arises only when the last of its three elements occurs: (1) a right in favor of the plaintiff; (2) an obligation on the part of the defendant to respect that right; and (3) an act or omission by the defendant violative of that right or constituting a breach of the obligation. The dishonor of the checks constituted the breach of contract for non-payment, giving rise to the cause of action. The check for the July 26, 2000 purchase was dishonored on August 25, 2000, and the checks for the November 12 and 27, 2002 purchases were both dishonored on April 4, 2003. Counting six years therefrom, Regina had until August 25, 2006 and April 4, 2009, respectively. The complaint filed on June 4, 2013 was thus filed well beyond both deadlines.
• Interruption of Prescription: Under Article 1155 of the Civil Code, prescription is interrupted only by: (1) filing the action in court, (2) a written extrajudicial demand by the creditor, or (3) a written acknowledgment of the debt by the debtor. Regina filed the complaint and issued the demand letter only after the prescriptive period had already lapsed, so neither could interrupt prescription. As for the alleged partial payments on November 8, 2012, Regina failed to present evidence to corroborate her claim. Moreover, citing PNB vs. Osete, not all acts of acknowledgment of debt interrupt prescription under the present Civil Code. Unlike Article 1973 of the Civil Code of Spain, which allowed any act of acknowledgment to interrupt prescription, Article 1155 requires the acknowledgment to be "written." Payment, if not coupled with a communication signed by the payor, does not interrupt the running of the prescriptive period. The last receipt issued to Nida for payment was dated November 21, 2006, meaning Regina could have brought an action until November 21, 2012 at the latest based on that written acknowledgment—but the complaint was filed on June 4, 2013.

• Prescription of Actions on Oral Contracts — Under Article 1145 of the Civil Code, actions upon an oral contract must be commenced within six years. The Court applied this to the verbal agreement between Regina and Nida for the sale of petroleum products on credit, holding that the checks issued did not convert the oral agreement into a written contract and therefore the six-year—not the ten-year—period applied.

• Written Contract for Purposes of the Ten-Year Prescriptive Period — A "writing" for the payment of money, within the meaning of the ten-year statute of limitations, is one which contains either an express promise to pay or language from which a promise to pay arises by fair implication. The promise must affirmatively appear on the face of the writing itself; if it arises only upon proof of extrinsic facts or evidence aliunde, the writing is not within the purview of the statute. The Court applied this doctrine from Philippine National Bank vs. Buenaseda to hold that the three dishonored checks did not constitute written contracts, as they contained no promise to pay the underlying obligation.

• Contract Partly Written and Partly Oral — A contract partly in writing and partly oral is, in legal effect, an oral contract. The Court relied on Manuel vs. Rodriguez to classify the parties' agreement as oral despite the issuance of checks.

• Accrual of Cause of Action and Reckoning of Prescription — Under Article 1150, the prescriptive period is counted from the day the action may be brought, which is when the cause of action accrues. A cause of action requires three elements: (1) a right in favor of the plaintiff; (2) an obligation on the part of the defendant to respect or not violate such right; and (3) an act or omission by the defendant violative of the right or constituting a breach of the obligation. The cause of action accrues only when the last element occurs. The Court held that the dishonor of the checks constituted the breach that gave rise to the cause of action, and the prescriptive period was reckoned from the dates of dishonor.

• Interruption of Prescription Under Article 1155 — Prescription is interrupted only by: (1) filing the action before the court; (2) a written extrajudicial demand by the creditor; or (3) a written acknowledgment of the debt by the debtor. Unlike Article 1973 of the Civil Code of Spain, which allowed any act of acknowledgment to interrupt prescription, the present Civil Code requires the acknowledgment to be "written." Payment not coupled with a communication signed by the payor does not interrupt the running of the prescriptive period. The Court applied this to reject Regina's claim that Nida's alleged partial payments interrupted prescription.

• "A 'writing' for the payment of money sued in an action, within the meaning of the ten-year statute of limitations, is one which contains either an express promise to pay or language from which a promise to pay arises by fair implication." — This passage, quoted from Philippine National Bank vs. Buenaseda, defines the controlling standard for determining whether an instrument qualifies as a "written contract" for purposes of the ten-year prescriptive period, and was applied to hold that checks do not meet that standard.

• "Under this provision, not all acts of acknowledgment of a debt interrupt prescription. To produce such effect, the acknowledgment must be 'written,' so that payment, if not coupled with a communication signed by the payor, would not interrupt the running of the period of the prescription." — This passage, quoted from PNB vs. Osete, articulates the critical distinction between the old Spanish Civil Code and the present Civil Code regarding what acts interrupt prescription, and was applied to reject the claim that partial payments alone could toll the prescriptive period.

• "The dishonor of the three checks resulted in a breach of contract for non-payment. It is at this point that the right to bring an action for collection of a sum of money accrues." — This states the ratio decidendi on when the cause of action accrues in cases involving dishonored checks issued to settle obligations under an oral contract, anchoring the reckoning of the prescriptive period to the date of dishonor rather than the date of demand or partial payment.

• Manuel vs. Rodriguez, 109 Phil. 1 (1960) — Followed. Held that a contract partly in writing and partly oral is, in legal effect, an oral contract. Applied to classify the parties' agreement as oral despite the issuance of checks.

• Philippine National Bank vs. Francisco Buenaseda, 114 Phil. 1 (1962) — Followed. Defined what constitutes a "writing" for purposes of the ten-year statute of limitations, requiring an express or implied promise to pay on the face of the instrument. Applied to hold that the three dishonored checks did not qualify as written contracts.

• PNB vs. Osete, 133 Phil. 66 (1968) — Followed. Clarified that under Article 1155 of the Civil Code, only a written acknowledgment of debt interrupts prescription, unlike under the Spanish Civil Code which allowed any act of acknowledgment. Applied to reject Regina's claim that partial payments interrupted prescription.

• Pilipinas Shell Petroleum Corp. vs. John Bordman Ltd. of Iloilo Inc., 509 Phil. 728 (2005) — Cited for the three elements of a cause of action, which determine when prescription begins to run.

• Multi-Realty Development Corp. vs. The Makati Tuscany Condominium Corp., 524 Phil. 318 (2006) — Cited for the rule that the prescriptive period is counted from the day the action may be brought, i.e., when the cause of action accrues.

• Article 1145, Civil Code of the Philippines — Provides that actions upon an oral contract must be commenced within six years. Applied to the verbal agreement for the sale of petroleum products on credit, the checks having been held not to convert the agreement into a written contract.

• Article 1150, Civil Code of the Philippines — Provides that the time for prescription, when there is no special provision ordaining otherwise, shall be counted from the day the action may be brought. Applied to reckon the prescriptive period from the date of dishonor of the checks, when the cause of action accrued.

• Article 1155, Civil Code of the Philippines — Provides that prescription is interrupted when the action is filed before the court, when there is a written extrajudicial demand by the creditor, or when there is a written acknowledgment of the debt by the debtor. Applied to hold that the alleged partial payments (not proven to be in writing) and the extrajudicial demand (made after prescription had set in) did not interrupt prescription.

• Article 1973, Civil Code of Spain — Provided that prescription is interrupted by any act of acknowledgment of the debt by the debtor. Distinguished and noted as amended by Article 1155 of the present Civil Code, which requires the acknowledgment to be written.

Peralta, C.J. (Chairperson), Caguioa, Lazaro-Javier, and Gaerlan, JJ., concurred.