G.R. No. 142420 - Philippine Bank of Communications vs. Diamond Seafoods Corporation

Case Summary (G.R. No. 142420)

Factual Background

On August 19, 1981, Diamond Seafoods Corporation, through Romeo V. Jacinto and together with Francisco Yu, and Sheolin Yu as sureties, executed a continuing Surety Agreement in favor of PBCom. Under that agreement, the parties bound themselves jointly and severally to pay PBCom for credit accommodations, including trust receipts and other credit facilities, together with interests, charges, and miscellaneous costs.

On December 3, 1982, Diamond Seafoods Corporation, through Romeo V. Jacinto, executed Trust Receipt No. 63725 in the sum of P78,595.99, obligating it to hold certain merchandise in trust for PBCom’s account—specifically, two cases of machinery—and to sell the merchandise and turn over the proceeds to PBCom on or before March 3, 1983. If it failed to sell, the undertaking required the return of the goods to PBCom on or before the same date.

On February 14, 1983, Diamond Seafoods Corporation again executed, through Romeo V. Jacinto, Trust Receipt No. L-17572 for P85,147.00, under which it held in trust certain merchandise—one lot of electrical fixtures—for PBCom. The trust receipt imposed the same basic obligations: to sell the merchandise and remit the proceeds to PBCom on or before May 15, 1983, if sold, or to return the goods on or before that date if unsold.

The respondents defaulted on the obligations embodied in the trust receipts. As of June 15, 1983, the obligation stood at P327,844.03, subject to corresponding marginal deposits deducted from the respective accounts. PBCom demanded payment, but the respondents did not pay, prompting PBCom to file a complaint with the City Fiscals Office of Manila for violation of P.D. 115, which was dismissed on January 16, 1985 for failure to prosecute. PBCom thereafter filed the present civil complaint to recover the unpaid amounts.

Trial Court Proceedings

In response, Romeo V. Jacinto filed an Answer raising prescription among other affirmative defenses and prayed for a hearing on that issue. The trial court, after hearing the relevant motions, issued an Order dated February 18, 1994, dismissing the civil complaint on the ground that the action had prescribed.

The RTC anchored its ruling on the dates of maturity stated in the trust receipts. It held that the trust receipts were dated December 3, 1982 and February 14, 1983, and that the obligations became due and demandable on March 3, 1983 and May 15, 1983, respectively. Since PBCom filed the civil complaint only on July 27, 1993, the RTC calculated the lapse as reaching beyond the statutory period of ten (10) years under Article 1144, paragraph 1, of the Civil Code for actions upon a written contract. It further ruled that the period of prescription was not interrupted from the time the obligation became due, and it found that the prior filing of the complaint with the City Fiscals Office for violation of P.D. 115 did not arrest prescription.

The RTC also stated that even assuming arguendo that the earlier filing could be considered to interrupt prescription, the complaint was still filed beyond the ten-year period. It added that although only some defendants raised prescription in their pleadings, the court could dismiss on the ground where prescription was clear from the allegations and the attached documents.

Appellate Proceedings Before the CA

PBCom appealed to the CA in CA-G.R. CV No. 45054. The CA Decision dated May 30, 1997 and its Resolution dated March 15, 2000 affirmed the RTC dismissal.

The CA held that PBCom incorrectly invoked Article 1155 of the Civil Code. It ruled that Act No. 3326, as amended, was the applicable statute for purposes of the prescriptive issue. Under the CA’s reasoning, prescription was interrupted only when judicial proceedings are instituted against the guilty person, and prescription began to run again if the proceedings were dismissed. Applying its view of the applicable law, and taking into account the ten-year prescriptive period under Article 1144, the CA concluded that the complaint filed on July 27, 1993 was already beyond the prescriptive period.

The Parties’ Contentions in the Supreme Court

In its petition, PBCom advanced a single overarching contention that the two courts below erred: first, in dismissing the civil complaint on the basis of Act No. 3326 instead of Article 1155; and second, in computing the period of prescription contrary to prevailing jurisprudence.

PBCom relied on Article 1155, which provides that prescription of actions is interrupted by the filing of the action in court, by a written extrajudicial demand, or by a written acknowledgement of the debt by the debtor. PBCom argued that its demands to the respondents were sufficient to interrupt the running of prescription.

Legal Issue and Supreme Court Analysis

The Supreme Court sustained the dismissal but corrected the CA’s legal treatment of the applicable prescriptive statute. The Court ruled that although PBCom was correct that Article 1155 was the pertinent provision in this civil action, Act No. 3326—which the CA had applied—would only be relevant if the issue involved prescription of a criminal action for violation of special laws, such as the trust receipts-related penal statute. The Court explained that Act No. 3326, being penal in nature, did not apply to the computation of the prescriptive period for a civil suit for breach of contract based on trust receipts.

The Supreme Court therefore assessed whether the requirements of Article 1155 were satisfied to interrupt prescription in this civil case.

Written extrajudicial demand under Article 1155

The Court found that PBCom’s asserted interruption based on written extrajudicial demand could not stand because there was no showing that the respondents actually received PBCom’s demand letters. The Court noted that PBCom pleaded that demands were made and that the defendants failed and refused to pay. However, PBCom also alleged that its attempts to demand payment or settle proved futile for reasons beyond its control. More importantly, PBCom confirmed in its appeal brief before the CA that demand letters sent on July 17, 1984 were never received by the respondents, and that some were returned to sender on August 23, 1984.

On that basis, the Court held that there could have been no valid and effective extra-judicial written demand as required by Article 1155 for interruption of the prescriptive period.

Criminal complaint as a substitute demand

PBCom alternatively contended that the criminal complaint it lodged for violation of P.D. 115 before the City Fiscals Office could be treated as an extra-judicial demand under Article 1155. The Court rejected this claim. It held that the record contained nothing to show that the respondents were duly notified of the filing of that complaint. The Court also emphasized that PBCom admitted that the complaint was dismissed for failure to prosecute, and thus no criminal action was instituted in any court that could be treated as having been brought in a manner that interrupts civil prescription by virtue of related proceedings.

The Court therefore concluded that nothing in the records interrupted the ten-year prescriptive period, computed from the time PBCom’s cause of action accrued upon the maturity and non-payment of the trust receipts’ obligations.

Computation of prescription

The Supreme Court affirmed that the ten-year prescriptive period under Article 1144 applied because the action was based on a written contract. The Court maintained that the civil complaint was filed beyond that ten-year period, and that the prescriptive period had not been interrupted by any action filed in cou

Case Syllabus (G.R. No. 142420)

Philippine Bank of Communications (petitioner) assailed the Court of Appeals (CA) Decision dated May 30, 1997, as reiterated in its Resolution dated March 15, 2000, which affirmed the Regional Trial Court (RTC) of Manila, Branch 55 dismissal of petitioner’s civil complaint for recovery of a sum of money due to prescription.
The Supreme Court treated the petition as one for review under Rule 45 of the Rules of Court and denied it for lack of merit.

Parties and Procedural Posture

The petitioner was Philippine Bank of Communications, a banking corporation that instituted the civil action against Diamond Seafoods Corporation and its representatives/sureties: Romeo V. Jacinto, Francisco Yu, and Sheolin Yu.
The respondents were the defendants in the civil complaint and were alleged to have executed credit and trust receipt undertakings in favor of petitioner.
The RTC dismissed the complaint on the ground that the action had already prescribed, and petitioner appealed to the CA.
The CA affirmed the RTC’s dismissal, and petitioner’s motion for reconsideration was denied.
Petitioner then elevated the matter to the Supreme Court through the instant petition.

Key Factual Allegations

On August 19, 1981, Diamond Seafoods Corporation, represented by Romeo V. Jacinto, together with Francisco Yu and Sheolin Yu as sureties, executed a continuing Surety Agreement in favor of petitioner, binding them jointly and severally to pay all credit accommodations, including Trust Receipts and other credit facilities, together with interests, charges, and miscellaneous costs.
On December 3, 1982, the corporation, through Romeo V. Jacinto, executed Trust Receipt No. 63725 in the amount of P78,595.99, obligating it to hold in trust certain machinery for petitioner’s account and to sell and turn over the proceeds on or before March 3, 1983, or return the goods by the same date in case of failure to sell.
On February 14, 1983, the corporation, through Romeo V. Jacinto, executed Trust Receipt No. L-17572 in the amount of P85,147.00, obligating it to hold in trust one lot of electrical fixtures for petitioner’s account and to sell and remit proceeds on or before May 15, 1983, or return the goods by the same date if unsold.
The respondents allegedly defaulted on the trust receipt obligations, such that as of June 15, 1983 the obligation stood at P327,844.03, subject to deductions of corresponding marginal deposits.
Petitioner claimed that it made demands for payment but received no payment whatsoever, prompting it to file a complaint with the City Fiscals Office of Manila for violation of P.D. 115, which was dismissed on January 16, 1985 for failure to prosecute.
Petitioner subsequently filed the civil complaint on July 27, 1993.
The records further showed petitioner’s own allegation and litigation stance that its alleged demand letters were not received by the respondents, including petitioner’s assertion before the CA that demand letters sent on July 17, 1984 were never claimed and some were returned to sender on August 23, 1984.

Issues Presented

The Supreme Court was tasked to determine whether the lower courts erred in dismissing the civil complaint on prescription.
Specifically, petitioner contended that the lower courts improperly used Act No. 3326 instead of Article 1155 of the Civil Code in addressing prescription.
Petitioner also contended that the computation of the prescriptive period was contrary to established jurisprudence, relying on supposed interruptions of prescription.

Applicable Law

The civil action was one for recovery of a sum of money founded on a written contract, thus implicating Article 1144 of the Civil Code, which provides a ten-year prescriptive period for actions upon a written contract.
Petitioner invoked Article 1155 of the Civil Code, which provides that prescription is interrupted when actions are filed before the court, when there is a written extrajudicial demand by the creditor, and when there is any written acknowledgement of the debt by the debtor.
The CA had applied Act No. 3326, as amended, and treated it as governing prescription by providing that interruption occurs when judicial proceedings are instituted against the guilty person, with the period running again if proceedings are dismissed.
The Supreme Court clarified the scope of Act No. 3326 by holding that it applies only when the issue concerns prescription of a criminal action for violation of special laws, such as the Trust Receipts Law.

Parties’ Arguments

Petitioner asserted that prescription was governed by Article 1155 and that the asserted “demands” it made should have interrupted the prescriptive period through a written extrajudicial demand.
Petitioner insisted that demand letters were effectively sent to respondents and pointed