Dear PAO,

Ten years ago, I had a friend who was just starting his business and needed money. I lent him P500,000. We never got the opportunity to make a written agreement because I had to travel abroad for work. I also did not have the chance to seek payment for the loan because we lost communication after a few years. We only resumed our communication last year, and now I want my money back. Can I still pursue a legal action to collect the money I loaned to my friend even if we had no written agreement?

Michael

Dear Michael,

In the Philippines, the question of whether a loan can still be collected after a particular period of time falls under the umbrella of “prescription” in civil law. Prescription refers to the extinguishment of rights or the bar to take legal action after the lapse of a set amount of time. Articles 1106 and 1139 of the New Civil Code of the Philippines define extinctive prescription or limitation of actions, to wit:

“Art. 1106. By prescription, one acquires ownership and other real rights through the lapse of time in the manner and under the conditions laid down by law.

“In the same way, rights and conditions are lost by prescription.

“Art. 1139. Actions prescribe by the mere lapse of time fixed by law.”

In connection therewith, the specific provisions governing loans are found in Articles 1144 and 1145 of the said Code, which state that actions based on written contracts prescribe after ten years, while actions based on oral contracts prescribe in six years, viz.:

“Article 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.

“Article 1145. The following actions must be commenced within six years:

“(1) Upon an oral contract;

“(2) Upon a quasi-contract.”

Furthermore, according to Article 1155 of the New Civil Code of the Philippines, prescription is interrupted by commencing a legal action before the lapse of the prescriptive period, or when the debtor acknowledges the debt in writing, such as making a partial payment. (Alba vs. Arollado, G.R. No. 237140, 5 October 2020, Associate Justice Mario V. Lopez) Additionally, when the prescriptive period expires, the creditor’s right to file debt collection action is terminated. This only means that the debtor may use prescription as a defense in court to defeat the creditor’s cause of action. Article 1155 of the New Civil Code of the Philippines, states that:

“Article 1155. The prescription of actions is interrupted when they are filed before the court, when there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by the debtor.”

In your case, since you did not execute any written agreement when the loan was made, you only had six years to file an action for collection from the time the loan became due. If this period has already lapsed, you may no longer recover the debt through legal action, unless you can present written proof that the prescriptive period was interrupted through any of the means mentioned above.

We hope that we were able to answer your queries. This advice was based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Thank you for your continued trust and support.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to [email protected]