The Supreme Court clarified that failing to specifically deny the genuineness and due execution of loan documents under oath constitutes an implied admission of their validity. This ruling means borrowers must explicitly contest the authenticity of such documents in their response to a lawsuit, or they will be bound by the terms within. This decision underscores the importance of precise legal responses and the consequences of insufficient denials in debt-related legal actions.

Loan Agreement Face-Off: When a ‘Specific Denial’ Falls Short

This case revolves around a loan dispute between Go Tong Electrical Supply Co., Inc. (Go Tong Electrical) and BPI Family Savings Bank, Inc., later substituted by Philippine Investment One [SPV-AMC], Inc. (BPI). Go Tong Electrical allegedly defaulted on a loan obligation, leading BPI to file a collection suit. The central issue arose from Go Tong Electrical’s response to BPI’s complaint, specifically their denial of the loan agreement’s authenticity. The Supreme Court had to determine whether Go Tong Electrical’s denial was sufficient under the Rules of Court, and what consequences followed if it was not.

The core of the legal battle lies in Section 8, Rule 8 of the Rules of Court, which dictates how a party must contest the genuineness and due execution of a written instrument. The rule states:

SEC. 8. How to contest such documents. — When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding Section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but the requirement of an oath does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused.

The Supreme Court emphasized that a simple denial is not enough. To effectively contest a document’s validity, the denying party must do so under oath and provide specific factual details challenging the document’s authenticity. In Go Tong Electrical’s Answer, they “specifically deny” the allegations related to the loan agreement, promissory note (PN), and comprehensive surety agreement (CSA), claiming they were “self-serving and pure conclusions intended to suit [BPI’s] purposes.” However, the Court found this denial insufficient. The Court has consistently held that a denial must be unequivocal and accompanied by specific factual averments.

Building on this principle, the Court cited Permanent Savings & Loan Bank v. Velarde to further clarify the requirements for denying the genuineness and due execution of an actionable document:

This means that the defendant must declare under oath that he did not sign the document or that it is otherwise false or fabricated. Neither does the statement of the answer to the effect that the instrument was procured by fraudulent representation raise any issue as to its genuineness or due execution. On the contrary such a plea is an admission both of the genuineness and due execution thereof, since it seeks to avoid the instrument upon a ground not affecting either.

By failing to deny the documents under oath and provide specific facts challenging their authenticity, Go Tong Electrical was deemed to have admitted the genuineness and due execution of the loan documents. This admission carries significant legal weight, effectively removing any defense based on the documents’ authenticity or due execution. The effect of this implied admission is far-reaching.

The Court reiterated that the admission of genuineness and due execution means the party admits they voluntarily signed the document or authorized someone to sign on their behalf. It also confirms that the document’s terms were exactly as presented when signed. This admission waives any challenges related to authenticity, such as claims of forgery or unauthorized signatures. Therefore, the Court found that BPI didn’t need further proof of the loan documents because Go Tong already admitted them.

While admitting the genuineness of a document doesn’t prevent defenses like fraud, mistake, or payment, Go Tong Electrical failed to adequately prove these defenses. Specifically, their claim of partial payment was unsubstantiated. The Court highlighted that in civil cases, the burden of proving payment lies with the party asserting it. Since BPI held the original loan documents, non-payment was presumed. The Court noted in Jison v. CA the importance of evidentiary burdens:

Simply put, he who alleges the affirmative of the issue has the burden of proof, and upon the plaintiff in a civil case, the burden of proof never parts. However, in the course of trial in a civil case, once plaintiff makes out a prima facie case in his favor, the duty or the burden of evidence shifts to defendant to controvert plaintiffs prima facie case, otherwise, a verdict must be returned in favor of plaintiff.

Finally, the Court addressed George C. Go’s liability as a surety. By signing the Comprehensive Surety Agreement (CSA), Go bound himself solidarily liable with Go Tong Electrical for the loan obligation. Article 2047 of the Civil Code clarifies the nature of suretyship:

Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarity with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship.

The Court concluded that Go’s solidary liability was clear, reinforcing the surety’s commitment to fulfill the principal debtor’s obligations.

However, the Supreme Court modified the lower court’s ruling. First, it acknowledged a partial payment of P1,877,286.08 made by Go Tong Electrical, which should be deducted from the principal amount. Second, it adjusted the interest and penalties. The 20% per annum interest rate was upheld until the loan’s maturity date. After maturity, a reduced interest rate of 1% per month and a penalty of 1% per month applied until the partial payment was made. Post-payment, these rates would apply to the remaining principal balance.

FAQs

What was the key issue in this case?	The main issue was whether Go Tong Electrical’s denial of the loan documents’ genuineness and due execution was sufficient under Section 8, Rule 8 of the Rules of Court. The Court assessed whether the denial met the required specificity and oath.
What does it mean to admit the genuineness and due execution of a document?	It means the party admits they voluntarily signed the document, or someone signed it on their behalf with authorization. It also confirms that the document’s terms were exactly as presented when signed, waiving challenges to its authenticity.
What is the effect of failing to specifically deny loan documents under oath?	Failing to do so results in an implied admission of the document’s genuineness and due execution. This prevents the denying party from later challenging the document’s authenticity, such as claiming forgery or unauthorized signatures.
Who has the burden of proving payment in a collection suit?	The party claiming to have made the payment (the debtor) has the burden of proving it. The creditor’s possession of the original loan documents creates a presumption of non-payment.
What is a Comprehensive Surety Agreement (CSA)?	A CSA is an agreement where a surety (like George C. Go in this case) binds themselves solidarily liable with the principal debtor (Go Tong Electrical) for the debt. This means the creditor can demand payment from either party.
How did the Court modify the lower court’s ruling on interest and penalties?	The Court upheld the 20% interest rate until the loan’s maturity date. After maturity, a reduced interest rate of 1% per month and a penalty of 1% per month applied until a partial payment was made. Post-payment, these rates applied to the remaining principal balance.
What specific wording is required to effectively deny loan documents?	The denial must be under oath and explicitly state that the party did not sign the document, or that it is false or fabricated. The denying party must also provide specific facts supporting their denial.
Can a party raise other defenses even if they admitted the genuineness of a document?	Yes, admitting the genuineness and due execution doesn’t prevent defenses like fraud, mistake, compromise, payment, or statute of limitations. However, these defenses must be adequately argued and proven during the proceedings.

This case serves as a crucial reminder of the importance of precise and legally sound responses in court. Parties must understand the specific requirements for denying the validity of documents and the consequences of failing to do so. By understanding the rules of procedure, potential borrowers can ensure their rights are protected in debt-related legal disputes.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: GO TONG ELECTRICAL SUPPLY CO., INC. VS. BPI FAMILY SAVINGS BANK, INC., G.R. No. 187487, June 29, 2015