TL;DR

The Supreme Court ruled that a borrower could not deny their loan obligation based on a claim of non-receipt of funds when they had signed the loan documents. Failing to specifically deny the genuineness and due execution of the promissory note under oath means the borrower admitted to the loan’s validity. This admission prevents them from later arguing that the documents don’t reflect the parties’ true intentions or that they didn’t receive the money. This decision underscores the importance of carefully reviewing loan documents and specifically denying any discrepancies or misrepresentations under oath during legal proceedings, or risk being bound by the terms of the loan agreement.

The Signature’s Tale: When a Loan Agreement Binds Despite Claims of Non-Receipt

This case involves Permanent Savings and Loan Bank’s attempt to recover ₱1,000,000.00 from Mariano Velarde based on a loan evidenced by a promissory note and related documents. Velarde, in his answer, claimed that he did not receive the loan amount and that the documents did not reflect the true intentions of the parties. The central legal question is whether Velarde’s general denial was sufficient to contest the genuineness and due execution of the loan documents, and whether the bank had sufficiently proven its claim.

The Regional Trial Court (RTC) and the Court of Appeals (CA) both ruled in favor of Velarde, dismissing the bank’s complaint. They reasoned that the bank failed to present sufficient evidence to prove the existence of the loan obligation, especially since Velarde had denied it. The CA further stated that the bank should have presented a witness qualified to testify on the execution of the loan documents. However, the Supreme Court disagreed with the lower courts’ assessment.

The Supreme Court emphasized the importance of Rule 8, Section 7 of the Rules of Court, which requires a defendant to specifically deny under oath the genuineness and due execution of an actionable document. Failure to do so constitutes an implied admission. Here, Velarde’s answer did not specifically deny that he signed the loan documents. Instead, he claimed that the signature “seems to be his” and that he did not receive the loan amount. This type of denial is considered a general denial, which is insufficient under the Rules of Court.

… 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.

Because Velarde failed to specifically deny the genuineness and due execution of the loan documents, the Supreme Court deemed that he had impliedly admitted them. This admission meant that he acknowledged voluntarily signing the documents, that they were in the same form as when he signed them, and that he waived any formalities required by law. An implied admission eliminates the need for the bank to present further evidence to prove the authenticity of the loan documents.

The Court also addressed the issue of prescription. Actions based on written contracts prescribe after ten years. The prescriptive period is interrupted by a written extrajudicial demand from the creditor. In this case, the bank sent a demand letter to Velarde in 1988, which interrupted the prescriptive period. This means that the ten-year period started anew from the date Velarde received the demand letter. Therefore, when the bank filed the complaint in 1994, the action had not yet prescribed.

The Supreme Court also clarified the consequences of a successful demurrer to evidence that is later reversed on appeal. If a trial court grants a demurrer to evidence but the appellate court reverses the dismissal, the defendant loses the right to present their own evidence. This is because a demurrer aims to expedite litigation by allowing the court to determine if the plaintiff has presented sufficient evidence to warrant a defense. Reversal on appeal means the appellate court will resolve the case on the merits based on the existing record.

Therefore, the Supreme Court reversed the decisions of the lower courts and ordered Velarde to pay the loan amount of ₱1,000,000.00, plus interest, penalties, and attorney’s fees, as stipulated in the promissory note.

FAQs

This case serves as a reminder of the importance of understanding the legal implications of signing documents and the necessity of raising specific defenses in court. Borrowers must carefully review loan agreements and promptly address any discrepancies or concerns to avoid potential liability.

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.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: Permanent Savings and Loan Bank v. Velarde, G.R. No. 140608, September 23, 2004