CASENT REALTY DEVELOPMENT v. PBC

 

CASENT REALTY DEVELOPMENT CORP. v. PHILBANKING CORPORATION

[G.R. No. 150731. September 14, 2007.] 

FACTS:

Petitioner Casent Realty Development Corporation executed 2 promissory notes in favor of Rare Realty Corporation (Rare Realty) involving the amounts of PhP300,000 (PN No. 84-04) and PhP681,500 (PN No. 84-05).

On August 8, 1986, these promissory notes were assigned to respondent Philbanking Corporation through a Deed of Assignment.

Respondent alleged that despite demands, petitioner failed to pay the promissory notes upon maturity such that its obligation already amounted to PhP5,673,303.90 as of July 15, 1993.

Respondent filed on July 20, 1993 a complaint before the Makati City RTC for the collection of said amount.

In its Answer, petitioner raised the following as special/affirmative defenses:

On August 27, 1986, the parties executed a Dacion en Pago which ceded and conveyed petitioner's property in Iloilo City to respondent, with the intention of totally extinguishing petitioner's outstanding accounts with respondent. Petitioner presented a Confirmation Statement dated April 3, 1989 issued by respondent stating that petitioner had no loans with the bank as of December 31, 1988.

 

Thus, petitioner, by way of compulsory counterclaim, alleged that it made an overpayment of approximately PhP4 million inclusive of interest based on Central Bank Reference Lending Rates on dates of overpayment. Petitioner further claimed moral and exemplary damages and attorney's fee.

Respondent presented its evidence and formally offered its exhibits.

Petitioner then filed a Motion for Judgment on Demurrer to the Evidence, pointing out that the plaintiff's failure to file a Reply to the Answer which raised the Dacion and Confirmation Statement constituted an admission of the genuineness and execution of said documents; and that since the Dacion obliterated petitioner's obligation covered by the promissory notes, the bank had no right to collect anymore.

Respondent subsequently filed an Opposition which alleged that:

(1) the Dacion and Confirmation Statement had yet to be offered in evidence and evaluated; and

(2) since respondent failed to le a Reply, then all the new matters alleged in the Answer were deemed controverted.

RTC dismissed the complaint for collection, the petitioner’s obligation was extinguished by a Dacion en Pago

CA reversed and set aside RTC decision

PETITIONER’S ARGUMENTS:

RESPONDENT’S ARGUMENTS:

Its obligation to pay under the promissory notes was already extinguished as evidenced by the Dacion and Confirmation Statement. Petitioner submits that when it presented these documents in its Answer, respondent should have denied the same under oath. Since respondent failed to file a Reply, the genuineness and due execution of said documents were deemed admitted, thus alsoadmitting that the loan was already paid.

While it failed to file a Reply, all the new matters were deemed controverted pursuant to Section 10, Rule 6 of the Rules of Court. Furthermore, petitioner argued that assuming respondent admitted the genuineness and due execution of the Dacion and Confirmation Statement, said admission was not all-encompassing as to include the allegations and defenses pleaded in petitioner's Answer.

ISSUES

1. W/N respondent's failure to file a Reply and deny the Dacion and Confirmation Statement under oath constitute a judicial admission of the genuineness and due execution of these documents.

2. Whether the Dacion and Confirmation Statement sufficiently prove that petitioner's liability was extinguished.

 

RULING

1. Yes, respondent's failure to file a Reply and deny the Dacion and Confirmation Statement under oath constitute a judicial admission of the genuineness and due execution of these documents.

Section 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.

Petitioner argued that since respondent failed to file a Reply, in effect, respondent admitted the genuineness and due execution of said documents.

On appeal to the CA, respondent claimed that even though it failed to file a Reply, all the new matters alleged in the Answer are deemed controverted anyway, pursuant to Rule 6, Section 10:

Section 10. Reply. — A reply is a pleading, the office or function of which is to deny, or allege facts in denial or avoidance of new matters alleged by way of defense in the answer and thereby join or make issue as to such new matters. If a party does not file such reply, all the new matters alleged in the answer are deemed controverted.

We agree with petitioner. Rule 8, Section 8 specifically applies to actions or defenses founded upon a written instrument and provides the manner of denying it. It is more controlling than Rule 6, Section 10 which merely provides the effect of failure to le a Reply. Thus, where the defense in the Answer is based on an actionable document, a Reply specifically denying it under oath must be made; otherwise, the genuineness and due execution of the document will be deemed admitted.

Since respondent failed to deny the genuineness and due execution of the Dacion and Confirmation Statement under oath, then these are deemed admitted and must be considered by the court in resolving the demurrer to evidence. We held that "[w]hen the due execution and genuineness of an instrument are deemed admitted because of the adverse party's failure to make a specific verified denial thereof, the instrument need not be presented formally in evidence for it may be considered an admitted fact."

 

2. No, the Dacion and Confirmation Statement did not sufficiently prove that petitioner's liability was extinguished.

 

Respondent asserts that the admission of the genuineness and due execution of the documents in question is not all encompassing as to include admission of the allegations and defenses pleaded in petitioner's Answer. In executing the Dacion, the intention of the parties was to settle only the loans of petitioner with respondent, not the obligation of petitioner arising from the promissory notes that were assigned by Rare Realty to respondent.

 

We agree. Admission of the genuineness and due execution of the Dacion and Confirmation Statement does not prevent the introduction of evidence showing that the Dacion excludes the promissory notes. Petitioner, by way of defense, should have presented evidence to show that the Dacion includes the promissory notes.

 

The promissory notes matured in June 1985, and Rare Realty assigned these promissory notes to respondent through a Deed of Assignment dated August 8, 1986. the promissory notes were given as security for the loan granted by respondent to Rare Realty. Thus, when petitioner and respondent executed the Dacion on August 27, 1986, what was then covered was petitioner's loan from the bank.

 

The language of the Dacion is unequivocal — the property serves in full satisfaction of petitioner's own indebtedness to respondent, referring to the loan of PhP3,921,750. For this reason, the bank issued a Confirmation Statement saying that petitioner has no unpaid obligations with the bank as of December 31, 1988. In 1989, however, Rare Realty defaulted in its payment to respondent. Thus, respondent proceeded against the security assigned to it, that is, the promissory notes issued by the petitioner. Under these promissory notes, petitioner is liable for the amount of PhP300,000 with an interest of 36% per annum and a penalty of 12% for failure to pay on the maturity date, June 27, 1985; and for the amount of PhP681,500 with an interest of 18% per annum and a penalty of 12% for failure to pay on the maturity date, June 25, 1985

WHEREFORE, the March 29, 2001 Decision and November 7, 2001 Resolution of the CA are AFFIRMED. Costs against petitioner.