G.R. NO.

207970

FERNANDO MEDICAL ENTERPRISES, INC., Petitioner,

vs.
WESLEYAN UNIVERSITY PHILIPPINES, INC., Respondent.

DECISION

BERSAMIN, J.:

The trial court may render a judgment on the pleadings upon motion of the claiming party
when the defending party's answer fails to tender an issue, or otherwise admits the material
allegations of the adverse party's pleading. For that purpose, only the pleadings of the
parties in the action are considered. It is error for the trial court to deny the motion for
judgment on the pleadings because the defending party's pleading in another case
supposedly tendered an issue of fact.

The Case

The petitioner appeals the decision promulgated on July 2, 2013,1 whereby the Court of
Appeals (CA) affirmed the order issued on November 23, 2011 by the Regional Trial Court
(RTC), Branch 1, in Manila, denying its motion for judgment on the pleadings in Civil Case
No. 09-122116 entitled Fernando Medical Enterprises, Inc. v. Wesleyan University-
Philippines.2

Antecedents

From January 9, 2006 until February 2, 2007, the petitioner, a domestic corporation dealing
with medical equipment and supplies, delivered to and installed medical equipment and
supplies at the respondent’s hospital under the following contracts:

a. Memorandum of Agreement dated January 9, 2006 for the supply of medical

equipment in the total amount of P18,625,000.00;3

b. Deed of Undertaking dated July 5, 2006 for the installation of medical gas pipeline
system valued at P8,500,000.00;4

c. Deed of Undertaking dated July 27, 2006 for the supply of one unit of Diamond
Select Slice CT and one unit of Diamond Select CV-P costing P65,000,000.00;5 and

d. Deed of Undertaking dated February 2, 2007 for the supply of furnishings and
equipment worth P32,926,650.00.6

According to the petitioner, the respondent paid only P67,357,683.23 of its total obligation of
P123,901,650.00, leaving unpaid the sum of P54,654,195.54.7 However, on February 11,
2009, the petitioner and the respondent, respectively represented by Rafael P. Fernando and
Guillermo T. Maglaya, Sr., entered into an agreement,8 whereby the former agreed to reduce
its claim to only P50,400,000.00, and allowed the latter to pay the adjusted obligation on
installment basis within 36 months.9
In the letter dated May 27, 2009,10 the respondent notified the petitioner that its new
administration had reviewed their contracts and had found the contracts defective and
rescissible due to economic prejudice or lesion; and that it was consequently declining to
recognize the February 11, 2009 agreement because of the lack of approval by its Board of
Trustees and for having been signed by Maglaya whose term of office had expired.

On June 24, 2009, the petitioner sent a demand letter to the respondent.11

Due to the respondent’s failure to pay as demanded, the petitioner filed its complaint for sum
of money in the RTC,12averring as follows:

xxxx

2. On January 9, 2006, plaintiff supplied defendant with hospital medical equipment

for an in consideration of P18,625,000.00 payable in the following manner: (2.1) For
nos. 1 to 9 of items to be sourced from Fernando Medical Equipment, Inc. (FMEI) –
30% down payment of P17,475,000 or P5,242,500 with the balance of P12,232,500
or 70% payable in 24 equal monthly instalments of P509,687.50 and (2.2.) cash
transaction amounting to P1,150,000.00 (2.3) or an initial cash payment of
P6,392,500.00 with the remaining balance payable in 24 equal monthly installments
every 20th day of each month until paid, as stated in the Memorandum of
Agreement, copy of which is hereto attached as Annex "A";

3. On July 5, 2006, plaintiff installed defendants medical gas pipeline system in the
latter’s hospital building complex for and in consideration of P8,500,000.00 payable
upon installation thereof under a Deed of Undertaking, copy of which is hereto
attached as Annex "B";

4. On July 27, 2006, plaintiff supplied defendant one (1) unit Diamond Select Slice
CT and one (1) unit Diamond Select CV-9 for and in consideration of P65,000,000.00
thirty percent (30%) of which shall be paid as down payment and the balance in 30
equal monthly instalments as provided in that Deed of Undertaking, copy of which is
hereto attached as Annex "C";

5. On February 2, 2007, plaintiff supplied defendants hospital furnishings and

equipment for an in consideration of P32,926,650.00 twenty percent (20%) of which
was to be paid as downpayment and the balance in 30 months under a Deed of
Undertaking, copy of which is hereto attached as Annex "D";

6. Defendant’s total obligation to plaintiff was P123,901,650.00 as of February 15,

2009, but defendant was able to pay plaintiff the sum of P67,357,683.23 thus leaving
a balance P54,654,195.54 which has become overdue and demandable;

7. On February 11, 2009, plaintiff agreed to reduce its claim to only P50,400,000.00
and extended its payment for 36 months provided defendants shall pay the same
within 36 months and to issue 36 postdated checks therefor in the amount of
P1,400,000.00 each to which defendant agreed under an Agreement, copy of which
is hereto attached as Annex "E";

8. Accordingly, defendant issued in favor of plaintiff 36 postdated checks each in the

[a]mount of P1,400,000.00 but after four (4) of the said checks in the sum of
P5,600,000.00 were honored defendant stopped their payment thus making the
 entire obligation of defendant due and demandable under the February 11, 2009
agreement;

9. In a letter dated May 27, 2009, defendant claimed that all of the first four (4)
agreements may be rescissible and one of them is unenforceable while the
Agreement dated February 11, 2009 was without the requisite board approval as it
was signed by an agent whose term of office already expired, copy of which letter is
hereto attached as Annex "F";

10. Consequently, plaintiff told defendant that if it does not want to honor the
February 11, 2009 contract then plaintiff will insists [sic] on its original claim which is
P54,654,195.54 and made a demand for the payment thereof within 10 days from
receipt of its letter copy of which is hereto attached as Annex "G";

11. Defendant received the aforesaid letter on July 6, 2009 but to date it has not paid
plaintiff any amount, either in the first four contracts nor in the February 11, 2009
agreement, hence, the latter was constrained to institute the instant suit and thus
incurred attorney’s fee equivalent to 10% of the overdue account but only after
endeavouring to resolve the dispute amicable and in a spirit of friendship[;]

12. Under the February 11, 2009 agreement the parties agreed to bring all actions or
proceedings thereunder or characterized therewith in the City of Manila to the
exclusion of other courts and for defendant to pay plaintiff 3% per months of delay
without need of demand;13

xxxx

The respondent moved to dismiss the complaint upon the following grounds,14 namely: (a)
lack of jurisdiction over the person of the defendant; (b) improper venue; (c) litis pendentia;
and (d) forum shopping. In support of the ground of litis pendentia, it stated that it had earlier
filed a complaint for the rescission of the four contracts and of the February 11, 2009
agreement in the RTC in Cabanatuan City; and that the resolution of that case would be
determinative of the petitioner’s action for collection.15

After the RTC denied the motion to dismiss on July 19, 2009,16 the respondent filed its
answer (ad cautelam),17averring thusly:

xxxx

2. The allegations in Paragraphs Nos. 2, 3, 4, and 5 of the complaint are ADMITTED

subject to the special and affirmative defenses hereafter pleaded;

3. The allegations in Paragraphs Nos. 6, 7 and 8 of the complaint are DENIED for
lack of knowledge or information sufficient to form a belief as to the truth or falsity
thereof, inasmuch as the alleged transactions were undertaken during the term of
office of the past officers of defendant Wesleyan University-Philippines. At any rate,
these allegations are subject to the special and affirmative defenses hereafter
pleaded;

4. The allegations in Paragraphs Nos. 9 and 10 of the complaint are ADMITTED

subject to the special and affirmative defenses hereafter pleaded;
 5. The allegations in Paragraphs Nos. 11 and 12 of the complaint are DENIED for
being conclusions of law.18

xxxx

The petitioner filed its reply to the answer.19

On September 28, 2011, the petitioner filed its Motion for Judgment Based on the
Pleadings,20 stating that the respondent had admitted the material allegations of its complaint
and thus did not tender any issue as to such allegations.

The respondent opposed the Motion for Judgment Based on the Pleadings, arguing that it
had specifically denied the material allegations in the complaint, particularly paragraphs 6, 7,
8, 11 and 12.21

On November 23, 2011, the RTC issued the order denying the Motion for Judgment Based
on the Pleadings of the petitioner, to wit:

At the hearing of the "Motion for Judgment Based on the Pleadings" filed by the plaintiff thru
counsel, Atty. Jose Mañacop on September 28, 2011, the court issued an Order dated
October 27, 2011 which read in part as follows:

xxxx

Considering that the allegations stated on the Motion for Judgment Based on the Pleadings,
are evidentiary in nature, the Court, instead of acting on the same, hereby sets this case for
pre-trial, considering that with the Answer and the Reply, issues have been joined.

xxxx

In view therefore of the Order of the Court dated October 27, 2011, let the Motion for
Judgment Based on the Pleadings be hereby ordered DENIED on reasons as abovestated
and hereto reiterated.

xxxx

SO ORDERED.22

The petitioner moved for reconsideration,23 but its motion was denied on December 29,
2011.24

The petitioner assailed the denial in the CA on certiorari.25

Judgment of the CA

On July 2, 2013, the CA promulgated its decision. Although observing that the respondent
had admitted the contracts as well as the February 11, 2009 agreement, viz.:

It must be remembered that Private Respondent admitted the existence of the subject
contracts, including Petitioner’s fulfilment of its obligations under the same, but subjected the
said admission to the "special and affirmative defenses" earlier raised in its Motion to
Dismiss.

xxxx

Obviously, Private Respondent’s special and affirmative defenses are not of such character
as to avoid Petitioner’s claim. The same special and affirmative defenses have been passed
upon by the RTC in its Order dated July 19, 2010 when it denied Private Respondent’s
Motion to Dismiss. As correctly found by the RTC, Private Respondent’s special and
affirmative defences of lack of jurisdiction over its person, improper venue, litis pendentia
and wilful and deliberate forum shopping are not meritorious and cannot operate to dismiss
Petitioner’s Complaint. Hence, when Private Respondent subjected its admission to the said
defenses, it is as though it raised no defense at all.

Not even is Private Respondent’s contention that the rescission case must take precedence
over Petitioner’s Complaint for Sum of Money tenable. To begin with, Private Respondent
1av vphi1

had not yet proven that the subject contracts are rescissible. And even if the subject
contracts are indeed rescissible, it is well-settled that rescissible contracts are valid contracts
until they are rescinded. Since the subject contracts have not yet been rescinded, they are
deemed valid contracts which may be enforced in legal contemplation.

In effect, Private Respondent admitted that it entered into the subject contracts and that
Petitioner had performed its obligations under the same.

As regards Private Respondent’s denial by disavowal of knowledge of the Agreement dated

February 11, 2009, We agree with Petitioner that such denial was made in bad faith because
such allegations are plainly and necessarily within its knowledge.

In its letter dated May 27, 2009, Private Respondent made reference to the Agreement dated
February 11, 2009, viz.:

"The Agreement dated 11 February 2009, in particular, was entered into by an Agent of the
University without the requisite authority from the Board of Trustees, and executed when
said agent’s term of office had already expired. Consequently, such contract is, being an
unenforceable contract."

Also, Private Respondent averred in page 5 of its Complaint for Rescission, which it attached
to its Motion to Dismiss, that:

"13. On 6 February 2009, when the terms of office of plaintiff’s Board of Trustess chaired by
Dominador Cabasal, as well as of Atty. Guillermo C. Maglaya as President, had already
expired, thereby rendering them on a hold-over capacity, the said Board once again
authorized Atty. Maglaya to enter into another contract with defendant FMEI, whereby the
plaintiff was obligated to pay and deliver to defendant FMEI the amount of Fifty Million Four
Hundred Thousand Pesos (Php50,400,000.00) in thirty five (35) monthly instalments of One
Million Four Hundred Thousand Pesos (Php1,400,000.00), representing the balance of the
payment for the medical equipment supplied under the afore-cited rescissible contracts. This
side agreement, executed five (5) days later, or on 11 February 2009, and denominated as
"AGREEMENT", had no object as a contract, but was entered into solely for the purpose of
getting the plaintiff locked-in to the payment of the balance price under the rescissible
contracts; x x x"
From the above averments, Private Respondent cannot deny knowledge of the Agreement
dated February 11, 2009. In one case, it was held that when a respondent makes a "specific
denial" of a material allegation of the petition without setting forth the substance of the
matters relied upon to support its general denial, when such matters where plainly within its
knowledge and the defendant could not logically pretend ignorance as to the same, said
defendant fails to properly tender an issue.26

the CA ruled that a judgment on the pleadings would be improper because the outstanding
balance due to the petitioner remained to be an issue in the face of the allegations of the
respondent in its complaint for rescission in the RTC in Cabanatuan City, to wit:

However, Private Respondent’s disavowal of knowledge of its outstanding balance is well-

taken. Paragraph 6 of Petitioner’s Complaint states that Private Respondent was able to pay
only the amount of P67,357,683.23. Taken together with paragraph 8, which states that
Private Respondent was only able to make good four (4) check payments worth
P1,400,000.00 or a total of P5,600,000.00, Private Respondent’s total payments would be, in
Petitioner’s view, P72,957,683.23. However, in its Complaint for Rescission, attached to its
Motion to Dismiss Petitioner’s Complaint for Sum of Money, Private Respondent alleged that:

"16. To date, plaintiff had already paid defendant the amount of Seventy Eight Million Four
Hundred One Thousand Six Hundred Fifty Pesos (P78,401,650.00)"

It is apparent that Private Respondent’s computation and Petitioner’s computation of the total
payments made by Private Respondent are different. Thus, Private Respondent tendered an
issue as to the amount of the balance due to Petitioner under the subject contracts.27

Hence, this appeal.

Issue

The petitioner posits that the CA erred in going outside of the respondent’s answer by relying
on the allegations contained in the latter’s complaint for rescission; and insists that the CA
should have confined itself to the respondent’s answer in the action in order to resolve the
petitioner’s motion for judgment based on the pleadings. 1âwphi 1

In contrast, the respondent contends that it had specifically denied the material allegations of
the petitioner’s complaint, including the amount claimed; and that the CA only affirmed the
previous ruling of the RTC that the pleadings submitted by the parties tendered an issue as
to the balance owing to the petitioner.

Did the CA commit reversible error in affirming the RTC’s denial of the petitioner’s motion for
judgment on the pleadings?

Ruling of the Court

The appeal is meritorious.

The rule on judgment based on the pleadings is Section 1, Rule 34 of the Rules of Court,
which provides thus:
Section 1. Judgment on the pleadings. – Where an answer fails to tender an issue, or
otherwise admits the material allegations of the adverse party’s pleading, the court may, on
motion of that party, direct judgment on such pleading. x x x

The essential query in resolving a motion for judgment on the pleadings is whether or not
there are issues of fact generated by the pleadings.28 Whether issues of fact exist in a case
or not depends on how the defending party’s answer has dealt with the ultimate facts alleged
in the complaint. The defending party’s answer either admits or denies the allegations of
ultimate facts in the complaint or other initiatory pleading. The allegations of ultimate facts
the answer admit, being undisputed, will not require evidence to establish the truth of such
facts, but the allegations of ultimate facts the answer properly denies, being disputed, will
require evidence.

The answer admits the material allegations of ultimate facts of the adverse party’s pleadings
not only when it expressly confesses the truth of such allegations but also when it omits to
deal with them at all.29 The controversion of the ultimate facts must only be by specific denial.
Section 10, Rule 8 of the Rules of Court recognizes only three modes by which the denial in
the answer raises an issue of fact. The first is by the defending party specifying each
material allegation of fact the truth of which he does not admit and, whenever practicable,
setting forth the substance of the matters upon which he relies to support his denial. The
second applies to the defending party who desires to deny only a part of an averment, and
the denial is done by the defending party specifying so much of the material allegation of
ultimate facts as is true and material and denying only the remainder. The third is done by
the defending party who is without knowledge or information sufficient to form a belief as to
the truth of a material averment made in the complaint by stating so in the answer. Any
material averment in the complaint not so specifically denied are deemed admitted except an
averment of the amount of unliquidated damages.30

In the case of a written instrument or document upon which an action or defense is based,
which is also known as the actionable document, the pleader of such document is required
either to set forth the substance of such instrument or document in the pleading, and to
attach the original or a copy thereof to the pleading as an exhibit, which shall then be
deemed to be a part of the pleading, or to set forth a copy in the pleading.31 The adverse
party is deemed to admit the genuineness and due execution of the actionable document
unless he specifically denies them under oath, 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.32

In Civil Case No. 09-122116, the respondent expressly admitted paragraphs no. 2, 3, 4, 5, 9
and 10 of the complaint. The admission related to the petitioner’s allegations on: (a) the four
transactions for the delivery and installation of various hospital equipment; (b) the total
liability of the respondent; (c) the payments made by the respondents; (d) the balance still
due to the petitioner; and (e) the execution of the February 11, 2009 agreement. The
admission of the various agreements, especially the February 11, 2009 agreement,
significantly admitted the petitioner’s complaint. To recall, the petitioner’s cause of action was
based on the February 11, 2009 agreement, which was the actionable document in the case.
The complaint properly alleged the substance of the February 11, 2009 agreement, and
contained a copy thereof as an annex. Upon the express admission of the genuineness and
due execution of the February 11, 2009 agreement, judgment on the pleadings became
proper.33 As held in Santos v. Alcazar:34
There is no need for proof of execution and authenticity with respect to documents the
genuineness and due execution of which are admitted by the adverse party. With the
consequent admission engendered by petitioners’ failure to properly deny the
Acknowledgment in their Answer, coupled with its proper authentication, identification and
offer by the respondent, not to mention petitioners’ admissions in paragraphs 4 to 6 of their
Answer that they are indeed indebted to respondent, the Court believes that judgment may
be had solely on the document, and there is no need to present receipts and other
documents to prove the claimed indebtedness. The Acknowledgment, just as an ordinary
acknowledgment receipt, is valid and binding between the parties who executed it, as a
document evidencing the loan agreement they had entered into. The absence of rebutting
evidence occasioned by petitioners’ waiver of their right to present evidence renders the
Acknowledgment as the best evidence of the transactions between the parties and the
consequential indebtedness incurred. Indeed, the effect of the admission is such that a prima
facie case is made for the plaintiff which dispenses with the necessity of evidence on his part
and entitled him to a judgment on the pleadings unless a special defense of new matter,
such as payment, is interposed by the defendant.35 (citations omitted)

The respondent denied paragraphs no. 6, 7 and 8 of the complaint "for lack of knowledge or
information sufficient to form a belief as to the truth or falsity thereof, inasmuch as the
alleged transactions were undertaken during the term of office of the past officers of
defendant Wesleyan University-Philippines." Was the manner of denial effective as a specific
denial?

We answer the query in the negative. Paragraph no. 6 alleged that the respondent’s total
obligation as of February 15, 2009 was P123,901,650.00, but its balance thereafter became
only P54,654,195.54 because it had since then paid P67,357,683.23 to the petitioner.
Paragraph no. 7 stated that the petitioner had agreed with the respondent on February 11,
2009 to reduce the balance to only P50,400,000.00, which the respondent would pay in 36
months through 36 postdated checks of P1,400,000.00 each, which the respondent then
issued for the purpose. Paragraph no. 8 averred that after four of the checks totalling
P5,600,000.00 were paid the respondent stopped payment of the rest, rendering the entire
obligation due and demandable pursuant to the February 11, 2009 agreement. Considering
that paragraphs no. 6, 7 and 8 of the complaint averred matters that the respondent ought to
know or could have easily known, the answer did not specifically deny such material
averments. It is settled that denials based on lack of knowledge or information of matters
clearly known to the pleader, or ought to be known to it, or could have easily been known by
it are insufficient, and constitute ineffective36 or sham denials.37

That the respondent qualified its admissions and denials by subjecting them to its special
and affirmative defenses of lack of jurisdiction over its person, improper venue, litis
pendentia and forum shopping was of no consequence because the affirmative defenses, by
their nature, involved matters extrinsic to the merits of the petitioner’s claim, and thus did not
negate the material averments of the complaint.

Lastly, we should emphasize that in order to resolve the petitioner’s Motion for Judgment
Based on the Pleadings, the trial court could rely only on the answer of the respondent filed
in Civil Case No. 09-122116. Under Section 1, Rule 34 of the Rules of Court, the answer was
the sole basis for ascertaining whether the complaint’s material allegations were admitted or
properly denied. As such, the respondent’s averment of payment of the total of
P78,401,650.00 to the petitioner made in its complaint for rescission had no relevance to the
resolution of the Motion for Judgment Based on the Pleadings. The CA thus wrongly held
that a factual issue on the total liability of the respondent remained to be settled through trial
on the merits. It should have openly wondered why the respondent's answer in Civil Case
No. 09-122116 did not allege the supposed payment of the P78,401,650.00, if the payment
was true, if only to buttress the specific denial of its alleged liability. The omission exposed
the respondent's denial of liability as insincere.

WHEREFORE, the Court REVERSES and SETS ASIDE the decision promulgated on July 2,
2013; DIRECTS the Regional Trial Court, Branch 1, in Manila to resume its proceedings in
Civil Case No. 09-122116 entitled Fernando Medical Enterprises, Inc. v. Wesleyan
University-Philippines, and to forthwith act on and grant the Motion for Judgment Based on
the Pleadings by rendering the proper judgment on the pleadings; and ORDERS the
respondent to pay the costs of suit.

SO ORDERED.

G.R. No. 187487 June 29, 2015

GO TONG ELECTRICAL SUPPLY CO., INC. and GEORGE C. GO, Petitioners,

vs.
BPI FAMILY SAVINGS BANK, INC., substituted by PHILIPPINE INVESTMENT ONE
[SPV-AMC], INC.,*Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated February 17, 2009
and the Resolution3dated April 13, 2009 of the Court of Appeals (CA) in CA-G.R. CV No.
86749 which affirmed the Decision 4 dated September 6, 2005 of the Regional Trial Court of
Makati City, Branch 143 (RTC) in Civil Case No. 02-1203, an action for collection of sum of
money, rendered in favor of respondent BPI Family Savings Bank, Inc. (respondent).

The Facts

On October 4, 2002, respondent filed a complaint5against petitioners Go Tong Electrical

Supply Co., Inc. (Go Tong Electrical) and its President, George C. Go (Go; collectively
petitioners), docketed as Civil Case No. 02-1203, seeking that the latter be held jointly and
severally liable to it for the payment of their loan obligation in the aggregate amount of
₱87,086,398.71, inclusive of the principal sum, interests, and penalties as of May 28, 2002,
as well as attorney’s fees, litigation expenses, and costs of suit.6 As alleged by respondent
as early as 1996, Go Tong Electrical had applied for and was granted financial assistance by
the then Bank of South East Asia (BSA). Subsequently, DBS7 Bank of the Philippines, Inc.
(DBS) became the successor in interest of BSA. The application for financial assistance was
renewed on January 6, 1999 through a Credit Agreement.8 On even date, Go Tong
Electrical, represented by Go, among others, obtained a loan from DBS in the principal
amount of ₱40,491,051.65, for which Go Tong Electrical executed Promissory Note No. 82-
91-00176-79 (PN) for the same amount in favor of DBS, maturing on February 5,
200010 Under the PN’s terms, Go Tong Electrical bound itself to pay a default penalty interest
at the rate of one percent (1%) per month in addition to the current interest rate,11 as well as
attorney’s fees equivalent to twenty-five percent (25%) of the amount sought to be
recovered.12 As additional security, Go executed a Comprehensive Surety Agreement13 (CSA)
covering any and all obligations undertaken by Go Tong Electrical, including the aforesaid
loan.14 Upon default of petitioners, DBS – and later, its successor-in-interest, herein
respondent15 – demanded payment from petitioners,16 but to no avail,17 hence, the aforesaid
complaint.

In their Answer with Counterclaim18 (Answer), petitioners merely stated that they "specifically
deny" 19 the allegations under the complaint. Of particular note is their denial of the execution
of the loan agreement, the PN, and the CSA "for being self-serving and pure conclusions
intended to suit [respondent's] purposes."20 By way of special and affirmative defenses,
petitioners argued, among others, that: (a) the real party-in-interest should be DBS and not
respondent; (b) no demand was made upon them; and (c) Go cannot be held liable under the
CSA since there was supposedly no solidarity of debtors.21 Petitioners further interposed
counterclaims for the payment of moral and exemplary damages, as well as litigation and
attorney's fees in the total amount of ₱1,250,000.00.22During trial, respondent presented
Ricardo 0. Suñio23 (Suñio ), the Account Officer handling petitioners' loan accounts, as its
witness. Sunio attested to the existence of petitioners' loan obligation in favor of
respondent, 24 and identified a Statement of Account25 which shows the amount due as of
June 16, 2004 as follows:

SUMMARY
PRINCIPAL ₱40,491,051.65
PAST DUE INTEREST ₱31,437,800.28
PENALTY ₱47,473,042.27

SUB-TOTAL ₱119,401,894.20
PLUS
UNPAID INTEREST ₱1,805,507.21
UNPAID PENALTY ₱1,776,022.80

SUB-TOTAL ₱122,983,424.21
LESS: PAYMENTS -1,877,286.08

121,106,138.1326

On cross-examination, Suñio nonetheless admitted that he had no knowledge of how the PN

was prepared, executed, and signed, nor did he witness its signing27

For their part, petitioners presented Go Tong Electrical's Finance Officer, Jocelyn Antonette
Lim, who testified that Go Tong Electrical was able to pay its loan, albeit partially. However,
she admitted that she does not know how much payments were made, nor does she have a
rough estimate thereof, as these were allegedly paid for in dollars.28

The RTC Ruling

In a Decision29 dated September 6, 2005, the RTC ruled in favor of respondent, thereby
ordering petitioners to jointly and severally pay the former: (a) the principal sum of
₱40,491,051.65, with legal interest to be reckoned from the filing of the Complaint; ( b)
penalty interest of one percent (1 %) per month until the obligation is fully paid; and (c)
attorney's fees in the sum of ₱50,000.00.30
It found that respondent had amply demonstrated by competent evidence that it was entitled
to the reliefs it prayed for. Particularly, respondent's documentary evidence - the authenticity
of which the RTC observed to be undisputed - showed the existence of petitioners' valid and
demandable obligation. On the other hand, petitioners failed to discharge the burden of
proving that they had already paid the same, even partially. 31 Further, the RTC debunked
petitioners' denial of the demands made by respondent since, ultimately, the Credit
Agreement, PN, and CSA clearly stated that no demand was needed to render them in
default.32 Likewise, the argument that Go could not be held solidarily liable was not sustained
since he bound himself as a surety under the CSA, which was executed precisely to induce
respondent's predecessor-in-interest, DBS, to grant the loan. 33 Separately, the RTC found
the penalty interest at three percent (3%) per month sought by respondent to be patently
iniquitous and unconscionable and thus, was reduced to twelve percent(12%) per annum, or
one percent (1 %) per month. Attorney's fees were also tempered to the reasonable amount
of ₱50,000.00.34

Unconvinced, petitioners appealed35 to the CA.

The CA Ruling

In a Decision36 dated February 17, 2009, the CA sustained the RTC's ruling in toto, finding
the following facts to be beyond cavil: (a) that Go Tong Electrical applied for and was granted
a loan accommodation from DBS in the amount of ₱40,491,051.65 after the execution of the
Credit Agreement and the PN dated January 6, 1999, maturing on February 5, 2000; (b) that
as additional security, Go executed the CSA binding himself jointly and severally to pay the
obligation of Go Tong Electrical; and (c) that petitioners failed to pay the loan obligation upon
maturity, despite written demands from then DBS, now, herein respondent.37 In this relation,
the CA discredited petitioners' argument that respondent's sole witness, Suñio, was
incompetent to testify on the documentary evidence presented as he had no personal
knowledge of the loan documents' execution,38 given that petitioners, in their Answer, did not
deny under oath the genuineness and due execution of the PN and CSA and, hence, are
deemed admitted under Section 8, Rule 8 of the Rules of Court (Rules).39 Besides, the CA
observed that, despite the aforesaid admission, respondent still presented the testimony of
Suñio who, having informed the court that the loan documents were in his legal custody as
the designated Account Officer when DBS merged with herein respondent, had personal
knowledge of the existence of the loan documents. 40 It added that, although he was not privy
to the execution of the same, it does not significantly matter as their genuineness and due
execution were already admitted.41

Petitioners filed a motion for reconsideration,42 which was, however, denied in a

Resolution43 dated April 13, 2009, hence, this petition.

The Issue Before The Court

The issue for the Court's resolution is whether or not the CA erred in upholding the RTC's
ruling.

The Court's Ruling

The petition lacks merit. The Court concurs with the CA Decision holding that the
genuineness and due execution of the loan documents in this case were deemed admitted
by petitioners under the parameters of Section 8, Rule 8 of the Rules which provides:
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.

A reading of the Answer shows that petitioners failed to specifically deny the execution of the
Credit Agreement, PN, and CSA under the auspices of the above-quoted rule. The mere
statement in paragraph 4 of their Answer, i.e., that they "specifically deny" the pertinent
allegations of the Complaint "for being self-serving and pure conclusions intended to suit
plaintiffs purposes,"44 does not constitute an effective specific denial as contemplated by
law.45Verily, a denial is not specific simply because it is so qualified by the defendant. Stated
otherwise, a general denial does not become specific by the use of the word
"specifically."46 Neither does it become so by the simple expedient of coupling the same with
a broad conclusion of law that the allegations contested are "self-serving" or are intended "to
suit plaintiffs purposes."

In Permanent Savings & Loan Bank v. Velarde47 (Permanent Savings & Loan Bank), citing
the earlier case of Songco v. Sellner,48 the Court expounded on how to deny the genuineness
and due execution of an actionable document, viz.:

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.49

To add, Section 8, Rule 8 of the Rules further requires that the defendant "sets forth what he
claims to be the facts," which requirement, likewise, remains absent from the Answer in this
case.

Thus, with said pleading failing to comply with the "specific denial under oath" requirement
under Section 8, Rule 8 of the Rules, the proper conclusion, as arrived at by the CA, is that
petitioners had impliedly admitted the due execution and genuineness of the documents
evidencing their loan obligation to respondent.

To this, case law enlightens that "[t]he admission of the genuineness and due execution of a
document means that the party whose signature it bears admits that he voluntarily signed the
document or it was signed by another for him and with his authority; that at the time it was
signed it was in words and figures exactly as set out in the pleading of the party relying upon
it; that the document was delivered; and that any formalities required by law, such as a seal,
an acknowledgment, or revenue stamp, which it lacks, are waived by him. Also, it effectively
eliminated any defense relating to the authenticity and due execution of the document, e.g.,
that the document was spurious, counterfeit, or of different import on its face as the one
executed by the parties; or that the signatures appearing thereon were forgeries; or that the
signatures were unauthorized."50

Accordingly, with petitioners' admission of the genuineness and due execution of the loan
documents as above-discussed, the competence of respondent's witness Suñio to testify in
order to authenticate the same is therefore of no moment. As the Court similarly pointed out
in Permanent Savings & Loan Bank, "[w]hile Section [20],51 Rule 132 of the [Rules] requires
that private documents be proved of their due execution and authenticity before they can be
received in evidence, i.e., presentation and examination of witnesses to testify on this fact; in
the present case, there is no need for proof of execution and authenticity with respect to the
loan documents because of respondent's implied admission thereof."52

The Court clarifies that while the "[ f]ailure to deny the genuineness and due execution of an
actionable document does not preclude a party from arguing against it by evidence of fraud,
mistake, compromise, payment, statute of limitations, estoppel and want of consideration
[nor] bar a party from raising the defense in his answer or reply and prove at the trial that
there is a mistake or imperfection in the writing, or that it does not express the true
agreement of the parties, or that the agreement is invalid or that there is an intrinsic
ambiguity in the writing,"53 none of these defenses were adequately argued or proven during
the proceedings of this case.

Of particular note is the affirmative defense of payment raised during the proceedings a quo.
While petitioners insisted that they had paid, albeit partially, their loan obligation to
respondent, the fact of such payment was never established by petitioners in this case.
Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of
proving it; the burden rests on the defendant, i.e., petitioners, to prove payment, rather than
on the plaintiff, i.e., respondent, to prove non-payment. When the creditor is in possession of
the document of credit, proof of non-payment is not needed for it is presumed. 54 Here,
respondent's possession of the Credit Agreement, · PN, and CSA, especially with their
genuineness and due execution already having been admitted, cements its claim that the
obligation of petitioners has not been extinguished. Instructive too is the Court's disquisition
in Jison v. CA55 on the evidentiary burdens attendant in a civil proceeding, to wit:

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. Moreover, in civil cases, the party having the burden of
proof must produce a preponderance of evidence thereon, with plaintiff having to rely on the
strength of his own evidence and not upon the weakness of the defendant's. The concept of
"preponderance of evidence" refers to evidence which is of greater weight, or more
convincing, that which is offered in opposition to it; at bottom, it means probability of truth.56

Finally, the Court finds as untenable petitioners' theory on Go's supposed non-liability. As
established through the CSA, Go had clearly bound himself as a surety to Go Tong
Electrical's loan obligation. Thus, there is no question that Go's liability thereto is solidary
with the former. As provided in Article 204757 of the Civil Code, "the surety undertakes to be
bound solidarily with the principal obligor. That undertaking makes a surety agreement an
ancillary contract as it presupposes the existence of a principal contract. Although the
contract of a surety is in essence secondary only to a valid principal obligation, the surety
becomes liable for the debt or duty of another although it possesses no direct or personal
interest over the obligations nor does it receive any benefit therefrom. Let it be stressed that
notwithstanding the fact that the surety contract is secondary to the principal obligation, the
surety assumes liability as a regular party to the undertaking,"58 as Go in this case.

However, while petitioners' liability has been upheld in this case, the Court finds it proper to
modify the RTC's ruling, as affirmed by the CA, with respect to the following:
First, the partial payment made by Go Tong Electrical on June 16, 2004 in the amount of
₱1,877,286.08, as admitted by respondent through a Statement of Account,59 formally offered
as Exhibit "G" and duly identified by Suñio during trial, should be deducted from the principal
amount of ₱40,491,05 l .65 due respondent.

Second, with respect to the interests and penalties:

(a) petitioners should be held liable for the twenty percent (20%) per annum
stipulated interest rate reckoned 31 days from January 6, 1999, as agreed upon in
the PN,60 until its maturity date on February 5, 2000, which period is regarded as the
initial period in said PN. Said interest rate should be upheld as this was stipulated by
the parties, and the rate cannot be considered unconscionable.61 The same shall be
computed based on the entire principal amount due, i.e., ₱40,491,05 l.65, since the
records disclose that the admitted partial payment of Pl,877,286.08 was still unpaid
before the complaint was filed on October 4, 2002,62 or before the February 5, 2000
maturity date; and

(b) the reduced interest rate of one percent (1%) per month and penalty rate of one
percent (1%) per month are upheld,63 but should accrue from the PN's February 5,
2000 maturity date64 until June 16, 2004, or the date when the partial payment of
₱1,877,286.08 has been made by Go Tong Electrical, and computed based on the
entire principal amount of ₱40,491,051.65. Interest and penalty, at the same reduced
rate, due thereafter (i.e., from June 17, 2004 until full payment) shall be computed
based on the net amount of ₱38,613,765.57 (i.e., the amount arrived at after
deducting the partial payment of ₱1,877,286.08 from the principal amount of
₱40,491,051.65).

WHEREFORE, the petition is DENIED. The Decision dated February 17, 2009 and the
Resolution dated April 13, 2009 of the Court of Appeals in CA-G.R. CV No. 86749 are
hereby AFFIRMED with the above-stated MODIFICATIONS.

SO ORDERED.