Go Tong Electrical Supply Co., Inc. vs. BPI Family Savings Bank, Inc.

A defendant who fails to make a specific denial under oath of the genuineness and due execution of an actionable document, as required by Section 8, Rule 8 of the Rules of Court, is deemed to have admitted the document's authenticity, thereby waiving defenses relating to forgery or unauthorized execution; furthermore, a surety under Article 2047 of the Civil Code binds himself solidarily with the principal obligor, making him jointly and severally liable for the entire obligation despite the contract's ancillary nature.

Go Tong Electrical Supply Co., Inc. obtained financial assistance from DBS Bank (which later merged with BPI Family Savings Bank, the respondent) in 1999 to finance its business operations. As additional security for the loan, George C. Go, the company's president, executed a Comprehensive Surety Agreement covering all obligations of the corporation. Upon default, the bank filed a collection suit. The defendants denied executing the loan documents and claimed that no demand was made, while asserting that the surety could not be held solidarily liable with the principal debtor.

• Go Tong Electrical Supply Co., Inc. applied for and was granted financial assistance by the Bank of South East Asia (BSA) as early as 1996, which was subsequently renewed on January 6, 1999 through a Credit Agreement with DBS Bank (successor-in-interest of BSA).
• On January 6, 1999, Go Tong Electrical obtained a loan in the principal amount of P40,491,051.65, for which it executed Promissory Note No. 82-91-00176-7 maturing on February 5, 2000, with a stipulated interest rate of 20% per annum for the initial period and default penalty interest of 1% per month in addition to the current interest rate.
• As additional security, George C. Go executed a Comprehensive Surety Agreement (CSA) dated January 6, 1996, covering any and all obligations undertaken by Go Tong Electrical, binding himself to pay upon demand any indebtedness of the corporation.
• BPI Family Savings Bank later became the successor-in-interest of DBS Bank through a merger.
• Upon maturity of the obligation, petitioners failed to pay despite written demands dated July 1, 2002 and July 12, 2002, prompting respondent to file a collection complaint on October 4, 2002.
• In their Answer with Counterclaim dated December 19, 2002, petitioners merely stated that they "specifically deny" the allegations of the complaint "for being self-serving and pure conclusions intended to suit plaintiff's purposes," without specifically denying the genuineness and due execution of the Credit Agreement, Promissory Note, and CSA under oath.
• Petitioners raised affirmative defenses claiming that respondent was not the real party-in-interest, no demand was made upon them, and that Go could not be held liable under the CSA since there was supposedly no solidarity of debtors.
• During trial, respondent presented Ricardo O. Suñio, the Account Officer handling the loan accounts, who identified a Statement of Account showing a partial payment of P1,877,286.08 made on June 16, 2004.
• Suñio admitted on cross-examination that he had no personal knowledge of how the Promissory Note was prepared, executed, and signed, nor did he witness its signing.
• Petitioners presented Jocelyn Antonette Lim, Finance Officer of Go Tong Electrical, who testified that partial payments were made in dollars but admitted she did not know the amounts paid nor had any rough estimate thereof.

• The defendants "specifically deny" the execution of the Credit Agreement, Promissory Note, and Comprehensive Surety Agreement, claiming these were "self-serving and pure conclusions intended to suit plaintiff's purposes."
• Respondent is not the real party-in-interest; the real party should be DBS Bank, not BPI Family Savings Bank.
• No demand was made upon petitioners before the filing of the complaint.
• George C. Go cannot be held solidarily liable under the Comprehensive Surety Agreement because there was no solidarity of debtors, and the CSA did not create solidary liability.
• The testimony of respondent's witness Suñio should be disregarded as he was incompetent to testify on the loan documents due to lack of personal knowledge of their execution.
• Petitioners claimed they had partially paid the loan obligation, albeit in dollars, and thus should not be held liable for the full amount.

• Petitioners failed to specifically deny under oath the genuineness and due execution of the actionable documents as required by Section 8, Rule 8 of the Rules of Court; thus, the documents are deemed admitted and need no further authentication.
• As the surviving corporation in the merger with DBS Bank, respondent is the successor-in-interest and a real party-in-interest with the right to enforce the loan obligation.
• Demand was unnecessary because the Credit Agreement and Promissory Note contained express waivers of presentment for payment, demand, and notice of dishonor.
• George C. Go is solidarily liable as surety under Article 2047 of the Civil Code, having bound himself in the CSA to pay "upon demand" any indebtedness of Go Tong Electrical.
• The burden of proving payment rests on petitioners, which they failed to discharge; respondent's possession of the documents of credit raises a presumption of non-payment.
• Suñio was competent to testify as the Account Officer with legal custody of the loan documents, and his testimony was sufficient to establish the existence and amount of the obligation.

• Procedural:
  • Whether the Court of Appeals erred in upholding the admission of the loan documents in evidence despite the alleged incompetence of respondent's witness to testify on their execution.
• Substantive Issues:
  • Whether petitioners are deemed to have admitted the genuineness and due execution of the Credit Agreement, Promissory Note, and Comprehensive Surety Agreement under Section 8, Rule 8 of the Rules of Court.
  • Whether George C. Go is solidarily liable with Go Tong Electrical Supply Co., Inc. under the Comprehensive Surety Agreement.
  • Whether petitioners successfully proved partial payment of the loan obligation.
  • Whether the interest and penalty rates imposed are proper and unconscionable.

• Procedural:
  • The Court held that the Court of Appeals did not err. Since petitioners failed to comply with the specific denial under oath requirement of Section 8, Rule 8 of the Rules of Court, the genuineness and due execution of the loan documents were deemed admitted. Consequently, the competence of respondent's witness to testify regarding the execution of said documents became irrelevant, as authentication was no longer necessary once the documents were impliedly admitted.
• Substantive:
  • Admission of Documents: The Court ruled that petitioners' Answer failed to specifically deny under oath the genuineness and due execution of the actionable documents. The mere statement that they "specifically deny" the allegations "for being self-serving" did not constitute an effective specific denial as it lacked the required oath and specific statement of facts. Thus, the documents were deemed admitted, eliminating defenses relating to authenticity, forgery, or unauthorized execution.
  • Surety's Liability: Under Article 2047 of the Civil Code, a surety undertakes to be bound solidarily with the principal obligor. The Comprehensive Surety Agreement executed by George C. Go clearly established his liability as a surety, making him solidarily liable with Go Tong Electrical for the loan obligation despite the surety contract's ancillary nature.
  • Partial Payment: While petitioners claimed partial payment, they failed to discharge the burden of proving it. However, the Court deducted the amount of P1,877,286.08 admitted by respondent in its Statement of Account from the principal obligation of P40,491,051.65.
  • Interest and Penalties: The Court upheld the stipulated 20% per annum interest for the initial period (January 6, 1999 to February 5, 2000). The reduced rate of 1% per month for interest and 1% per month for penalty was upheld, but computed based on the full principal until the date of partial payment (June 16, 2004), and thereafter on the reduced principal amount of P38,613,765.57.

• Specific Denial Under Oath (Section 8, Rule 8 of the Rules of Court) — To contest the genuineness and due execution of an actionable document, the defendant must declare under oath that he did not sign the document or that it is false or fabricated, and must set forth the facts supporting this claim. A general denial, even couched as "specific," without the required oath and factual averment results in implied admission of the document's authenticity, effectively eliminating defenses relating to forgery, lack of authority, or different import.
• Suretyship (Article 2047 of the Civil Code) — A surety undertakes to be bound solidarily with the principal obligor. While a contract of suretyship is in essence secondary and ancillary to a valid principal obligation, the surety assumes liability as a regular party to the undertaking, despite receiving no direct benefit from the obligation.
• Burden of Proof in Civil Cases (Jison v. CA) — He who alleges the affirmative of the issue has the burden of proof. Once the plaintiff makes out a prima facie case, the burden of evidence shifts to the defendant to controvert it; otherwise, a verdict must be returned in favor of the plaintiff. In civil cases, the party having the burden of proof must produce a preponderance of evidence.

• "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.' 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 plaintiff's purposes.'"
• "The 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... 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."
• "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 solidarily 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." (quoting Article 2047 of the Civil Code)

• Permanent Savings & Loan Bank v. Velarde — Cited for the rule on how to deny the genuineness and due execution of actionable documents under Section 8, Rule 8, and the effect of implied admission on the need for authentication.
• Songco v. Sellner — Cited for the proposition that a denial must declare under oath that the defendant did not sign or that the document is false or fabricated.
• Jison v. CA — Cited for the principle on burden of proof and preponderance of evidence in civil cases.
• Asset Builders Corp. v. Stronghold Insurance Company, Inc. — Cited for the definition and nature of suretyship under Article 2047 of the Civil Code.
• Agner v. BPI Family Savings Bank, Inc. — Cited for the rule that when the creditor is in possession of the document of credit, proof of non-payment is not needed for it is presumed.
• Camitan v. CA — Cited for the rule that a general denial does not become specific by the use of the word "specifically."
• Villanueva v. CA — Cited for the validity of stipulated interest rates and the criteria for determining unconscionability.

• Article 2047 of the Civil Code — Defines guaranty and suretyship, providing that if a person binds himself solidarily with the principal debtor, the contract is called a suretyship.
• Section 8, Rule 8 of the Rules of Court — Governs the specific denial under oath required to contest the genuineness and due execution of written instruments.
• Section 20, Rule 132 of the Rules of Court — Provides for the proof of private documents, requiring due execution and authenticity to be proved before reception in evidence (requirement deemed satisfied by implied admission under Section 8, Rule 8).