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

When an action is founded upon a written instrument, its genuineness and due execution are deemed admitted unless the adverse party, under oath, specifically denies them and sets forth what they claim to be the facts; a general denial qualified by the word "specifically" or coupled with conclusions like "self-serving" does not suffice.

Go Tong Electrical obtained a loan from DBS Bank (successor-in-interest to Bank of South East Asia). As additional security, its president, Go, executed a CSA binding himself solidarity to the obligation. Upon default, DBS (later substituted by respondent BPI Family Savings Bank) demanded payment and subsequently filed a collection suit.

• Original Filing: RTC of Makati City, Branch 143, Civil Case No. 02-1203 (Collection of Sum of Money)
• Lower Court Decision: September 6, 2005 — RTC ruled in favor of respondent, ordering petitioners to pay jointly and severally the principal, 1% per month penalty interest, and attorney's fees.
• Appeal: Petitioners appealed to the CA (CA-G.R. CV No. 86749).
• CA Decision: February 17, 2009 — CA affirmed the RTC ruling in toto.
• SC Action: Petition for Review on Certiorari filed after the CA denied petitioners' motion for reconsideration.

• The Loan Accommodation: In 1996, Go Tong Electrical secured financial assistance from Bank of South East Asia (BSA), later acquired by DBS Bank. On January 6, 1999, the accommodation was renewed via a Credit Agreement. Go Tong Electrical executed a PN for P40,491,051.65 maturing on February 5, 2000, stipulating a 20% per annum interest for the initial period, a 1% per month default penalty, and 25% attorney's fees.
• The Surety Agreement: On the same date, Go executed a CSA binding himself solidarity to Go Tong Electrical's obligations.
• Default and Demand: Petitioners defaulted. DBS, and later respondent BPI, demanded payment, which went unheeded.
• The Answer: In their Answer with Counterclaim, petitioners "specifically denied" the execution of the loan documents, dismissing them as "self-serving and pure conclusions intended to suit [respondent's] purposes." They argued respondent was not the real party-in-interest, no demand was made, and Go was not solidarily liable.
• Trial Evidence: Respondent's witness, Suñio, identified a Statement of Account showing a total obligation of P121,106,138.13, which already factored in a partial payment of P1,877,286.08 made on June 16, 2004. Suñio admitted he did not witness the execution of the PN. Petitioners' witness, Lim, claimed partial payments were made in dollars but could not specify the amounts.

• Respondent's sole witness was incompetent to testify on the loan documents' authenticity because he lacked personal knowledge of their execution.
• Go cannot be held solidarily liable under the CSA because there was supposedly no solidarity of debtors.
• Respondent is not the real party-in-interest.
• No demand was made upon them.

• Petitioners impliedly admitted the genuineness and due execution of the loan documents by failing to specifically deny them under oath as required by Section 8, Rule 8 of the Rules of Court.
• Go is solidarily liable as a surety under the CSA.
• Petitioners defaulted on the loan obligation.

• Procedural Issues: Whether the genuineness and due execution of the loan documents were deemed admitted due to petitioners' failure to comply with the specific denial under oath requirement under Section 8, Rule 8 of the Rules of Court.
• Substantive Issues: Whether Go is solidarily liable under the CSA; whether petitioners' defense of payment holds; what the proper computation of interest and penalties should be.

• Procedural: The SC ruled that petitioners' denial was ineffective. Stating they "specifically deny" the documents for being "self-serving" are mere conclusions of law and do not comply with Section 8, Rule 8. A general denial does not become specific simply by using the word "specifically." Because petitioners failed to deny under oath and set forth the facts, the loan documents' genuineness and due execution were deemed admitted. Consequently, respondent's witness did not need to authenticate the documents, as their execution was already admitted.
• Substantive:
  • Go is solidarily liable. Under Article 2047 of the Civil Code, a surety binds himself solidarity with the principal obligor. The CSA makes Go a regular party to the undertaking.
  • The defense of payment failed. One who pleads payment bears the burden of proving it. Petitioners' witness failed to prove the amount paid. Furthermore, possession of the credit documents by the creditor raises a presumption of non-payment.
  • The SC modified the monetary award. First, the partial payment of P1,877,286.08 must be deducted from the principal. Second, the 20% per annum stipulated interest applies from January 6, 1999, to February 5, 2000 (initial period). Third, the reduced interest of 1% per month and penalty of 1% per month apply from February 5, 2000, until full payment, computed based on the full principal until the partial payment date, and the net principal thereafter.

• Specific Denial under Oath of Actionable Documents (Section 8, Rule 8) — When an action is founded on a written instrument, its genuineness and due execution are deemed admitted unless the adverse party, under oath, specifically denies them and sets forth what they claim to be the facts. A denial is not specific simply because it is qualified by the defendant; a general denial does not become specific by the use of the word "specifically" or by coupling it with conclusions like "self-serving."
• Admission of Genuineness and Due Execution — Means the party admits they voluntarily signed the document, it was in words and figures exactly as set out, it was delivered, and formalities are waived. It eliminates defenses relating to authenticity, such as the document being spurious, counterfeit, or bearing unauthorized or forged signatures.
• Burden of Proof for Payment — One who pleads payment has the burden of proving it. The creditor in possession of the document of credit need not prove non-payment as it is presumed.
• Nature of Suretyship (Article 2047, Civil Code) — A surety undertakes to be bound solidarity with the principal debtor. Although the contract is secondary to the principal obligation, the surety assumes liability as a regular party to the undertaking.

• Section 8, Rule 8 of the Rules of Court — Governs how to contest actionable documents. Applied to hold that petitioners impliedly admitted the loan documents by failing to specifically deny them under oath.
• Section 20, Rule 132 of the Rules of Court — Requires proof of due execution and authenticity for private documents before reception as evidence. The SC clarified this requirement is dispensed with when documents are deemed admitted under Section 8, Rule 8.
• Article 2047 of the Civil Code — Defines guaranty and suretyship. Applied to hold Go solidarily liable as a surety under the CSA.