Case Summary (G.R. No. 150731)
Pleadings and affirmative defenses raised by petitioner
In its Answer petitioner pleaded multiple defenses: lack of cause of action and various bar defenses (estoppel, statute of frauds, prescription, payment, release); that a Dacion en Pago executed on August 27, 1986, conveyed petitioner’s Iloilo property to respondent to extinguish petitioner’s indebtedness (stated as P3,921,750); a Confirmation Statement dated April 3, 1989 confirming no outstanding loans as of December 31, 1988; compliance with repurchase conditions; and estoppel based on respondent’s capital reduction in 1988. Petitioner also asserted a compulsory counterclaim for alleged overpayment and sought moral/exemplary damages and attorney’s fees.
Trial events and demurrer to evidence
After respondent presented its evidence, petitioner moved for judgment on demurrer to the evidence, arguing that respondent’s failure to file a Reply controverted by oath meant the Dacion and Confirmation Statement attached to petitioner’s Answer were judicially admitted as genuine and duly executed, thereby extinguishing the promissory note obligations. The RTC granted the demurrer and dismissed the complaint, finding that the Dacion extinguished petitioner’s obligations.
Court of Appeals reversal and rationale
On appeal the Court of Appeals held that the RTC erred in treating the Dacion and related matters as conclusively resolving the dispute in a demurrer context. The CA emphasized that the real question was whether the promissory notes were covered by the Dacion; because the Deed of Assignment had vested respondent with rights against the promissory notes, the CA concluded respondent was entitled to enforce them. The CA reversed the RTC and entered judgment ordering petitioner to pay the principal sums with contractual interest and penalties and 25% of total due as attorney’s fees.
Issues framed for Supreme Court review
The Supreme Court distilled the core issues: (1) whether respondent’s failure to file a Reply and specifically deny the Dacion and Confirmation Statement under oath constituted a judicial admission of their genuineness and due execution; (2) whether judicial admissions can be considered in resolving a demurrer to evidence; and (3) if so, whether such admissions were sufficient to dismiss the complaint.
Governing procedural rules and judicial-admission doctrine
The Court applied Rule 33 §1 (demurrer to evidence) which tests whether, upon the facts and the law, the plaintiff has shown a right to relief, and treated the “facts” as inclusive of matters properly established without the defendant’s formal evidence—specifically judicial admissions, matters of judicial notice, stipulations, and presumptions. Rule 8 §8 requires that when a defense is founded on a written instrument attached to a pleading, the genuineness and due execution are deemed admitted unless the adverse party specifically denies them under oath. Rule 6 §10’s effect of failing to file a Reply (deeming new matters controverted) is subordinate to Rule 8 §8 where written instruments are involved. Rule 129 §4 confirms that judicial admissions need not be separately proved and may be contradicted only by proof of palpable mistake.
Supreme Court’s holding on application of judicial admissions in demurrer context
The Court held that judicial admissions are part of the “facts” a court may consider in ruling on a demurrer to evidence; therefore the admitted genuineness and due execution of the Dacion and Confirmation Statement should have been considered. The Court ruled that Rule 8 §8 is controlling over Rule 6 §10 in cases involving written instruments; respondent’s failure to file a specific sworn denial of those instruments constituted judicial admissions that the trial and appellate courts were required to take into account.
Supreme Court’s analysis on whether the Dacion extinguished the promissory notes
Despite finding the instruments judicially admitted as genuine and duly executed, the Court further determined that admission of genuineness and due execution does not automatically admit every factual allegation or legal inference tied to those instruments. The dispositive question became the legal effect of the Dacion’s language. The Dacion expressly stated that the property was conveyed “in full satisfaction of its outstanding indebtedness in the amount of P3,921,750.00 to the BANK,” referencing petitioner’s own loan from the bank. The Deed of Assignment, on the other hand, evidenced that the promissory notes had been ass
...continue readingCase Syllabus (G.R. No. 150731)
Case Title, Docket and Decision
- G.R. No. 150731; decision promulgated September 14, 2007 by the Supreme Court, Second Division (Velasco, Jr., J., penning the decision).
- On appeal via Rule 45 from: March 29, 2001 Decision and November 7, 2001 Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 63979 (Philbanking Corporation v. Casent Realty Development Corporation).
- Trial court below: Makati City Regional Trial Court (RTC), Branch 145, Civil Case No. 93-2612; presided by Judge Oscar B. Pimentel.
- Final disposition at the Supreme Court level: the March 29, 2001 Decision and November 7, 2001 Resolution of the Court of Appeals were AFFIRMED; costs against petitioner.
Factual Background
- In 1984 petitioner Casent Realty Development Corporation executed two promissory notes in favor of Rare Realty Corporation:
- Promissory Note No. 84-04: principal PhP 300,000; interest at 36% per annum; penalty 12% for non-payment on maturity date June 27, 1985.
- Promissory Note No. 84-05: principal PhP 681,500; interest at 18% per annum; penalty 12% for non-payment on maturity date June 25, 1985.
- On August 8, 1986 Rare Realty assigned these promissory notes to respondent Philbanking Corporation by a Deed of Assignment.
- Respondent alleged petitioner failed to pay upon maturity and, after demands, petitioner’s obligation had grown to PhP 5,673,303.90 as of July 15, 1993.
- Respondent filed a complaint for collection on July 20, 1993 before the Makati RTC.
Petitioner’s Pleadings, Defenses and Counterclaims
- In its Answer, petitioner interposed special/affirmative defenses including:
- Lack of cause of action or, alternatively, defenses of estoppel, statute of frauds, statute of limitations, laches, prescription, payment, and/or release.
- Existence of a Dacion en Pago (hereafter “Dacion”) executed August 27, 1986 ceding petitioner’s Iloilo property to respondent, with the intention to totally extinguish petitioner’s outstanding accounts with respondent; petitioner attached the Dacion to its Answer.
- Presentation of a Confirmation Statement dated April 3, 1989 issued by respondent stating petitioner had no loans with the bank as of December 31, 1988; petitioner asserted compliance with possible repurchase conditions and receipt of later confirmation statements showing no outstanding loan.
- Claim of estoppel against respondent because in October 1988 the bank reduced its authorized capital stock by 50% to wipe out a deficit of PhP 41,265,325.12.
- By compulsory counterclaim petitioner alleged an overpayment of approximately PhP 4 million (inclusive of interest calculated using Central Bank Reference Lending Rates at dates of overpayment), plus moral and exemplary damages and attorney’s fees of PhP 4.5 million, and costs of suit, arising from respondent’s insistence on collection.
Trial Proceedings and Demurrer to Evidence
- Pre-trial: parties failed to reach an amicable settlement.
- Trial: respondent presented its evidence and formally offered its exhibits.
- After plaintiff’s presentation, petitioner filed a Motion for Judgment on Demurrer to the Evidence:
- Grounded on plaintiff’s failure to file a Reply to the Answer which raised the Dacion and Confirmation Statement; petitioner argued such failure constituted an admission of the genuineness and due execution of those documents.
- Petitioner contended that the Dacion obliterated its obligation under the promissory notes and thus the bank had no right to collect.
- Respondent filed an Opposition to the demurrer arguing:
- The grounds raised were defenses (not mere insufficiency of evidence).
- The Dacion and Confirmation Statement had not yet been offered in evidence and evaluated.
- Failure to file a Reply meant the new matters in the Answer were deemed controverted pursuant to Rule 6, Section 10.
- The RTC granted petitioner’s Motion for Judgment on Demurrer to the Evidence and dismissed the complaint by Order dated May 12, 1999. The dispositive portion read in substance that the defendant’s motion was granted and the complaint was dismissed with prejudice because the obligation had been extinguished by a Dacion en Pago.
Court of Appeals Ruling and Disposition
- On appeal the Court of Appeals reversed the RTC’s May 12, 1999 Order.
- CA’s key findings and conclusions:
- Under the Rules of Civil Procedure, a demurrer to evidence tests whether the plaintiff has shown any right to relief under the facts and the law; the only issue to be resolved in a demurrer is the sufficiency of the plaintiff’s evidence to sustain the claim.
- The CA criticized the RTC for considering the Answer (i.e., treating the Dacion as conclusively proven) in resolving the demurrer because the genuineness and due execution of the Dacion had not been placed in issue in a manner precluding the plaintiff from presenting evidence.
- CA held the trial court should have determined whether the promissory notes were covered by the Dacion; by granting the demurrer, the trial court deprived respondent of the right to present evidence on that question.
- On the merits the CA interpreted the Deed of Assignment to mean respondent had the right to proceed against the assigned promissory notes and therefore ordered judgment against petitioner:
- Pay PhP 300,000 with 36% per annum interest and 12% penalty for PN No. 84-04 (maturity June 27, 1985).
- Pay PhP 681,500 with 18% per annum interest and 12% penalty for PN No. 84-05 (maturity June 25, 1985).
- Pay attorney’s fees equivalent to 25% of the total amount due as stipulated in the promissory notes.
- Petitioner’s motion for reconsideration before the CA was denied in the CA’s November 7, 2001 Resolution.
Issues Presented to the Supreme Court
- Whether the Court of Appeals erred in excluding petitioner’s affirmative defenses in its Answer in resolving a demurrer to evidence.
- Whether petitioner is liable to pay respondent on the promissory notes.
- Subsidiary legal questions framed by the case:
- Does a plaintiff’s failure to file a Reply and thereby deny, under oath, a defense founded on a written instrument (the Dacion and Confirmation Statement) constitute a judicial admission of the genuineness and due execution of those documents?
- Should such judicial admissions