Title
Kalilid Wood Industries Corp. vs. Intermediate Appellate Court
Case
G.R. No. 75502
Decision Date
Nov 12, 1987
Kalilid Wood Industries, formerly P.B. De Jesus and Co., held liable for unpaid promissory notes due to unverified answer, admitting genuineness; charges remanded for validation.
promissory notes
liability
authenticity
A

Case Summary (G.R. No. 75502)

Factual Background: The Promissory Notes and the Alleged Indebtedness

On 17 November 1976, Joaquin Miguel de Jesus and Alfredo T. Salonga, in the capacities of President-General Manager and Comptroller, respectively, of P.B. De Jesus and Company, Inc., executed promissory note PBC No. 1202-76 in the amount of P600,000.00, payable on 29 December 1976, bearing interest at the rate of fourteen percent (14%) per annum from the date of execution until paid, with an automatic increase in interest if unpaid at maturity. On 2 December 1976, they executed promissory note PBC No. 1255-76 for P300,000.00, payable on or before 3 January 1977, under substantially the same interest framework.

Both instruments were signed not only “for and in behalf of” the corporation but also in the signatories’ “personal capacities.” After a corporate name change on 5 March 1978, P.B. De Jesus and Company, Inc. became Kalilid Wood Industries Corporation, an act that was later validated by the Securities and Exchange Commission. Despite several letters of demand served by respondent Bank, petitioner Kalilid disowned the alleged indebtedness under both promissory notes.

Initiation of the Civil Action and Procedural Posture in the Trial Court

On 15 May 1981, respondent Bank filed a complaint for collection (Civil Case No. 41268) before Branch 23 of the then Court of First Instance of Rizal (Seventh Judicial District) against petitioner Kalilid and Messrs. de Jesus and Salonga. The complaint alleged that Kalilid, as principal, was solidarily liable under the promissory notes, together with the individual defendants who had signed for and on behalf of the corporation and in their own personal capacities. The complaint further alleged that, as of 30 April 1981, the total indebtedness had grown to P1,780,253.08, consisting of P1,186,496.96 under PBC No. 1202-76 and P593,756.12 under PBC No. 1255-76. To support those figures, respondent Bank attached two Statements of Account as Annexes “C” and “D,” respectively, and the promissory notes as Annexes “A” and “B.”

In its Answer dated 10 July 1981, petitioner Kalilid asserted a lack of knowledge to form a belief regarding the truth of the material allegations. As an affirmative defense, it claimed that authority to borrow on its behalf had not been granted to Messrs. de Jesus and Salonga, and that they should be solely liable. Notably, the Answer was not verified. The trial court dismissed the complaint without prejudice as to Messrs. de Jesus and Salonga due to their whereabouts being unascertained. No amicable settlement was reached during pre-trial. Thereafter, respondent Bank moved for summary judgment, to which petitioner Kalilid did not raise any objection or opposition.

Trial Court Ruling: Summary Judgment and Basis of Liability

In a three-page decision dated 12 October 1983, the trial court found petitioner Kalilid liable for the obligations under PBC No. 1202-76 and PBC No. 1255-76. The dispositive portion ordered petitioner to pay: (i) P1,780,253.08 plus legal interest from April 9, 1981 until full payment; (ii) attorney’s fees equivalent to 10% of the total amount due; and (iii) the costs of suit.

The trial court grounded its ruling primarily on two considerations. First, it treated petitioner’s failure to verify its Answer as amounting to an admission of the genuineness and due execution of the promissory notes annexed to the complaint. Second, it noted that the disputed promissory notes had been signed by Messrs. de Jesus and Salonga both “for and in behalf of” the corporation and in their personal capacities. Summary judgment was thus rendered on the premise that no genuine issue existed as to the existence and authenticity of the promissory notes and petitioner’s resulting liability under them.

Appellate Review: Intermediate Appellate Court Affirmation

Petitioner appealed, but the then Intermediate Appellate Court affirmed in toto. In its decision dated 8 November 1985, the appellate court rejected petitioner’s contention that the promissory notes only covered P900,000.00, and that respondent Bank failed to prove how the total indebtedness rose to P1,780,253.08. The appellate court treated the argument as “flimsy” and emphasized that the promissory notes, being due and demandable since their respective maturity dates, bore 14% interest and contained a stipulation for attorney’s fees of 10% of the amount due, including interest, if collection was pursued through a lawyer. It also relied on the fact that respondent Bank had attached the Statements of Account (Annexes “A” and “B” as described in that portion of the decision) as integral parts of the complaint, and that those statements reflected charges for past due interest and penalty charges, culminating in a total of P1,780,253.08 as of April 30, 1981. The appellate court further reasoned that the genuineness and due execution of the promissory notes and statements of account were deemed admitted due to petitioner’s failure to deny under oath.

Petitioner’s Motion for Reconsideration was denied on 29 July 1986.

Issues Raised in the Petition for Review

In its Petition for Review, petitioner no longer disputed the fact of its liability under the promissory notes, but it challenged the correctness of the aggregate amount claimed by respondent Bank. Petitioner argued that while it may have impliedly admitted the genuineness and due execution of the promissory notes as a result of its failure to deny under oath and verify its Answer, such admission should not be extended to the Statements of Account (Annexes “C” and “D”). It claimed that no duly authorized representative participated in the preparation of the statements, and thus petitioner did not effectively admit their contents. Petitioner also objected to respondent Bank’s inclusion of service charges, penalty charges, and interest charges on past due interest, contending that these were not part of its undertakings under either promissory note.

The Court’s Ruling on Deemed Admissions: Promissory Notes Versus Statements of Account

The Court agreed with the trial court and the appellate court that petitioner’s failure to verify its Answer resulted in the implied admission of the genuineness and due execution of the promissory notes PBC No. 1202-76 and PBC No. 1255-76, since those instruments were annexed to and made the basis of the complaint. Consequently, defenses aimed at negating the existence and validity of those promissory notes—such as spuriousness, forgery, unauthorized signatures, corporate authorization issues, misrepresentation of signing capacity, or non-delivery—were treated as effectively foreclosed, placing petitioner in estoppel from disclaiming liability under the notes.

However, the Court held that the lower courts erred when they expanded the scope of petitioner’s implied admission so as to include the Statements of Account annexed to the complaint. The Court invoked Rule 8, Section 8 of the Revised Rules of Court, which provides that when an action or defense is founded upon a written instrument copied in or attached to a pleading, the genuineness and due execution of the instrument are deemed admitted unless the adverse party, under oath, specifically denies them and sets forth the facts being claimed. The Court further noted the rule’s specific limitation: the provision does not apply when the adverse party does not appear to be a party to the instrument, or when compliance with an order for inspection of the original instrument is refused.

The Court examined the nature of respondent Bank’s Statements of Account and found that they were printed under respondent Bank’s letterhead, were prepared by respondent Bank’s Loans and Discounting Department, and bore the signature of approval of respondent Bank’s authorized officer, with no other signatures appearing on their face. The Court concluded that, because petitioner was not privy to their preparation, petitioner did not admit their genuineness and due execution merely by failing to verify or oppose the complaint. It therefore held that petitioner was not conclusively bound by respondent Bank’s charges nor by the computations embodied in those Statements of Account.

Determination of Liability Amount: What the Promissory Notes Actually Stipulated

While the Court thus confirmed petitioner’s liability under the promissory notes, it ruled that the amount due had to be determined from the common stipulations contained in the promissory notes themselves. Aside from the principal loans totaling P900,000.00, the Court identified only these monetary undertakings from the face of the promissory notes: (i) interest at fourteen percent (14%) per annum, payable monthly, compounded monthly if unpaid; and (ii) attorney’s fees equivalent to ten percent (10%) of the entire amount due, including interest if collection became necessary through an attorney.

The Court emphasized that it did not appear from the face of either promissory note that petitioner agreed to pay service charges and penalty charges in case of late payment. Since such additional charges on top of interest and interest on past due interest could not be presumed, the Court required evidence to determine whether those charges were properly due and in what amounts. The Court likewise recognized the need for evidence regarding the computation of interest on past due interest, insofar as such interest was due and payable.

Disposition and Remand to the Trial Court

Accordingly, the Court affirmed the trial court’s and the appellate court’s decisions only to t

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