Nature of the Complaint and Demand Letters

Permanent Savings and Loan Bank filed a complaint to recover ₱1,000,000.00 plus accrued interest and penalties based on the loan documents. The bank, through its Deputy Liquidator, sent a letter of demand to Velarde on July 27, 1988, which was received but ignored. Another demand letter was sent on February 22, 1994, to which Velarde’s counsel replied denying the existence of the obligation, claiming it was superseded by a subsequent agreement.

Respondent’s Denial and Affirmative Defenses

Velarde, in his Answer, disclaimed liability on the loan documents, admitting only that the signature on the promissory note appeared to be his but denying receipt of the loan proceeds. He contended that the loan documents did not express the true intention of the parties and therefore did not bind him. His answer also included a denial under oath reiterating these points.

Pre-Trial Issues

The issues at pre-trial included whether Velarde had an outstanding loan obligation to the bank, whether he was liable to pay the loan with interests and attorney’s fees, the genuineness of the promissory note and signature, prescription of the claim due to lapse of time, and whether Velarde was entitled to counterclaims.

Presentation of Evidence and Demurrer to Evidence

The bank presented a single witness, Antonio Marquez, Assistant Department Manager of the Philippine Deposit Insurance Corporation and Deputy Liquidator for the bank, who identified the loan documents. After the bank rested, Velarde filed a demurrer to evidence, arguing that the bank failed to prove its case by a preponderance of evidence and that the cause of action was barred by prescription.

Rulings of the Trial Court and Court of Appeals

The RTC granted the demurrer and dismissed the complaint and counterclaims. On appeal, the Court of Appeals affirmed the dismissal, holding that the bank failed to present sufficient evidence to establish the loan obligation and that the claim was barred by prescription. The Court of Appeals also held that Velarde denied the loan in his pleading.

Legal Standard on Proof of Loan Documents Under Rule 132, Sec. 7

Under Rule 8, Section 7 of the Rules of Court, when a cause of action is based on a document, the genuineness or due execution of that document is presumed unless specifically denied under oath by the defendant. The trial court and the Court of Appeals ruled that the bank’s documents stood alone without supporting testimony and that Velarde’s denial constituted a specific denial sufficient to overcome the presumption.

Supreme Court’s Review on Denial and Admission Interpretation

The Supreme Court found that Velarde did not specifically deny signing the promissory note under oath but only expressed doubt about the signature’s genuineness and denied liability since he claimed non-receipt of loan proceeds. This did not amount to a specific denial sufficient to overcome the presumption of genuineness and due execution of the loan documents as required by law. The Court reiterated precedents holding that a proper denial involves an oath to the effect that the defendant did not sign or the document is false. Velarde’s response was an implied admission of the genuineness and execution of the note.

Effect of Implied Admission on the Burden of Proof

Due to Velarde’s implied admission by failure to specifically deny the execution and genuineness of the loan documents, the petitioner bank was relieved from further proof regarding the due execution and authenticity of the promissory note and other documents. Therefore, the obligation contained therein was binding on Velarde.

Obligation to Pay and Documentary Evidence of Receipt

Although Velarde claimed he did not receive the net proceeds, the loan release sheet bore his signature, supporting the inference that he did receive the money. The doctrine of res ipsa loquitur applied, signifying that the documents speak for themselves and that a party cannot accept and reject different aspects of a single instrument.

Prescription of the Loan Obligation Claim

The Court held that the bank’s claim was not barred by the ten-year prescriptive period under Article 1144 of the Civil Code, since written extrajudicial demand interrupts prescription and resets the period anew. The first written demand was made on July 27, 1988, within five years from the due date of October 13, 1983, thus interrupting prescription. The second demand in 1994 further preserved the claim.

Precedent on Interruption of Prescription by Written Demand

The

Facts of the Case

Permanent Savings and Loan Bank (petitioner), after being placed under liquidation and represented by its Deputy Liquidator, filed a complaint before the Regional Trial Court (RTC) of Manila, Branch 37 (Civil Case No. 94-71639), seeking recovery from respondent Mariano Velarde of the sum of One Million Pesos (P 1,000,000.00) plus accrued interests and penalties.
The claim was based on a loan allegedly obtained by respondent, evidenced by three documents all dated September 28, 1983: (1) a promissory note, (2) a loan release sheet, and (3) a loan disclosure statement.
Petitioner sent a letter of demand on July 27, 1988, and despite the respondent’s receipt, he failed to settle the account.
Another demand letter was sent on February 22, 1994; respondent's counsel replied denying the existence of the obligation, claiming that any agreement was superseded by a contemporaneous or subsequent agreement.

Respondent’s Defense and Denial

In his Answer, respondent denied liability on the loan, disputing the authenticity or binding effect of the promissory note despite an apparent signature.
Respondent alleged that the amount was received by another person, not himself, and that the loan documents did not truly express the parties' real intention.
A denial under oath was also filed, reiterating that even if the promissory note existed and bore his genuine signature, it did not bind him or express true intention.
Issues for trial were framed to include existence of the loan obligation, obligation to pay including interests and fees, genuineness of signature, the prescriptive period, and respondent’s entitlement to counterclaims.

Trial Court Proceedings and Initial Rulings

The petitioner presented a single witness, Antonio Marquez, Assistant Department Manager of the Philippine Deposit Insurance Corporation and designated Deputy Liquidator, who identified the loan documents.
Respondent filed a demurrer to evidence rather than presenting counter-evidence, contending petitioner failed to prove its case by preponderance of evidence and that the cause of action was barred by prescription or laches.
The trial court granted the demurrer and dismissed both the complaint and respondent’s counterclaims, holding that the documents without competent witness testimony and respondent’s denial failed to constitute sufficient proof.
The court emphasized the insufficiency of documentary evidence unsupported by independent proof and highlighted the necessity of competent evidence to sustain plaintiff’s cause of action.

Court of Appeals’ Affirmation

The Court of Appeals (CA) affirmed the dismissal, concurring that petitioner failed to prove the existence of the loan and that respondent had denied the allegations.
It stressed the absence of any competent witness or adequate proof to authenticate and prove due execution of the documents as required by Rule 132, Section 21 of the Rules of Court.