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GO TONG ELECTRICAL SUPPLY CO. v. BPI FAMILY SAVINGS BANK

FACTS:

BPI Family Savings Bank (respondent) filed a complaint against Go Tong Electrical Supply Co. and its President, George Go (petitioners) for the collection of a loan obligation amounting to P87,086,398.71. Respondent alleged that Go Tong Electrical had applied for and was granted financial assistance by Bank of South East Asia (BSA) and later, DBS Bank of the Philippines (DBS). Go Tong Electrical executed a promissory note (PN) in favor of DBS and a comprehensive surety agreement (CSA) as additional security for the loan. Respondent demanded payment from the petitioners but to no avail. Respondent presented witness Ricardo Suñio, an account officer, who attested to the existence of the loan obligation. On the other hand, petitioners denied the execution of the loan agreement, PN, and CSA, claiming that these were self-serving and mere conclusions. The RTC ruled in favor of the respondent, and the CA affirmed the decision. Petitioners appealed to the CA, but their motion for reconsideration was denied. Hence, this petition. The issue is whether the CA erred in upholding the RTC's ruling.

ISSUES:

  1. Whether the genuineness and due execution of the loan documents were deemed admitted by the petitioners.

  2. Whether petitioners effectively denied the execution of the documents in their Answer.

  3. Whether or not the obligation of the petitioners has been extinguished.

  4. Whether or not Go is liable as a surety to Go Tong Electrical's loan obligation.

RULING:

  1. The genuineness and due execution of the loan documents were deemed admitted by the petitioners in accordance with Section 8, Rule 8 of the Rules.

  2. Petitioners failed to effectively deny the execution of the documents in their Answer as they did not specifically deny the allegations and did not set forth the facts in their denial.

  3. The obligation of the petitioners has not been extinguished. The genuineness and due execution of the Credit Agreement, Promissory Note, and Continuing Surety Agreement have been admitted. The burden of proof is on the plaintiff in a civil case, and once the plaintiff makes out a prima facie case, the burden of evidence shifts to the defendant to controvert the case or a verdict must be returned in favor of the plaintiff.

  4. Go is liable as a surety to Go Tong Electrical's loan obligation. Through the Continuing Surety Agreement, Go clearly bound himself as a surety to the loan obligation. Under Article 2047 of the Civil Code, a surety undertakes to be bound solidarily with the principal obligor, making the surety agreement an ancillary contract that assumes the existence of a principal contract.

PRINCIPLES:

  • Under Section 8, Rule 8 of the Rules, when an action is founded upon a written instrument and the adverse party fails to specifically deny the genuineness and due execution of the instrument under oath, the genuineness and due execution of the instrument shall be deemed admitted.

  • A general denial does not become specific by the use of the word "specifically" and does not meet the requirements of Section 8, Rule 8.

  • To effectively deny 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.

  • Failure to deny the genuineness and due execution of an actionable document does not preclude a party from arguing against it using evidence of fraud, mistake, compromise, payment, statute of limitations, estoppel, and want of consideration.

  • In civil cases, the burden rests on the defendant to prove payment when the creditor is in possession of the document of credit.

  • The burden of proof in a civil case never parts from the plaintiff, and once the plaintiff makes out a prima facie case, the burden of evidence shifts to the defendant to controvert the case.

  • A surety undertakes to be bound solidarily with the principal obligor in a principal obligation, even without a direct or personal interest or benefit from the obligation.