Consolidated Bank v. Del Monte Motor Works
REITERATIONFacts
The Antecedents: Petitioner, The Consolidated Bank and Trust Corporation (SOLIDBANK), filed a complaint for recovery of sum of money against respondents Del Monte Motor Works, Inc. (respondent corporation) and Narciso G. Morales (respondent Morales) and his spouse. SOLIDBANK alleged that on April 23, 1982, it extended a loan of ₱1,000,000.00 to respondents, evidenced by a promissory note wherein respondents jointly and severally bound themselves to pay the loan in twenty-five monthly installments with 23% annual interest, payable in full by May 23, 1984. Respondents defaulted, making the full amount due and demandable. As of March 9, 1984, the indebtedness stood at ₱1,332,474.55. SOLIDBANK attached a photocopy of the promissory note, a demand letter dated January 20, 1983, and a statement of account to its complaint. Procedural History: Respondents opposed SOLIDBANK's motion to declare them in default, claiming they were never served with summons and complaint. Respondent corporation filed an answer generally denying the allegations for lack of knowledge and asserting affirmative defenses, including the promissory note being void for want of valid consideration and that no demand was made. Respondent Morales also filed an answer, admitting paragraphs 1 and 2 of the complaint but denying the rest, and asserting that he never signed the promissory note in his personal capacity and that it was void for lack of consideration. He also claimed he was separated from his wife, and their property relation was complete separation of property, not conjugal partnership of gains. The trial court denied the motion to declare respondents in default and admitted their answers. During trial, SOLIDBANK presented a witness and sought to admit a duplicate original of the promissory note (Exhibit "E") as the original copy (Exhibit "A") was lost. The trial court initially admitted Exhibit "E" but later granted respondents' motions for reconsideration, excluding it. Respondents then filed motions to dismiss, arguing SOLIDBANK had no proof of indebtedness without the promissory note. SOLIDBANK moved for the inhibition of the presiding judge, alleging haste and bias, which was denied. The trial court dismissed the case. The Court of Appeals affirmed the dismissal. SOLIDBANK's motion for reconsideration was denied. The Petition: SOLIDBANK filed a petition for review on certiorari, imputing errors to the Court of Appeals for finding that respondents denied the material allegations of the complaint despite admitting the genuineness and due execution of the promissory note, for upholding the exclusion of Exhibit "E" despite the original being in the possession of respondents, and for not holding that the trial judge should have inhibited himself.
Issue(s)
Whether respondents specifically denied under oath the genuineness and due execution of the promissory note. Whether the exclusion of the duplicate original of the promissory note (Exhibit "E") was proper under the best evidence rule. Whether the presiding judge of the trial court should have inhibited himself from the case.
Ruling
The Supreme Court reversed and set aside the decision of the Court of Appeals and the order of the Regional Trial Court. Respondents were ordered to pay SOLIDBANK One Million Pesos (₱1,000,000.00) plus 23% interest per annum, a penalty charge of 3% per annum, and 10% of the amount due as attorney's fees, with a 1% monthly interest until fully paid. The sum of ₱220,020.00, representing the partial payment, was to be deducted from the total amount due.
Ratio Decidendi
On the issue of specific denial of the promissory note: The Court held that both the trial court and the Court of Appeals erred in ruling that respondents specifically denied the allegations in petitioner's complaint as required by the Rules of Court. Section 8 of the Rules of Court mandates that 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 he claims to be the facts. The denials made by respondents, which were general and lacked specific factual assertions contrary to the instrument's authenticity, did not constitute an effective specific denial as contemplated by law. Citing Songco vs. Sellner, the Court clarified that a specific denial requires the defendant to declare under oath that they did not sign the document or that it is false or fabricated, not merely to raise defenses that avoid the instrument on grounds not affecting its genuineness or due execution. Consequently, respondents, by failing to specifically deny under oath, were deemed to have admitted the genuineness and due execution of the promissory note and their obligation to petitioner. On the application of the best evidence rule: The Court found that the appellate court erred in sustaining the trial court's ruling that the best evidence rule applied and necessitated the exclusion of Exhibit "E" (the duplicate original of the promissory note). The Court explained that the best evidence rule, requiring the production of the original document, is justified by the risk of mistransmission of the contents of a writing. However, in this case, respondents never disputed the terms and conditions of the promissory note; their principal defense rested on the alleged lack of consideration and respondent Morales' claim of not signing in his personal capacity. These contentions did not question the precise wording of the note, which is the primary concern of the best evidence rule. Furthermore, the rule has exceptions, including when the original document is in the custody or control of the adverse party. The Court noted that if given the opportunity, SOLIDBANK could have established that the original of Exhibit "A" was in the possession of respondents, thus invoking an exception to the rule. Crucially, the Court reiterated that since respondents failed to deny specifically the execution of the promissory note, there was no need for SOLIDBANK to present the original, as their judicial admission sufficiently established their liability. On the issue of judicial inhibition: The Court resolved this issue against petitioner, affirming the Court of Appeals' holding that there was no cogent reason for the trial judge to disqualify himself. The Court emphasized that for a charge of partiality and prejudice against a judge to be sustained, there must be convincing proof, not just bare allegations. Bias and prejudice cannot be presumed, especially against a judge's sworn obligation to administer justice impartially. The proof must show bias and prejudice stemming from an extrajudicial source, resulting in an opinion on the merits based on something other than participation in the case. Petitioner failed to proffer any evidence indicating that Judge Diaz was guilty of bias and prejudice, thus, the denial of the motion to inhibit was affirmed.
Main Doctrine
A specific denial under oath of the genuineness and due execution of an actionable written instrument is required to avoid admission of its authenticity and the obligor's liability. Failure to specifically deny under oath means the instrument is deemed admitted, relieving the plaintiff of the burden of proving its execution and authenticity.