Casent Realty v. Philbanking
REITERATIONFacts
The Antecedents: In 1984, Casent Realty Development Corporation (Casent) executed two promissory notes in favor of Rare Realty Corporation for PhP 300,000 and PhP 681,500, with stipulated interest and penalty rates. These notes were subsequently assigned to Philbanking Corporation (Philbanking) on August 8, 1986. Philbanking alleged that Casent failed to pay the notes upon maturity, leading to an accumulated debt of PhP 5,673,303.90 as of July 15, 1993. Casent, however, raised affirmative defenses, including a Dacion en Pago (cession in payment) executed on August 27, 1986, wherein Casent conveyed property in Iloilo City to Philbanking to fully extinguish its outstanding indebtedness. Casent also presented a Confirmation Statement from Philbanking dated April 3, 1989, indicating no outstanding loans as of December 31, 1988, and argued that the Dacion fully settled its obligations. Procedural History: Philbanking filed a complaint for collection against Casent on July 20, 1993. After pre-trial, Philbanking presented its evidence. Casent then filed a Motion for Judgment on Demurrer to the Evidence, arguing that Philbanking's failure to file a Reply to Casent's Answer, which raised the Dacion and Confirmation Statement, constituted an admission of their genuineness and due execution, thereby extinguishing the debt. The Regional Trial Court (RTC), Branch 145 of Makati City, granted the demurrer and dismissed the complaint on May 12, 1999, finding that the obligation was extinguished by the Dacion en Pago. On appeal, Philbanking argued that the trial court erred in considering the Answer and that the promissory notes were not covered by the Dacion. The Court of Appeals (CA) reversed the RTC's decision on March 29, 2001, ordering Casent to pay the amounts due under the promissory notes, plus interest, penalties, and attorney's fees. Casent's motion for reconsideration was denied by the CA on November 7, 2001. The Petition: Casent filed a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the CA's decision and resolution. The core issues raised were whether the CA erred in excluding Casent's affirmative defenses in its Answer when resolving the demurrer to evidence, and whether Casent is liable to pay respondent. Casent contended that Philbanking's failure to file a Reply specifically denying the Dacion and Confirmation Statement under oath resulted in a judicial admission of their genuineness and due execution, thereby admitting that the loan was paid. Casent argued that these admitted documents should have been considered by the CA in ruling on the demurrer. Philbanking countered that new matters in the Answer are deemed controverted under Rule 6, Section 10 of the Rules of Court, and that the Dacion pertained to a different loan, not the promissory notes assigned by Rare Realty.
Issue(s)
Whether the Court of Appeals erred in excluding the petitioner's affirmative defenses in its Answer in resolving a demurrer to evidence, specifically regarding the Dacion and Confirmation Statement. Whether respondent's failure to file a Reply and deny the Dacion and Confirmation Statement under oath constitutes a judicial admission of their genuineness and due execution, and whether such judicial admissions should be considered in resolving a demurrer to evidence. Whether, despite the admission of the Dacion and Confirmation Statement, the petitioner is still liable to pay the respondent based on the promissory notes.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals, finding that while the admission of the genuineness and due execution of the Dacion and Confirmation Statement was proper due to Philbanking's failure to file a Reply, these admissions did not automatically extinguish the obligation under the promissory notes. The Court held that the Dacion specifically covered a separate loan of PhP 3,921,750, not the obligations arising from the promissory notes assigned by Rare Realty. The Court ruled that Philbanking had the right to proceed against the assigned promissory notes when Rare Realty defaulted on its obligations.
Ratio Decidendi
On the exclusion of affirmative defenses and the consideration of judicial admissions in a demurrer to evidence: The Court clarified that a demurrer to evidence requires the court to consider not only the plaintiff's evidence but also "facts" as defined by the Rules of Court, which include judicial admissions. The Court found that Casent's failure to file a Reply specifically denying under oath the Dacion and Confirmation Statement, as required by Rule 8, Section 8 of the Rules of Court, constituted a judicial admission of their genuineness and due execution. This admission should have been considered by the appellate court. The Court emphasized that Rule 8, Section 8, which deals with contesting written instruments, is more controlling than Rule 6, Section 10, regarding the effect of failing to file a Reply, in cases where the defense is founded upon a written instrument. Therefore, the CA erred in completely excluding these admitted documents from consideration. On the effect of the failure to deny the Dacion and Confirmation Statement under oath: The Court found that Casent's failure to file a Reply specifically denying under oath the Dacion and Confirmation Statement, as required by Rule 8, Section 8 of the Rules of Court, constituted a judicial admission of their genuineness and due execution. This admission should have been considered by the appellate court. On the effect of the Dacion and Confirmation Statement on petitioner's liability: Despite the admission of genuineness and due execution, the Court agreed with the CA that these documents did not extinguish Casent's liability on the promissory notes. The Court meticulously examined the Deed of Assignment, which showed the promissory notes were assigned as security for a loan granted by Philbanking to Rare Realty. The Dacion itself unequivocally stated that the property was transferred in "full satisfaction" of Casent's outstanding indebtedness in the amount of PhP 3,921,750.00 to the Bank. This specific amount and the language used indicated that the Dacion settled a loan obtained directly by Casent from Philbanking, not the obligations arising from the promissory notes assigned by Rare Realty. The Confirmation Statement issued by Philbanking, stating Casent had no unpaid obligations as of December 31, 1988, was consistent with the settlement of this separate loan. Consequently, when Rare Realty defaulted in 1989, Philbanking, as assignee, had the right to enforce the promissory notes against Casent, as stipulated in the Deed of Assignment and the notes themselves.
Main Doctrine
A party's failure to file a Reply specifically denying under oath a written instrument forming the basis of an adverse party's defense, as required by Rule 8, Section 8 of the Rules of Court, results in the admission of the genuineness and due execution of said instrument, which must then be considered in resolving a demurrer to evidence. However, admission of genuineness and due execution does not equate to admission of all allegations and defenses pleaded in the answer; evidence may still be presented to show that the instrument, while genuine and duly executed, does not cover the specific obligation in dispute.