Casent Realty v. Philbanking Corp.

G.R. No. 150731 | September 14, 2007

Justice Velasco, Jr.

FACTS:
• Casent Realty Development Corporation (Casent) executed two promissory notes in
favor of Rare Realty Corporation (Rare Realty). Subsequently, these promissory notes
were assigned to Philbanking Corporation (Philbanking) through a Deed of
Assignment.
• Casent failed to pay the PN upon maturity. Consequently, Philbanking filed a
complaint before the Makati RTC for the collection of a sum of money. Casent raised
the following as special/affirmative defenses:
• The complaint stated no cause of action or if there was any, the same was
barred by estoppel, statute of frauds, statute of limitations, laches, prescription,
payment, and/or release
• On August 27, 1986, the parties executed a Dacion en Pago (Dacion) which
ceded and conveyed Casent’s property in Iloilo City to respondent, with the
intention of totally extinguishing petitioner's outstanding accounts with
respondent.
• Casent complied with the condition in the Dacion regarding the repurchase of
the property since the obligation was fully paid. Respondent sent confirmation
statements in the latter months of 1989, which showed that petitioner had no
more outstanding loan
• Assuming that Casent still owed respondent, the latter was already estopped
since in October 1988, it reduced its authorized capital stock by 50% to wipe
out a deficit of PhP41,265,325.12.
• Casent, by way of compulsory counterclaim, alleged that it made an overpayment of
approximately PhP4 million inclusive of interest based on Central Bank Reference
Lending Rates on dates of overpayment.
• Philbanking presented its evidence and formally offered its exhibits. Casent then filed
a Motion for Judgment on Demurrer to the Evidence, pointing out that Philbanking's
failure to file a Reply to the Answer which raised the Dacion and Confirmation
Statement constituted an admission of the genuineness and execution of said
documents; and that since the Dacion obliterated Casen’ts obligation covered by the
promissory notes, Philbanking had no right to collect anymore.
• The trial court ruled in favor of Casent and dismissed the complaint. Upon appeal,
the CA ruled that under the Rules of Civil Procedure, the only issue to be resolved in
 a demurrer is whether the plaintiff has shown any right to relief under the facts
presented and the law. Thus, it held that the trial court erred when it considered the
Answer which alleged the Dacion, and that its genuineness and due execution were
not at issue. It added that the court a quo should have resolved whether the two
promissory notes were covered by the Dacion, and that since Casent’s demurrer was
granted, it had already lost its right to present its evidence. The CA found that under
the Deed of Assignment, Philbanking clearly had the right to proceed against the
promissory notes assigned by Rare Realty.

ISSUES:
1. Should judicial admissions be considered in resolving a demurrer to evidence?
YES
2. Did Philbanking’s failure to file a Reply and deny the Dacion and Confirmation
Statement under oath constitute a judicial admission of the genuineness and due
execution of these documents? YES

RATIO:

FIRST ISSUE: Judicial admissions1 should be considered in resolving a demurrer to

evidence.

What is demurrer to evidence?

 Rule 33, Section 1 of the 1997 Rules of Civil Procedure provides:
o Section 1. Demurrer to evidence. - After the plaintiff has completed the
presentation of his evidence, the defendant may move for dismissal on the
ground that upon the facts and the law the plaintiff has shown no right to
relief. If his motion is denied, he shall have the right to present evidence. If
the motion is granted but on appeal the order of dismissal is reversed, he
shall be deemed to have waived the right to present evidence.
 Demurrer to evidence is an objection by one of the parties in an action, to the
effect that the evidence which his adversary produced is insufficient in point
of law, whether true or not, to make out a case or sustain the issue.

Issues to be resolved in a motion to dismiss based on demurrer to evidence

1
Rule 129, Section 4. Judicial admissions.––An admission, verbal or written, made by a party in the
course of the proceeding in the same case, does not require proof. The admission may be contradicted
only by showing that it was made through palpable mistake or that no such admission was made.
  What should be resolved in a motion to dismiss based on a demurrer to
evidence is whether the plaintiff is entitled to the relief based on the facts and
the law.
 The evidence contemplated by the rule on demurrer is that which pertains to
the merits of the case, excluding technical aspects such as capacity to sue.
 However, the plaintiff’s evidence should not be the only basis in resolving a
demurrer to evidence. The “facts” referred to in Section 8 should include all
the means sanctioned by the Rules of Court in ascertaining matters in judicial
proceedings. These include judicial admissions, matters of judicial notice,
stipulations made during the pre-trial and trial, admissions, and
presumptions, the only exclusion being the defendant's evidence.

SECOND ISSUE: Since Philbanking failed to file a Reply, in effect, it admitted the
genuineness and due execution of said documents. This judicial admission should
have been considered by the appellate court in resolving the demurrer to evidence.
 The defense of Dacion and Confirmation Statement, which were submitted in the
Answer, should have been specifically denied under oath by respondent in
accordance with Rule 8, Section 8 of the Rules of Court.
 Rule 8, Section 8 specifically applies to actions or defenses founded upon a
written instrument and provides the manner of denying it. It is more controlling
than Rule 6, Section 10 which merely provides the effect of failure to file a Reply.
 Thus, where the defense in the Answer is based on an actionable document, a
Reply specifically denying it under oath must be made; otherwise, the
genuineness and due execution of the document will be deemed admitted.
 The SC ruled in Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc.
that when the due execution and genuineness of an instrument are deemed
admitted because of the adverse party’s failure to make a specific verified denial
thereof, the instrument need not be presented formally in evidence for it may be
considered an admitted fact.

ADDITIONAL NOTES:

Whether the Dacion and Confirmation Statement sufficiently prove that petitioner's
liability was extinguished. NO. PETITIONER IS LIABLE TO PAY THE LOAN.
1. Respondent asserts that the admission of the genuineness and due execution of the
documents in question is not all encompassing as to include admission of the
allegations and defenses pleaded in petitioner's Answer. In executing the Dacion,
the intention of the parties was to settle only the loans of petitioner with respondent,
not the obligation of petitioner arising from the promissory notes that were assigned
by Rare Realty to respondent.
2. Admission of the genuineness and due execution of the Dacion and Confirmation
Statement does not prevent the introduction of evidence showing that the Dacion
excludes the promissory notes. Petitioner, by way of defense, should have presented
evidence to show that the Dacion includes the promissory notes. EaHATD
3. The promissory notes matured in June 1985, and Rare Realty assigned these
promissory notes to respondent through a Deed of Assignment dated August 8,
1986.
1. The promissory notes were given as security for the loan granted by respondent to
Rare Realty. Through the Deed of Assignment, respondent stepped into the shoes
of Rare Realty as petitioner's creditor.
4. The language of the Dacion is unequivocal — the property serves in full satisfaction
of petitioner's own indebtedness to respondent, referring to the loan of
PhP3,921,750. For this reason, the bank issued a Con rmation Statement saying that
petitioner has no unpaid obligations with the bank as of December 31, 1988.
5. In 1989, however, Rare Realty defaulted in its payment to respondent. Thus,
respondent proceeded against the security assigned to it, that is, the promissory
notes issued by the petitioner. Under these promissory notes, petitioner is liable for
the amount of PhP300,000 with an interest of 36% per annum and a penalty of 12%
for failure to pay on the maturity date, June 27, 1985; and for the amount of
PhP681,500 with an interest of 18% per annum and a penalty of 12% for failure to
pay on the maturity date, June 25, 1985.