KALILID WOOD INDUSTRIES CORPORATION, ALFREDO SALONGA AND JOAQUIN MIGUEL DE JESUS, PETITIONERS, VS. HONORABLE INTERMEDIATE APPELLATE COURT AND PHILIPPINE BANKING CORPORATION, RES…

On 17 November 1976,
Joaquin Miguel de Jesus and Alfredo T. Salonga,
President-General Manager and Comptroller, respectively, of P.B. De Jesus and
Company, Inc., executed a promissory note (PBC No. 1202-76) in favor of
respondent Philippine Banking Corporation in the amount of P600,000.00, the obligation maturing on 29 December 1976.  Similarly, on 2 December 1976, a second promissory note (PBC No.
1255-76) was executed this time
in the amount of P300,000.00, payable on or before 3 January 1977. 
These two instruments were executed to document or reflect loans secured from respondent Bank and
were signed by Messrs. de Jesus
and Salonga in the following manner:

A.  Promissory Note
PBC No. 1202-76 — for P600,000.00:

“Due December 29, 1976                                                                                                                                        No. 1202-76

For value received, I/we jointly and severally promise to pay to
the Philippine Banking Corporation at its office at Ayala Avenue, Makati, Metro Manila the sum of SIX HUNDRED THOUSAND ONLY
*** pesos (P600,000.00), with interest at the rate of FOURTEEN per cent (14%)
per annum, from TODAY until paid.  In
case this note is not paid at maturity the interest rate shall automatically be
increased to                (       %) per annum.

x x x                                                                 x
x x                                                                 x x x

Executed at Makati, Philippines on November 17, 1976.

P.B. DE JESUS &
CO., INC.

(Sgd.) Alfredo Salonga                                                                                    (Sgd.) Miguel de Jesus

IN OUR PERSONAL
CAPACITY

(Sgd.) Alfredo Salonga                                                                                    (Sgd.) Miguel de Jesus”

B.  Promissory Note
PBC No. 1255-76 — for P300,000.00:

“Due January 3, 1977                                                                                                                                        No. 1255-76

For value received, I/we jointly and severally promise to pay to
the Philippine Banking Corporation at its office at Ayala Avenue, Makati, Metro Manila the sum of THREE HUNDRED THOUSAND ONLY
*** pesos (P300,000.00), with interest at the rate of FOURTEEN per cent (14%)
per annum, from TODAY until paid.  In
case this note is not paid at maturity the interest rate shall automatically be
increased to    (     %) per annum.

x x x                                                                 x
x x                                                                 x x x

Executed at Makati, Philippines on December 2, 1976.

P.B. DE JESUS &
CO., INC.

(Sgd.) Alfredo Salonga                                                                                    (Sgd.) Miguel de Jesus

IN OUR PERSONAL
CAPACITIES

(Sgd.) Alfredo Salonga                                                                                    (Sgd.) Miguel de Jesus”

On 5 March
1978, P.B. De Jesus
and Company, Inc., by vote of its stockholders, changed its corporate
name to Kalilid Wood Industries Corporation
(hereafter “Kalilid“), an act subsequently
validated by the Securities and Exchange Commission.  Thereafter, respondent Bank served several
letters of demand upon petitioner Kalilid for payment
by the latter of the obligations contracted under promissory notes PBC No.
1202-76 and PBC No. 1255-76 which had apparently remained unsettled.  Petitioner Kalilid,
however, disowned its alleged indebtedness under both promissory notes.

On 15 May
1981, respondent
Bank filed a Complaint for collection (docketed as Civil Case No. 41268) against petitioner Kalilid and Messrs. de Jesus and Salonga
with Branch 23 of the then Court of First Instance of Rizal
(Seventh Judicial District).^[1] In its complaint, respondent Bank alleged
that petitioner Kalilid, as principal, should be held solidarily liable
under promissory notes PBC No. 1202-76 and PBC No. 1255-76 together with
Messrs. de Jesus and Salonga, both of whom had signed
said promissory notes for and in behalf of the petitioner Company, as well as in their own personal
capacities.  Respondent Bank further
alleged that, as of 30 April
1981, the total amount of the indebtedness of the obligors under the two
promissory notes had risen to P1,780,253.08 – i.e.,  P1,186,496.96 with respect to promissory note
PBC No. 1202-76, and P593,756.12 with respect to promissory note PBC No.
1255-76.  The Bank submitted in
substantiation of these claimed amounts two separate Statements of Account (one
for each promissory note), which had been prepared by respondent Bank and
attached to the complaint as Annexes “C” and “D”
thereof.^[2] Promissory notes PBC No. 1202-76 and PBC No.
1255-76 were likewise attached to the complaint as its Annexes
“A” and “B”, respectively.^[3]

In its Answer dated 10 July
1981,^[4] petitioner Kalilid
alleged that it “ha[d] no knowledge or information sufficient to form a belief as to the truth
of [the material allegations in the complaint]”.^[5] As its affirmative defense, petitioner Kalilid asserted that the authority to borrow money or
contract loans on its behalf had not been granted to Messrs. de Jesus and Salonga who, it was further asserted, should be held solely
liable under the two promissory notes. 
The answer of petitioner Kalilid, however, was not verified.

The complaint was
dismissed, though without prejudice, with respect to Messrs. de Jesus and Salonga
whose whereabouts could not then be ascertained.

The parties were unable
to arrive at an amicable settlement between themselves at the pre-trial stage
of the litigation.  Subsequently, a
motion for summary judgment was filed by respondent Bank to which
petitioner Kalilid raised neither objection nor
opposition.

In a three-page Decision
dated 12 October 1983, the trial court found petitioner Kalilid
liable to respondent Bank for the obligations contracted under promissory
notes PBC No. 1202-76 and PBC
No. 1255-76.  The dispositive
portion of the decision reads:

“WHEREFORE, judgment is
hereby rendered in favor of plaintiff Philippine Banking Corporation and
against defendant Kalilid Wood Industries Corporation
who is ordered to pay plaintiff:

1.     
The amount of P1,780,253.08 plus legal interest
from April 9, 1981 until the
amount is fully paid;

2.     
The amount equivalent to 10% of the total amount
due as attorney’s fees; and

3.     
The costs of suit.

SO ORDERED.”

The trial Judge based his decision
primarily on two factors:  (1) the failure of petitioner Kalilid to verify its answer, which failure the trial Judge
considered as amounting to an admission by petitioner Kalilid
of the genuineness and due execution of promissory notes PBC No. 1202-76 and
PBC No. 1255-76, which were annexed to respondent Bank’s complaint; and (2) the
fact that the two disputed promissory notes were signed by Messrs. de Jesus and
Salonga both for and in behalf of the former P.B. De
Jesus and Company, Inc. (now petitioner Kalilid) and in their own personal capacities.

The judgment of the lower
court was affirmed in toto on
appeal.  In its disputed Decision dated 8
November 1985, the
then Intermediate Appellate Court (Third Civil Cases Division) held:

“Defendant-appellant
faults the lower court in holding it
liable to pay the amount of P1,780,253.08 inasmuch as
the promissory notes covered only P900,000.00 claiming that plaintiff-appellee failed to adduce evidence as to how said amounts
increased to the amount of P1,780,253.08. 
Defendant-appellant argument is really flimsy, because it overlooked the
fact that the promissory notes in question which were due
and demandable since December 29, 1976 and January 3, 1977 bear interest at the
rate of 14% and further stipulates for the payment of attorney’s fees of 10% of
the amount due including interest in case of collection of the promissory notes
is done through a lawyer.

Moreover, the statements of account Annexes A and B are also
attached to the same complaint as integral part thereof.  Annex A pertains to the promissory note No.
1202-76 with the principal of P600,000.00
while Annex B pertains to the
promissory note No. 1255-76 with the principal of P300,000.00.  Explained in said statements of account are
the charges for past due interest
and penalty charges and the total of
said obligation as of April 30, 1981 showed a total of principal, interest and
penalty charges of P1,780,253.08.  The genuineness and due execution of said
promissory notes and statements of account are deemed admitted by the failure
to deny under oath said documents. x x x“^[6]

Petitioner
Kalilid’s Motion for Reconsideration was denied by
the Third Civil Cases Division on 29 July 1986.

In the present Petition
for Review, petitioner Kalilid no longer denies its
liabilities and obligations under the two promissory notes executed in
favor of respondent Bank.  It would,
however, contest the correctness of the aggregate amount of is indebtedness, as
claimed by respondent Bank.  In this
respect, petitioner Kalilid contends that although it
may have impliedly admitted the genuineness and due execution of promissory
notes PBC No. 1202-76 and PBC No. 1255-76 — Annexes “A” and
“B” of the Complaint — as a result of its failure to deny
specifically and under oath the material allegations in respondent Bank’s
complaint, such admission cannot be made to extend and apply to the two aforementioned
Statements of Account — Annexes “C” and “D” of the
Complaint — since none of petitioner Kalilid’s duly
authorized representatives had participated in the preparation thereof.  Furthermore,
in the computations appearing therein, amounts corresponding to service charges, penalty charges, and interest charges on past due interest were included which, petitioner Kalilid claims, are not part of its undertakings under
either promissory note.

We agree with the ruling
of the trial Judge and the respondent appellate court that petitioner Kalilid, due to its failure to verify its answer, is deemed
to have admitted by implication the authenticity and due execution of promissory notes PBC No. 1202-76 and PBC No. 1255-76, which were both
annexed to and made the basis for respondent Bank’s complaint.^[7] Consequently, defenses relating to the
genuineness and due execution of the notes, such as that the instruments are
spurious, counterfeit, or of different import on their faces from the ones
executed by the parties; or that the signatures appearing therein are
forgeries; or that said signatures were unauthorized, as in the case of an
agent signing for his principal, or one
signing in behalf of a partnership
or corporation; or that the
corporation was not authorized under its charter to sign the instruments; or
that the party charged signed the instruments in some capacity other than
that set out in the instruments; or that the instruments were
never delivered, are effectively cut off,^[8] placing petitioner Kalilid
in estoppel from disclaiming liability under those
promissory notes.  No genuine issue
having been raised in the trial court by petitioner Kalilid
regarding the existence and validity of its liabilities under
promissory notes PBC No. 1202-76 and PBC No. 1255-76, summary judgment was
properly and appropriately rendered in the case at bar.^[9]

In respect, however, of the amount of petitioner total Kalilid’s indebtedness
to respondent Bank under the two promissory notes, it was error for the
appellate court (as for the trial Judge) to have expanded the scope of petitioner Kalilid’s implied admission of genuineness and due
execution so as to include the
two Statements of Account annexed
to the complaint.  On this point, Rule 8,
Section 8 of the Revised Rules of Court is quite specific:

“Section 8.  How to contest genuineness
of such documents.  — When an action or defense is founded upon a
written instrument, copied in or attached to the corresponding pleading as
provided in the preceding section, the genuineness and due execution of the
instrument shall be deemed admitted unless the adverse party, under oath,
specifically denies them, and sets forth what he claims to be the facts; but
this provision does not apply when the adverse party does not appear to be a
party to the instrument or when compliance with an order for an inspection
of the original instrument is refused.” (Underscoring supplied.)

An
examination of the two disputed Statements of Account reveals that both
documents (1) were printed under the official letterhead of respondent Bank,
(2) were prepared by the Loans and Discounting Department of respondent Bank,
and (3) bore the signature of approval of respondent Bank’s authorized
officer.  No other signature appears on
the face of either document.  In other words, both Statements of Account
were prepared exclusively by respondent Bank.  It follows that petitioner Kalilid, not having been privy thereto, did not admit the
genuineness and due execution of the Statements in spite of its failure to verify its answer to the complaint, and that petitioner is
not conclusively bound by the charges nor by the computations of amounts set
out therein.^[10]

The aggregate amount of
petitioner Kalilid’s monetary obligations to
respondent Bank is determinable from the common stipulations and conditions
contained in promissory notes PBC No. 1202-76 and PBC No. 1255-76, under which
petitioner Kalilid bound itself to pay respondent
Bank, aside from the principal loan totalling
P900,000.00:  (1) interest at the rate of
fourteen percent (14%) per annum, payable monthly and compounded monthly if
unpaid;^[11] and (2) attorney’s fees equivalent to ten
percent (10%) of the entire
amount due, including interest.^[12] It does not, however, appear from the
face of either promissory note that petitioner Kalilid
agreed to pay service charges and
penalty charges in
case of late payment of its obligations
to respondent Bank.  Since an undertaking
to pay service charges and penalty charges on top of interest and interest on
past due interest cannot be presumed, it is necessary that evidence be adduced
by both parties to prove or disprove their respective claims regarding the
basis and propriety of including such charges and in such amounts as part of petitioner Kalilid’s liabilities under the
two promissory notes.  Evidence relating
to the computation of interest on past due interest, that is due and payable
may also be submitted.

WHEREFORE, the decision of Branch 23 of the then Court
of First Instance of Rizal (Seventh Judicial
District) in Civil Case No. 41268 and the decision of the then Intermediate
Appellate Court dated 8 November 1985 are AFFIRMED to the extent that they
refer to the principal amounts and stipulated interest due under Promissory
Notes PBC No. 1202-76 and PBC No. 1255-76 and to attorney’s fees equivalent to
ten percent (10%) of the entire amount due. 
This case is REMANDED to the trial court for determination of whether or
not service charges and penalty charges in case of late payment are due from
petitioner Kalilid to respondent Bank, and if so, the
amount thereof, as well as for determination of the amount of interest on
past due interest, due and
payable by petitioner Kalilid to respondent
Bank.  No pronouncement as to costs.

SO ORDERED.

Fernan, (Chairman), Gutierrez, Jr., Bidin, and Cortes, JJ., concur.

^[1]
Rollo, pp. 29-31, Annex “E” of Petition.

^[2]
Id., pp. 27-28, Annexes “C” and “D” of Petition.

^[3]
Id., pp. 25-26, Annexes “A” and “B” of Petition.

^[4]
Id., pp. 32-34, Annex “F” of Petition.

^[5]
Answer, p. 2, par. 3.

^[6]
Id., p. 42, Annex
“H” of Petition; underscoring supplied.  The
decision was written by Ejercito, J., with Coquia, Zosa and Castro-Bartolome, JJ., concurring.

^[7]
Rule 8, Section 8 of the Revised Rules
of Court, infra.  See in this connection
Capitol Motors Corporation vs. Yabut, 32 SCRA 1
[1970]; Iriola vs. Felices,
30 SCRA 202 [1969]; and Philippine Commercial and Industrial Bank vs.
ELRO Development Corporation, 29 SCRA 38 [1969].

^[8]
See Bough and Bough vs. Cantiveros
and Hanopol, 40 Phil. 209 [1919]; Ramirez vs. Orientalist Co. and Fernandez, 38 Phil. 634 [1918]; and Hibberd
vs. Rohde and McMillian, 32 Phil. 476 [1915].

^[9]
Rule 34, Section 3 of the Revised Rules of Court.  See Guevarra vs.
Court of Appeals, 124 SCRA 297 [1983]; and Clemente vs.
Pascua, 25 SCRA 422 [1968].

^[10]
See Cadirao vs.
Estenzo, 132 SCRA 93 [1984].

^[11]
Paragraph 2 of each promissory note provides:

“I/We
hereby agree that the interest on this note shall be payable on a monthly basis
commencing one (1) month from date
hereof, and if said interest is not paid, the same shall form part of the principal and together with the principal shall earn
interest at the rate stipulated.”
(Underscoring supplied.)

^[12]
Paragraph 5 of each promissory note provides:

“In case it is necessary to collect this
note through an attorney-at-law, the makers shall jointly and severally pay ten per cent (10%) of the amount due
(including interest) on this note as attorney’s fees, exclusive of
all costs, fees and damages allowed by law.” (Underscoring supplied.)