REMIA BUENAFLOR AND RODOLFO ROMENA, PETITIONERS, VS. ATHENA CREDIT, INC., RESPONDENT.

Buenaflor versus Athena Credit

The Case

This is a petition for review brought by Remia Buenaflor and Rodolfo Romena against Athena Credit, Incorporated, arising from an action for recovery of a sum of money founded on a promissory note. Athena Credit lent money and sought to collect the unpaid balance, with interest and penalties, from both borrowers. The case matters because it gathers in one decision three rules a practitioner meets constantly: the effect of an unverified answer on the genuineness and due execution of a document, the validity of a contract of adhesion, and the solidary liability of a co-maker on a promissory note. It is a compact review of the law on private documents and negotiable instruments.

Procedural History

Athena Credit filed a complaint for recovery of a sum of money before the Metropolitan Trial Court of Makati City against Remia Buenaflor and Rodolfo Romena. The Metropolitan Trial Court upheld the validity of the promissory note but equitably reduced the interest rate and removed the penalty charges, holding both defendants solidarily liable for the principal amount with interest of one percent per month from maturity, plus attorney's fees. On appeal, the Regional Trial Court affirmed the Metropolitan Trial Court in toto. Rodolfo moved for reconsideration, which was denied. He then filed a petition for review before the Supreme Court, questioning the factual and legal bases of the rulings below. Athena Credit and Remia did not appeal.

Facts

On the seventh of May, 2010, Athena Credit filed suit to recover an unpaid amount of 49,123 pesos and 44 centavos, plus accrued interests and penalties, based on a promissory note that had not been notarized. The note obliged the signers to pay 58,948 pesos in forty-eight installments, with a penalty for delayed payment and an additional sum for legal action in case of non-payment. It was signed by Remia Buenaflor as applicant and by Rodolfo Romena as co-maker.

The defendants answered separately. Remia admitted that she borrowed money but questioned the penalty as excessive and unconscionable. Rodolfo disclaimed any liability, insisting that he did not sign the loan document and did not receive the amount stated, and adding that the promissory note was a contract of adhesion that deprived the debtor of any chance to bargain on equal footing.

The Metropolitan Trial Court upheld the note but reduced the interest and struck out the penalties, holding both defendants solidarily liable. The Regional Trial Court affirmed in full. Only Rodolfo elevated the matter to the Supreme Court, so the Court confined its review to whether he is solidarily liable with Remia for the amount adjudged.

Issues

• Whether or not Rodolfo is deemed to have admitted the genuineness and due execution of the promissory note when he failed to verify his answer specifically denying it.
• Whether or not the lack of notarization of the promissory note required Athena Credit to present further evidence that the parties voluntarily signed it.
• Whether or not the promissory note is invalid as a contract of adhesion.
• Whether or not Rodolfo is solidarily liable with Remia as a co-maker under the tenor of the note.

Applicable Provisions

Section 8 of Rule 8 of the Rules of Court provides:

A defendant must specify each material allegation of fact the truth of which he does not admit and, whenever practicable, shall set forth the substance of the matters which he will rely upon to support his denial. Where a defendant desires to deny the genuineness and due execution of any document upon which the adverse party relies, he shall do so under oath and shall set forth what he claims to be the facts.

This is the provision that made Rodolfo's unverified denials ineffective and produced his implied admission of the note.

Section 17, paragraph g, of the Negotiable Instruments Law, as discussed in the decision, provides:

Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon.

This is the provision that fixes the solidary liability of a co-maker who signs a note beginning with "I" or "We."

Ruling

On the first issue, the Court held that Rodolfo's specific denials were ineffective because he failed to verify his answer. Since the action was anchored on a document annexed to the complaint, the genuineness and due execution of the instrument were deemed admitted. He is therefore considered to have admitted the loan document and acknowledged his unpaid obligation.

On the second issue, the Court held that although the promissory note lacks notarization and is a private document, Athena Credit was not required to present further evidence that the parties voluntarily signed it. The implied admission of Rodolfo eliminated every defense touching authenticity and due execution, such as forgery, spuriousness, or unauthorized signatures.

On the third issue, the Court held that even assuming the note is a contract of adhesion, it is not invalid per se and may be struck down only if executed without essential equality between the parties. Rodolfo, a company supervisor, is not unlettered or unfamiliar with business and legal transactions, and is presumed to have signed with full knowledge of the document's import. The note was in plain English and only two short paragraphs, with no fine print concealing hidden meanings. He was not deprived of an opportunity to bargain effectively.

On the fourth issue, the Court held that Rodolfo's obligation is solidary, because solidarity arises when the obligation expressly so states, when the law provides it, or when the nature of the obligation requires it. Under the Negotiable Instruments Law, a promissory note beginning with "I" or "We," signed by two or more persons, makes them solidarily liable. Rodolfo is therefore primarily liable as a co-maker, and Athena Credit may proceed against him alone or with Remia.

Doctrine

First, when a complaint is founded on a document, the defendant who wishes to deny its genuineness and due execution must do so specifically and under oath; an unverified answer produces an implied admission of the document and of the obligation it embodies. Second, a private document need not be notarized to be admissible and binding; notarization is not what gives it force between the parties. Third, a contract of adhesion is not invalid per se; it is struck down only where the weaker party was deprived of essential equality and a real chance to bargain. Fourth, a co-maker on a promissory note that begins with "I" or "We" is solidarily liable, and the creditor may go against him directly. Finally, a person who signs an instrument is bound to honor it as a legitimate obligation assumed through his signature.

Disposition

The Supreme Court denied the appeal and affirmed the rulings holding Rodolfo Romena solidarily liable with Remia Buenaflor for 49,123 pesos and 44 centavos, with interest of one percent per month from August 15, 2006 until fully paid, plus 5,000 pesos in attorney's fees.

Remember This

Memorize this line: an unverified answer that fails to deny a document under oath is an implied admission of its genuineness and due execution. Examiners use this case to test the co-maker's solidary liability under the Negotiable Instruments Law and the rule that a contract of adhesion is not invalid per se.