Failure to Deny Loan Document Authenticity Under Oath Is an Admission of Debt

The Supreme Court, in Permanent Savings and Loan Bank v. Velarde (G.R. No. 140608, September 23, 2004), clarified a fundamental rule in Philippine civil procedure: when a lawsuit is based on a written document, a defendant who fails to specifically deny under oath the document's genuineness and due execution is deemed to have admitted it. This ruling reinforces the procedural consequence of an ambiguous denial and explains how written extrajudicial demands interrupt the prescriptive period for collecting a debt.

The Case

Permanent Savings and Loan Bank sued Mariano Velarde to recover P1,000,000.00 plus interest and penalties based on a loan evidenced by a promissory note, loan release sheet, and loan disclosure statement, all dated September 28, 1983. The bank, then under liquidation, sent demand letters in 1988 and 1994. Velarde did not pay.

In his Answer, Velarde did not categorically deny signing the documents. He stated that the signature on the promissory note "seems to be" his, claimed he did not receive the loan proceeds, and argued the documents did not express the parties' true intention. His sworn denial repeated that, "assuming" the note existed and bore his genuine signature, it did not bind him.

The trial court dismissed the bank's complaint for lack of preponderance of evidence, and the Court of Appeals affirmed. Both lower courts held that the bank failed to prove the authenticity of the loan documents, especially since Velarde had objected to their admission.

The Issue

The central question was whether Velarde's Answer constituted a valid specific denial of the genuineness and due execution of the loan documents, and whether the bank's claim had prescribed.

The Ruling

The Supreme Court reversed the lower courts and ordered Velarde to pay. The Court held that Velarde's denials were not a proper specific denial under Rule 8, Section 7 of the Rules of Court. That rule provides that when a cause of action is based on a document, its genuineness and due execution are deemed impliedly admitted unless the defendant specifically denies them under oath and states the facts he relies upon.

Citing the early case of Songco v. Sellner (37 Phil. 254 [1917]), the Court explained that a defendant must declare under oath that he did not sign the document or that it is false or fabricated. A claim that the instrument was procured by fraud, or that it does not express the parties' true intention, is not a denial of genuineness—it is actually an admission of both genuineness and due execution.

Because Velarde failed to specifically deny the documents' authenticity under oath, he was deemed to have admitted them. The bank therefore did not need to present additional evidence to prove their execution, despite the general rule in Rule 132, Section 22 requiring proof of private documents before admission.

The Court also rejected the defense of prescription. An action on a written contract prescribes after ten years (Article 1144, Civil Code), but the period is interrupted by a written extrajudicial demand (Article 1155, Civil Code). Citing Overseas Bank of Manila v. Geraldez (G.R. No. L-46541, December 28, 1979), the Court held that a written demand wipes out the elapsed period and starts the prescriptive period anew. Here, the loan matured on October 13, 1983. The bank's demand in 1988 was made only about four years and nine months later, restarting the ten-year period. The complaint filed in 1994 was therefore timely.

Practical Takeaways

• Denials must be specific and under oath. In a suit on a written contract, a vague denial—such as saying a signature "seems" to be yours—is not enough. A defendant must expressly state under oath that he did not sign the document or that it is fabricated.
• "True intention" defenses admit execution. Arguing that a document does not reflect the parties' real agreement is treated as an admission that the document was signed and executed. The defense goes to validity, not authenticity.
• Written demands restart prescription. A written extrajudicial demand interrupts the running of the prescriptive period, and the full period begins anew from the debtor's receipt of the demand.
• Demurrer risks are high. A defendant who files a demurrer to evidence and loses on appeal is deemed to have waived the right to present his own evidence.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.