Debtors' Burden of Proof in Loan Repayment Disputes: Insights from the Supreme Court

When a creditor sues to collect an unpaid loan, who carries the burden of proving that the debt remains unpaid? A recent Supreme Court ruling provides a clear answer: once the creditor presents the promissory note, the burden shifts to the debtor to prove payment. This principle, reaffirmed in Decena v. Asset Pool A (SPV-AMC), Inc. (G.R. No. 239418, October 12, 2020), offers practical guidance for both lenders and borrowers in collection disputes.

The Facts of the Case

The case began when Asset Pool A (SPV-AMC), Inc. filed a collection suit against Danilo Decena and Cristina Castillo. The respondent alleged that the petitioners obtained loans from Prudential Bank totaling P12,500,000.00, evidenced by two promissory notes. After Prudential Bank merged with BPI, BPI assigned the petitioners' indebtedness to the respondent through a deed of assignment.

The petitioners admitted obtaining the loans but claimed these had been substantially paid. They argued that the respondent had the burden of proving its claim and that no comprehensive records were presented to them. They also raised the defense of laches, noting that the complaint was filed almost ten years after the loans matured.

The Issue Before the Court

The central question was whether the petitioners remained liable for the amount due. The Supreme Court had to determine who bore the burden of proof when a debtor claims payment has been made.

The Ruling: Burden of Proof Rests on the Debtor

The Supreme Court denied the petition and affirmed the petitioners' liability, but modified the Court of Appeals' ruling to restore the full principal amount of P12,500,000.00.

The burden of proving payment lies with the debtor. Citing Royal Cargo Corporation v. DFS Sports Unlimited, Inc., the Court held that in civil cases, the one who pleads payment has the burden of proving it. Once proof of indebtedness is established, the burden rests on the defendant to show that the obligation has been discharged.

Possession of the promissory note is key. The Court emphasized that when a creditor is in possession of the document of credit, proof of non-payment is unnecessary because it is presumed. As held in Bank of the Philippine Islands v. Spouses Royeca, a promissory note in the hands of the creditor is proof of indebtedness, not of payment. The creditor's possession of the evidence of debt is proof that the debt has not been discharged.

Mere allegations of payment are insufficient. The petitioners failed to present documentary evidence of payment or evidence that the mortgaged properties were actually used to secure the subject promissory notes. The Court noted that the petitioner could not even recall whether the properties previously mortgaged were used to secure the loans covered by the promissory notes.

Interest Computation and the Amount of Recovery

The Court also clarified two important points on interest and recoverable amounts.

Courts can award the full amount proven, not just the amount prayed for. While the complaint prayed for P10,000,000.00, the Court restored the full P12,500,000.00 principal. The Court explained that the due process requirement—that judgments conform to the pleadings—is satisfied when the opposing party is given notice and opportunity to be heard. Since the complaint specifically alleged the total amount of P12,500,000.00 and the petitioners actively participated in the trial, they were not unduly surprised.

Interest rates follow the Nacar rules. Applying Nacar v. Gallery Frames, the Court ordered:

• 12% per annum monetary interest from extrajudicial demand (September 19, 2006) until finality of the ruling
• Compensatory interest on the monetary interest at 12% per annum from judicial demand (January 14, 2008) until June 30, 2013
• 6% per annum from July 1, 2013 until finality of the ruling
• 6% per annum on all monetary awards from finality until full payment

Practical Takeaways

• Debtors who claim payment must present evidence. A bare assertion that a loan was paid, without documentary proof, will not defeat a collection suit.
• A promissory note in the creditor's hands creates a presumption of non-payment. Debtors should keep receipts, cancellation of mortgages, and other proof of payment.
• Admissions are powerful evidence. Admitting the genuineness of signatures on promissory notes can establish the existence of the debt.
• Courts may award more than the amount prayed for when the complaint alleges the full amount and the debtor had notice and opportunity to be heard.
• Interest rates depend on when the obligation was breached. The 12% rate applies until June 30, 2013; the 6% rate applies thereafter.

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