PART I.

Promissory Note With and Without Interest

Negotiable Instrument
It is a written contract for payment of money which complies with the
requirements of Section 1 of the Negotiable Instruments Law, which by its form and on
its face is intended as a substitute for money and passes from hand to hand as money
so as to give a holder in due course the right to hold the instrument free from personal
defense available to prior parties.

Requisites:
• It must be in writing and signed by the maker or drawer.
• It must contain an unconditional promise to pay a sum certain in money.
• Payable on demand or at a fixed or determinable future.
• Payable to order or bearer.
• When addressed to a drawee, he must be named or indicated therein with
reasonable certainty.

Promissory Note
An unconditional promise in writing made by one person to another signed by the
maker, engaging to pay on demand, or at a fixed determinable future time, a sum
certain in money to order or to bearer.

Promissory Note Without Interest

PROMISSORY NOTE

For value received, WE, EPIFANIA EBARLE, SOL EBARLE, & ELE EBARLE, hereby
promise to pay Mr. Armando V. Sierra, his heirs and assigns, the sum of EIGHTY FIVE
THOUSAND PESOS ONLY (P85,000.00) Philippine Currency, on or before October 8,
1984 at his residence in Dumaguete City.
(Sgd.) EPIFANIA EBARLE
(Sgd.) SOL EBARLE
(Sgd.) ELE EBARLE
September 8, 1984
Dumaguete City

WITNESSES:
1. (Illegible) 2. _______________
SUBSCRIBED AND SWORN TO BEFORE ME this 8th day of September 1984 at the
City of Dumaguete.
(Sgd.) FRANCISCO B. ZERNA, JR.
Notary Public

Promissory Note With Interest

PROMISSORY NOTE

For value received, WE, EPIFANIA EBARLE, SOL EBARLE, & ELE EBARLE, hereby
promise to pay Mr. Armando V. Sierra, his heirs and assigns, the sum of EIGHTY FIVE
THOUSAND PESOS ONLY (P85,000.00) Philippine Currency, on or before October 8,
1985 at his residence in Dumaguete City. In addition to the foregoing, I promise to pay
monthly interest at the rate of two (2%) percent, without need of demand , starting from
the month of October, 1984 until this note is fully paid.
(Sgd.) EPIFANIA EBARLE
(Sgd.) SOL EBARLE
(Sgd.) ELE EBARLE

September 8, 1984
Dumaguete City
WITNESSES:
1. (Illegible) 2. _______________

SUBSCRIBED AND SWORN TO BEFORE ME this 8th day of September 1984 at the
City of Dumaguete.
(Sgd.) FRANCISCO B. ZERNA, JR.
Notary Public

Who may file an action(parties)?

1. Holder
- Active subject
- The one given the right to demand performance of the obligation to pay a sum
certain money.

Ground(s):
 - Default on the part of the maker or acceptor to pay the sum certain in money.
- Violation of the tenor of the instrument.

2. Maker
- passive subject against whom the holder can enforce the right represented by
the instrument.
-the person who makes the instrument.
*two or more persons can be joint makers.
Ground(s):
- Violation of the tenor of the instrument.

3. Indorser
-Passive subject against whom the holder can enforce the right represented by
the instrument
-Secondary liable
Ground(s):
- Violation of the tenor of the instrument.

When can you file an action?

As against the maker:

There must be a prior demand unless the parties agree that there is no need for
demand.

As against the Indorser:

1. Presentment for payment must be within the required period to the maker
(Sec.70, NIL)
2. Notice of dishonor should be given if promissory is dishonored by non-
payment by the maker. (Sec. 89,NIL)

Presentment for payment, to be sufficient, must be made:

By the holder, or by some person authorized to receive payment on his behalf.
To the person primarily liable on the instrument, or if he is absent or inaccessible,
to any person found at the place where the presentment is made.

Where to file:

VENUE
An action based on a promissory note is a personal action. Under Rule 4, Sec. 2 of the
Rules of Court, the action must be filed where the plaintiff or any of the principal plaintiff
resides, or where the defendant or any of the principal defendant resides, or in the case
of a non-resident defendant where he may be found at the election of the plaintiff.

JURISDICTION
The court which has jurisdiction on the action, would depend on the amount involved.

For claims for payment of money where the value of the claim does not exceed
Two Hundred Thousand Pesos (P200,000.00) exclusive of interest and costs):

Before the Municipal Trial Courts (MTCs) for Small Claims (Sec. 2, A.M. No. 08-8-7-SC)

For amounts exceeding Two Hundred Thousand Pesos (P200,000.00) exclusive of

interest and costs):

Regular courts.
MTC. Where the value of the claim does not exceed P300,000 (outside Metro
Manila) or does not exceed P400,000 in Metro Manila (Sec. 33 [1], B.P. 129, as
amended); Sec. 3 R.A. 7691)

Effects:
A promissory note is a solemn acknowledgment of a debt and a formal commitment to
repay it on the date and under the conditions agreed upon by the borrower and the
lender. A person who signs such an instrument is bound to honor it as a legitimate
obligation duly assumed by him through the signature he affixes thereto as a token of
his good faith. If he reneges on his promise without cause, he forfeits the sympathy and
assistance of this Court and deserves instead its sharp repudiation. (Sierra v. CA, GR
No. 90270, July, 24, 1992)

CASE: KT CONSTRUCTION SUPPLY, INC., represented by William Go, petitioner,

v. PHILIPPINE SAVINGS BANK, respondent

Facts:
KT Construction Supply, Inc. (KT Construction) obtained a loan from respondent
Philippine Savings Bank (PSBank) in the amount of P2.5 million. The said loan was
evidenced by a Promissory Note4 executed on the same date. The said note was
signed by William K. Go (Go) and Nancy Go-Tan (Go-Tan) as Vice-President/General
Manager and Secretary/Treasurer of KT Construction, respectively. In addition, both Go
and Go-Tan signed the note in their personal capacities.
The promissory note stipulated that the loan was payable within a period of sixty (60)
months from November 12, 2006 to October 12, 2011. In addition, the said note
provided for the payment of attorney's fees in case of litigation.

On January 3, 2011, PSBank sent a demand letter to KT Construction asking the latter
to pay its outstanding obligation in the amount of P725,438.81, excluding interest,
penalties, legal fees, and other charges. For its failure to pay despite demand, PSBank
filed a complaint for sum of money against KT Construction.

Issues:
1. DID THE LOWER COURT ERR, IN HOLDING WILLIAM GO AND NANCY GO TAN
JOINTLY AND SEVERALLY LIABLE WITH THE PETITIONER TO THE RESPONDENT
BANK;

2. THE COURT OF APPEALS ERRED, AS DID THE LOWER COURT, IN NOT

FINDING THAT THE COMPLAINT IN THIS CASE WAS PREMATURELY FILED.

Held:
1. Go and Go-Tan were neither impleaded in the civil case nor served with summons.
They merely acted as representatives of KT Construction, which was impleaded as the
defendant in the complaint. It is for this reason that only KT Construction filed an answer
to the complaint. Thus, it is clear that the trial court never acquired jurisdiction over Go
and Go-Tan.

2. It has long been settled that an acceleration clause is valid and produces legal
effects. In the case at bench, the promissory note explicitly stated that default in any of
the installments shall make the entire obligation due and demandable even without
notice or demand. Thus, KT Construction was erroneous in saying that PSBank's
complaint was premature on the ground that the loan was due only on October 12,
2011. KT Construction's entire loan obligation became due and demandable when it
failed to pay an installment pursuant to the acceleration clause.

Moreover, KT Construction could not evade responsibility by claiming that it had not
received any demand letter for the payment of the loan. PSBank had sent a demand
letter,dated February 3, 2011, asking KT Construction to pay the remaining obligation
within five (5) days from receipt of the letter. More importantly, even granting that KT
Construction did not receive the demand letter, the loan still became due and
demandable because the parties expressly waived the necessity of demand.
 PART II. BILL OF EXCHANGE AND CHECKS
Negotiable Instrument

- It is a written contract for the payment of money which is intended as a

substitute for money and it passes from one person to another as money, in
such a manner as to give a holder in due course the right to hold the
instrument free from defenses available to prior parties.
- A document that promises payment to a specified person or the assignee.
Functions and Importance

- Although they do not constitute legal tender, they are used as a substitute for
money
- Negotiable papers, particularly checks, constitute, at the present, the media of
exchange for most commercial transactions.
Characteristics

1. NEGOTIABILITY – The right of transferee to hold the instrument and collect the
sum due. The note may pass from hand to hand similar to money as to give the
holder in due course the right to hold the instrument and collect the sum payable
for himself free from any infirmity in the instrument or defect in the title of any of
the prior parties or defenses available to them among themselves.
2. ACCUMULATION OF SECONDARY CONTRACTS – The instrument is
negotiated from person to person. Additional parties become involved as the
instrument is transferred from one person to another.

Kinds of Negotiable Instruments

Promissory note

An unconditional promise in writing made by one person to another, signed by

the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum
certain in money to order or to bearer. Where a note is drawn to the maker's own order,
it is not complete until indorsed by him. (Negotiable Instruments Law, Sec.184)

Bill of exchange

A bill of exchange is an unconditional order in writing addressed by one person to

another, signed by the person giving it, requiring the person to whom it is addressed to
pay on demand or at a fixed or determinable future time a sum certain in money to order
or to bearer. (Negotiable Instruments Law, Sec.126)

Check
 A check is a bill of exchange drawn on a bank payable on demand. (Negotiable
Instruments Law, Sec.185)

FORM (Negotiable Instruments Law Sec.1)

Section 1. Form of negotiable instruments. - An instrument to be negotiable must

conform to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise

indicated therein with reasonable certainty.

PARTIES

Promissory Note: (1) Maker and (2) Payee

Bill of Exchange: (1) Drawer, (2) Payee, and (3) Drawee / Acceptor

Checks: (1) Drawer, (2) Payee, and (3) Drawee Bank

Definitions

Drawer – the maker of the bill of exchange. A seller/creditor who is entitled to receive
money from the debtor can draw a bill of exchange upon the buyer/debtor. The drawer
after writing the bill of exchange has to sign it as the maker of the bill.

Drawee – the person upon whom the bill of exchange is drawn. The drawee has to
accept the bill. Once he accepts, he is now called an acceptor.

Payee – the person to whom the payment is made. The drawer of the bill himself will be
the payee if he keeps the bill with him until the date of its payment.
Sample Bill of Exchange

Php 50,000,000.00 Quezon City

August 20, 2019

One month after date, pay to Mr. Marcelo Del Pilar or his order the sum of Fifty Million
Pesos Only, for value received.

TO: (Signed)

Andres Bonifacio Jose Rizal

13 Main Ave 189 Province St

Quezon City Makati City

PROMISSORY NOTE VS. BILL OF EXCHANGE

Promissory Note Bill of Exchange

Promise to Pay Order to Pay
3 Parties – DRAWER, DRAWEE, and
2 Parties – MAKER, PAYEE
PAYEE
Acceptance by the DRAWEE is
No Acceptance Necessary. The maker is
absolutely necessary to make him liable
absolutely liable to pay.
to pay.
Liability of maker – PRIMARY and Liability of drawer – SECONDARY and
ABSOLUTE CONDITIONAL
Written by the DEBTOR. Drawn by a CREDITOR
Maker and Payee are in IMMEDIATE Drawer of the bill stands in immediate
RELATION to each other. relationship with the
DRAWEE/ACCEPTOR and PAYEE
Cannot be made payable to maker Drawee and Payee may be one and the
himself same person
Other Types of Bill of Exchange

1.) Draft: sometimes called a bill of exchange and normally refers to bills of exchange
used in documentary exchanges, like letters of credit transactions.

2.) Inland and Foreign Bill: inland bills are bills that are drawn and payable in the
Philippines. If the bill is drawn and payable elsewhere, it's a foreign bill.

3.) Time Draft: drafts payable at a fixed date.

4.) Sight/Demand Draft: draft payable when the holder presents is for payment.

5.) Trade Acceptance: bill used in sales contracts where the seller (as drawer) orders
the buyer (as drawee) to pay the seller a certain sum (as payee.)

6.) Banker's Acceptance: time draft where the drawee has written "accepted" on its
face.

7.) Check: the most common negotiable instrument. Bill of exchange drawn on a bank
and payable on demand

CHECK VS. BILL OF EXCHANGE

Check Bill of Exchange

Always drawn upon a bank or banker May or may not be drawn against a bank

May be payable on demand or at a fixed or

Always payable on demand
determinable future time

Not necessary that it be presented for Necessary that it be presented for

acceptance acceptance

Drawn on a deposit Not drawn on a deposit

The death of a drawer of a check, with

The death of the drawer of the ordinary bill
knowledge by the banks, revokes the
of exchange does not
authority of the banker to pay

Must be presented for payment within a May be presented for payment within a
reasonable time after its issue (6 months) reasonable time after its last negotiation.
KINDS OF CHECKS
1. Open Check
-Pay to Bearer - When the words "or bearer" appearing on the face of the
cheque are not cancelled, the cheque is called a bearer cheque. The bearer
cheque is payable to the person specified therein or to any other else who
presents it to the bank for payment. However, such cheques are risky, this is
because if such cheques are lost, the finder of the cheque can collect payment
from the bank.
-Pay to Order - Such a cheque is payable to the person specified therein as the
payee, or to any one else to whom it is endorsed (transferred).

2. Crossed Check - For issuers of checks who would want their financial
transactions to be limited between them and the payees, they avail of the
safeguard of “crossing” their checks. It is done by drawing two parallel lines or
across its face or across the corner thereof. Once a check is crossed, it produces
the following effects: (1) the check cannot be encashed with the drawee bank but
can only be deposited in the bank; (2) the check can be negotiated only once – to
the payee who must have an account with the bank; and (3) the act of crossing
the check serves as a warning to the holder that the check has been issued for a
definite purpose – that of being deposited in the account of the payee.

3. Certified Check - A certified check is a check for which payment has been
guaranteed by a bank. The bank only issues its guarantee after obtaining full
payment from the issuer of the check, thereby eliminating its risk. The bank
provides this service for a fee that is charged to the check issuer. A payee may
require that a certified check be issued to it when there is uncertainty about
the creditworthiness of the check issuer.

4. Manager’s Check - A manager's check is a secure check that a bank issues for
an individual who has purchased it. The person who purchases the check pays
the bank the amount of money for which the check is issued either in cash or
from his bank account. He is then guaranteed acceptance of his check by the
party receiving it. Paying by such a check is preferable to paying with large sums
of cash for both convenience and safety. If the check is lost or stolen, the bank
replaces it. The recipient of the check knows the check is good for the amount
written and does not waste time or money on a check backed with insufficient
funds. Another common name for a manager's check is a cashier's check.

5. Overdraft Check - An overdraft usually refers to a checking account where the

amount of checks presented to the bank for payment exceeds the amount on
deposit. When this occurs we say that the checking account customer
has overdrawn its account. The overdraft means that the bank's records indicate
a negative checking account balance. There are several reasons why drawee
 banks dishonor checks upon presentment for payment. Among these reasons
are DAUD “Drawn Against Uncollected Deposits,” and DAIF “Drawn Against
Insufficient Funds.”. DAUD means that the account has, on its face, sufficient
funds but not yet available to the drawer because the deposit, usually a check,
had not yet been cleared. DAIF, on the other hand, is a condition in which a
depositor’s balance is inadequate for the bank to pay a check.

6. Bouncing Check - Bouncing checks are checks which are returned by the bank
because their issuers do not have sufficient funds on deposit. In the Philippines,
there are two laws which criminalize and punish the issuance of bouncing
checks. The first is under Article 315 of the Revised Penal Code which punishes
for estafa a person who issues a check in payment of an obligation when he had
no funds in the bank sufficient to cover the amount of the check. The failure to
deposit the amount to cover the check within three days from receipt of notice of
dishonor shall be prima facie evidence of deceit. The other law is Batas
Pambansa Blg. 22 which punishes the acts of: (1) issuing a check to apply an
account or for value, knowing at the time of issue that he does not have sufficient
funds in the bank, which check is subsequently dishonored by the bank; or (2)
having sufficient funds in the bank when he issues the check, by failing to keep
sufficient funds to cover the check for which reason it is dishonored by the bank.

7. Stale Check - A stale check is one which is not presented for payment within a
reasonable time after its issue. It is valueless and, therefore, should not be paid
(International Corporate Bank vs. Spouses Gueco, G.R. No. 141968, Feb. 12,
2001). Based on jurisprudence, no hard and fast demarcation line can be drawn
between what may be considered as a reasonable or an unreasonable time
because “reasonable time” depends upon the peculiar facts and circumstances in
each case. In a case, a check payable on demand which was long overdue by
about two and half years was considered a stale check. Failure of a payee to
encash a check for more than ten years undoubtedly resulted in the check
becoming stale. In addition, the right to collect on the check may have already
prescribed. In another case, the Supreme Court referred to the banking practice
which considers a check becoming stale after more than six (6) months
(Pacheco, et. al. vs. Court of Appeals, et al., G.R. No. 126670, Dec. 02, 1999).
Thus, holders of checks should make sure that these are presented within six (6)
months from their due date.

8. Post Dated Check - The post-dated check is the most common means of
payment for a loan. It is a check that is written and issued by the debtor for a
date in the future and may not be encashed or deposited until such time. Debtors
use post-dated checks to avoid missing payments on their loans.
9.
CASE: BENJAMIN EVANGELISTA, PETITIONER, V. SCREENEX, INC.,
REPRESENTED BY ALEXANDER G, YU, RESPONDENT.

FACTS: Evangelista obtained a loan from Screenex which issued 2 checks to the
former. There were also vouchers of Screenex that were signed by the accused
evidencing that he received the 2 checks in acceptance of the loan granted to him. As
security for the payment, Evangelista gave 2 open-dated checks, both pay to order of
Screenex. From the time it was issued, they were held in safekeeping together with the
other documents and papers of the company by Philip Gotuaco, Sr., father-in-law of
respondent Alexander Yu, until the former’s death. Before the checks were deposited,
there was a personal demand from the family for Evangelista to settle the loan and a
demand letter was sent by the family lawyer.

Evangelista was charged with violation of BP 22 in a criminal case filed with the MeTC
of Makati. The MeTC found that the prosecution had indeed proved the first 2 elements
of cases involving BP 22 but failed to prove the 3rd element. Also, there was failure on
the part of Yu to prove that the demand letter had actually been received by the
addressee and there was no way to determine when the 5-day period should start to
toll, there was failure to establish prima facie evidence of knowledge of insufficiency of
funds, hence, the court acquitted Evangelista of the criminal charges. Ruling on the civil
aspect, the court held that while Evangelista admitted to having issued and delivered
the checks to Gotuaco and having fully paid the amount, no evidence of payment was
presented. In the end, Evangelista was declared liable for the civil obligation.

Timely appeal was made to the RTC raising two errors of the MeTC, to wit: 1) Lower
court erred in not appreciating the fact that the prosecution failed to prove the civil
liability and 2) any civil liability attributable to Evangelista had been extinguished by
prescription. RTC held that the checks should be taken as evidence of Evangelista’s
indebtedness to prove that the obligation subsisted. Also, the alleged payment by
Evangelista was an affirmative defense that he had the burden of proving but that he
failed to discharge.

CA, upon petition for review, denied the same. It held that the reckoning time for the
prescriptive period began when the instrument was issued and the corresponding check
returned by the bank to its depositor; that the issue of prescription was raised for the
first time on appeal; and that the loan obligation was never denied by Evangelista, who
claimed it was already settled, but failed to show any proof of payment.

ISSUE: Whether or not Evangelista is still liable for the total amount indicated in the 2
checks?
HELD: NO. By definition, a check is a bill of exchange drawn on a bank payable on
demand. It is an undertaking that the drawer will pay the amount indicated thereon. Sec
119 of the NIL, however, states that a negotiable instrument like a check may be
discharged by any other act which will discharge a simple contract for the payment of
money. A check is therefore subject to a 10-year prescription of actions upon a written
contract. If the check is undated as in the present case, the cause of action is reckoned
from the issuance of the check. Assuming that Yu had authority to insert the dates in the
checks, the fact that he did so after the lapse of more than 10 years cannot qualify as
changes made within a reasonable period. The cause of action on the checks has
become stale, hence time-barred. Prescription has indeed set in.

Therefore there is no other recourse but to grant the petition on the ground of
prescription. Even if the defense was belatedly raised before the RTC for the first time
on appeal from the ruling of MeTC, the supreme court nonetheless dismissed the
complaint seeking to enforce civil liability of Evangelista based on the undated checks.

The acceptance of a check implies an undertaking of due diligence in presenting it for

payment, and if he from whom it is received sustains loss by want of such diligence, it
will be held to operate as actual payment of the debt or obligation for which it was given.

The SC held that the delivery of the checks, despite the subsequent failure to encash
them within a period of 10 years or more, had the effect of payment. Petitioner is
considered discharged from his obligation to pay and can no longer be pronounced
civilly liable for the amounts indicated thereon.
 PART III. ANSWER
Sec. 2 of Rule 6 of the Rules of Court provides:

Section 2. Pleadings allowed. – The claims of a party are asserted in a complaint,

counterclaim, cross-claim, third (fourth, etc) – party complain, or complaint-in-
intervention.

The defenses of a party are alleged in the answer to the pleading asserting a claim
against him.

An answer may be responded to by a reply.

ANSWER
It is the responsive pleading to the complaint. It gives notice to the plaintiff as to which
allegations in the complaint the defendant decides to contest and put in issue. It is a
pleading in which a defending party sets forth his defenses (Sec. 4, Rule 6, Rules of
Court).

This pleading may be an answer to the complaint, counterclaim or a cross-claim. There

is no answer to a reply but there could be an answer to a third-party complaint or
complaint-in-intervention.

DEFENSES
1. Affirmative
2. Negative
3. Negative Pregnant

1. Affirmative Defense
Essentially consists of a hypothetical admission of the material allegations in the
pleading of the claimant but, nevertheless, prevents or bars recovery by him.

2. Negative Defense
It is the specific denial of the material fact or facts alleged in the pleading of the
claimant essential to his cause of action or defense (Sec. 5, Rule 6, Rules of Court).
A negative defense is stated in the form of a specific denial and the kinds of specific
denials are described in Sec. 10 of Rule 8. If the denial is not one of those
described under said provision, the denial is deemed to be general. A general
denial is considered an admission.
 Effect of Absence of Specific Denial
Under Sec. 11 of Rule 8, material averments in the complaint (other than those as
to the amount of unliquidated damages) not specifically denied shall be deemed
admitted.

If the allegations are deemed admitted, there is no more triable issue between the
parties and if the admissions appear in the answer of the defendant, the plaintiff
may file a motion for judgment on the pleadings pursuant to Rule 34.

Kinds of Specific Denials

a. Absolute denial
Defendant specifies each material allegation of fact the truth of which he does
not admit and, whenever practicable, sets forth the substance of the matters
upon which he relies to support his denial.
b. Partial denial
Defendant does not make a total denial of the material allegations in a specific
paragraph. He denies only a part of the averment.
c. Denial by disavowal of knowledge
Defendant alleges that he “is without knowledge or information sufficient to form
a belief as to the truth of a material complaint.”

3. Negative Pregnant
A negative implying also an affirmative and which, although is stated in a negative
form, really admits the allegations to which it relates.

When A Specific Denial Must Be Coupled With An Oath:

a. Denial of an actionable document (Sec. 8, Rule 8, RoC)
b. Denial of allegations of usury in a complaint to recover usurious interest (Sec. 11,
Rule 8, RoC)

Matters Not Deemed Admitted by the Failure to Make a Specific Denial

a. Amount of unliquidated damages (Sec. 11, Rule 8, RoC)
b. Conclusions in a pleading because only ultimate facts need be allegedin a
pleading (Sec. 1, Rule 8, RoC)
c. Non-material averments or allegations because only material allegations have to
be denied (Sec. 11, Rule 8, RoC)

WHEN TO FILE AN ANSWER

§ Defendant shall file his answer to the complaint fifteen (15) days after service of
summons, unless a different period is fixed by the court (Sec. 1, Rule 11, RoC).
 When the plaintiff files an amended complaint as a matter of right, the defendant
shall answer the same, within fifteen (15) days after being served with a copy
thereof (Sec. 3, Rule 11, RoC).

Where the filing of the amended complaint is not a matter of right, the defendant
shall answer the amended complaint within ten (10) days from notice of the order
admitting the same.

§ Where the defendant is a private foreign juridical entity and service of summons is
made on the government official designated by law to receive the same, the answer
shall be filed within thirty (30) days after receipt of summons by such entity (Sec. 2,
Rule 11, RoC).

§ A supplemental complaint may be answered within ten (10) days from notice of the
order admitting the same, unless a different period is fixed by the court. The answer
to the complaint shall serve as the answer to the supplemental complaint if no new
or supplemental answer is filed (Sec. 7, Rule 11, RoC).

DEFAULT

It is a procedural concept that occurs when the defending party fails to file his answer
within the reglementary period.

Requisites Before a Defending Party May Be Declared in Default

a. The court has validly acquired jurisdiction over the person of the defending apprty,
either by service of summons or voluntary appearance;
b. The defending party must have failed to file his answer within the time allowed
therefor;
c. The claiming party must file a motion to declare the defending party in default;
d. The claiming party must prove that the defending party has failed to answer within
the period provided by the RoC;
e. The defending party must be notified of the motion to declare hi in default;
f. There must be a hearing set on the motion to declare him in default; and

Effect of a Declaration or Order of Default

The party declared in default loses his standing in court. The loss of such standing
prevents him from taking part in the trial.
CASE:

William C. Louh, Jr. and Irene L. Louh v Bank of the Philippine Islands
G.R. No. 225562 march 8, 2017

Facts: The herein respondent, Bank of the Philippine Islands (BPI), issued a credit card
in William’s name, with Irene as the extension card holder. Pursuant to the terms and
conditions of the cards’ issuance, 3.5% finance charge and 6% late payment charge
shall be imposed monthly upon unpaid credit availments.

The Spouses Louh made purchases from the use of the credit cards and paid regularly
based on the amounts indicated in the Statement of Accounts. However, they were
remiss in their obligations starting October 14, 2009 prompting BPI to send written
demand letters. By September 14, 2010, they owed BPI the total amount of
₱533,836.27. Despite repeated verbal and written demands, the Spouses Louh failed to
pay BPI. BPI filed before the Regional Trial Court of Makati City a Complaint for
Collection of a Sum of Money.

On July 24, 2012, the RTC issued an Order declaring the Spouses Louh in default and
setting BPI’s ex-parte presentation of evidence on August 7, 2012. The Branch Clerk of
Court thereafter submitted a Commissioner’s Report

On November 29, 2012, the RTC rendered a Decision which ordered the Spouses Louh
to solidarily pay BPI (1) P533,836.27 plus 12% finance and 12% late payment annual
charges starting from August 7, 2010 until full payment, and (2) 25% of the amount due
as attorney’s fees, plus ₱l,000.00 per court hearing and ₱8,064.00 as filing or docket
fees; and (3) costs of suit.17

The RTC explained that BPI had adduced preponderant evidence proving that the
Spouses Louh had in fact availed of credit accommodations from the use of the cards.
However, the RTC found the 3.5% finance and 6% late payment monthly
chargesimposed by BPI as iniquitous and unconscionable. Hence, both charges were
reduced to 1 % monthly. Anent the award of attorney’s fees equivalent to 25% of the
amount due, the RTC found the same to be within the terms of the parties’ agreement.

Aggrieved, the spouses before the Court alleged the computations did not show the
specific amounts pertaining to the principal, interests and penalties. They point out that
since their credit limit was only ₱326,000.00, it is evident that the amount of
₱533,836.27 demanded by BPI included unconscionable charges.

Issue: Whether or not the interest rate imposed and attorney’s fee awarded are
unconscionable and can be equitable reduced by the Court.
Ruling: The Supreme Court ruled in the negative. Be that as it may, the Court finds
excessive the principal amount and attorney’s fees awarded by the RTC and CA. A
modification of the reckoning date relative to the computation of the charges is in order
too.

In Macalinao, where BPI charged the credit cardholder of 3.25% interest and 6%
penalty per month, and 25% of the total amount due as attorney’s fees, the Court
unequivocally declared that:

This is not the first time that this Court has considered the interest rate of 36% per
annum as excessive and unconscionable. We held in Chua vs. Timan:

The stipulated interest rates of 7% and 5% per month imposed on respondents’ loans
must be equitably reduced to 1% per month or 12% per annum. We need not unsettle·
the principle we had affirmed in a plethora of cases that stipulated interest rates of 3%
per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such
stipulations are void for being contrary to morals, if not against the law. While C.B.
Circular No. 905-82, which took effect on January 1, 1983, effectively removed the
ceiling on interest rates for both secured and unsecured loans, regardless of maturity,
nothing in the said circular could possibly be read as granting carte blanche authority to
lenders to raise interest rates to levels which would either enslave their borrowers or
lead to a hemorrhaging of their assets. x x x

Since the stipulation on the interest rate is void, it is as if there was no express contract
thereon. Hence, courts may reduce the interest rate as reason and equity demand.

The same is true with respect to the penalty charge. x x x Pertinently, Article 1229 of the
Civil Code states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable. x x xx

x x x [T]he stipulated penalty charge of 3% per month or 36% per annum, in addition to
regular interests, is indeed iniquitous and unconscionable.

Thus, in Macalinao, the Court reduced both the interest and penalty charges to 12%
each, and the attorney’s fees to ₱l0,000.00.

In MCMP Construction Corp. v. Monark Equipment Corp., the creditor cumulatively

charged the debtor 60% annually as interest, penalty and collection fees, and 25% of
the total amount due as attorney’s fees. The Court similarly found the rates as
exorbitant and unconscionable; hence, directed the reduction of the annual interest to
12%, penalty and collection charges to 6%, and attorney’s fees to 5%. The Court
explained that attorney’s fees are in the nature of liquidated damages, which under
Article 2227 of the New Civil Code, “shall be equitably reduced if they are iniquitos or
unconscionable.”

The Court reduces the attorney’s fees to five percent (5%) of the total amount due from
the Spouses Louh pursuant to MCMP43 and Article 2227 of the New Civil Code.
 PART IV. RULES GOVERNING VERIFICATION AND CERTIFICATION
AGAINST FORUM-SHOPPING.
R7. Section 4. Verification. — Except when otherwise specifically required by law or
rule, pleadings need not be under oath, verified or accompanied by affidavit. A pleading
is verified by an affidavit that the affiant has read the pleading and that the allegations
therein are true and correct of his knowledge and belief. A pleading required to be
verified which contains a verification based on "information and belief", or upon
"knowledge, information and belief", or lacks a proper verification, shall be treated as an
unsigned pleading.

R7. Section 5. Certification against forum shopping. — The plaintiff or principal

party shall certify under oath in the complaint or other initiatory pleading asserting a
claim for relief, or in a sworn certification annexed thereto and simultaneously filed
therewith: (a) that he has not theretofore commenced any action or filed any claim
involving the same issues in any court, tribunal or quasi-judicial agency and, to the best
of his knowledge, no such other action or claim is pending therein; (b) if there is such
other pending action or claim, a complete statement of the present status thereof; and
(c) if he should thereafter learn that the same or similar action or claim has been filed or
is pending, he shall report that fact within five (5) days therefrom to the court wherein
his aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere
amendment of the complaint or other initiatory pleading but shall be cause for the
dismissal of the case without prejudice, unless otherwise provided, upon motion and
after hearing. The submission of a false certification or non-compliance with any of the
undertakings therein shall constitute indirect contempt of court, without prejudice to the
corresponding administrative and criminal actions. If the acts of the party or his counsel
clearly constitute willful and deliberate forum shopping, the same shall be ground for
summary dismissal with prejudice and shall constitute direct contempt, as well as a
cause for administrative sanctions.

What. Verification is an averment by the party making a pleading that he is prepared to

establish the truth of the facts which he has pleaded.

How to Verify:
It is verified by an affidavit. This affidavit declares that the:
(1) Affiant has read the pleading; and
(2) Allegations therein are true and correct of his personal knowledge

General Rule. Verification (under oath) is not necessary in pleadings, except when
otherwise specifically required by law or rule.

When Required.
Initiatory Pleading
 Complaint for Injunction
Application for Support Pendente Lite
Application for Appointment of Receiver

Petition for Relief from Judgment

Petition for Annulment of Judgments or Final Orders and Resolutions

Petition for Certiorari, Prohibition Mandamus

Petition for Quo Warranto
Complaint for Expropriation
Complaint for Forcible Entry and Unlawful Detainer
Petition for Indirect Contempt

Petition for Appointment of General Guardian

Petition for Leave to Sell or Encumber Property of an Estate by Guardian
Petition for Declaration of Competency of Ward
Petition for Habeas Corpus
Petition for Change of Name
Petition for Voluntary Dissolution of a Corporation
Petition for Correction or Cancellation of Entries in Civil Registry

Petition for Review from RTC to CA

Petition for Review from CTA and other Quasi-Judicial Bodies to CA
Appeal by Certiorari from CA to SC

Who Verifies. Representatives, lawyers or any person who personally knew the truth of
the FACTS alleged in the petition could sign the verification. [COA vs. Paler]

Significance. The purpose of requiring a verification is to secure an assurance that the

allegations of the petition have been made in good faith, or are true and correct, not
merely speculative.

Absence. The absence of a proper verification is cause to treat the pleading as

unsigned and dismissible.
Non-compliance with the verification requirement does not necessarily render the
pleading fatally defective, and is substantially complied with when signed by one who
has ample knowledge of the truth of the allegations in the complaint or petition, and
when matters alleged in the petition have been made in good faith or are true and
correct. (Spouses Lim vs. CA)

Forum Shopping
a.) It is an act of a party against whom an adverse judgment has been rendered in
one forum of seeking and possibly getting a favorable opinion in another forum,
other than by appeal or the special civil action of certiorari, or;
 b.) The institution of two or more actions or proceedings grounded on the same
cause on the supposition that one or the other court would make a favorable
disposition.

Nature of Certification against Forum Shopping

It is a mandatory requirement in filing a complaint and other initiatory pleadings
asserting a claim or relief.

While the certification requirement is obligatory, non-compliance or a defect in the

certification could be cured by its subsequent correction or submission under special
circumstances or compelling reasons, or on the ground of "substantial compliance.
(Spouses Lim vs. CA)

Undertakings of a party under the certification against forum shopping

1. That the party has not commenced or filed any claim involving the same issues in
any court, tribunal, or quasi-judicial agency and, to the best of his knowledge, no
such other action or claim is pending;
2. That if there is such other pending action or claim, a complete statement of the
present status thereof; and
3. That if he should therefore learn that the same or similar action or claim has been
filed or is pending, he shall report that fact within five days therefrom to the court
wherein his aforesaid complaint or initiatory pleading.

Who Signs Certification. The established rule is that it must be executed by the
plaintiff or any of the principal parties and not by counsel.

Non-compliance with the rule on certification against forum shopping.

It is not curable by mere amendment and shall be a cause for the dismissal of action

Submission of a false certification or

Non-compliance with any of the undertakings
The submission of a false certification or non-compliance with any of the undertakings
therein shall constitute indirect contempt of court, without prejudice to the corresponding
administrative and criminal actions.

Consequence of Forum Shopping

If the forum shopping is NOT considered willful and deliberate, the subsequent case
shall be dismissed without prejudice, on the ground of either litis pendentia or res
judicata.

However, if the forum shopping is willful and deliberate, both (or all, if there are more
than two) actions shall be dismissed with prejudice (Chua v. Metropolitan Bank & Trust
Co., G.R. No. 182311, August 19, 2009). It shall be a ground for the summary dismissal
of the action, and shall constitute direct contempt, as well as cause for administrative
sanctions on the party of the counsel.

Belated filing of certification against forum shopping

The lack of certification against forum shopping is generally not curable by the
submission thereof after the filing of the petition.

CASE: SPOUSES LIM vs. CA

Facts:
Bank of the Philippine Islands (BPI) filed before the Regional Trial Court (RTC), a
complaint for collection of money. The verification and certification against forum-
shopping attached to the complaint were signed by Francisco R. Ramos (Ramos), then
BPI Assistant Vice-President and Mindanao Region Lending Head.

On May 26, 2008, the Spouses Lim filed a motion to dismiss, on the ground that there
had been a fatal defect in the verification and certification against forum shopping
attached to BPIs complaint. They argued that the verification and certification did not
state or declare that Ramos was filing the subject complaint in a representative capacity
or as an authorized officer of BPI; nor did it state that Ramos was authorized by BPIs
Board of Directors to file the complaint through a board resolution made specifically for
the purpose.

BPI submitted a copy of the Special Power of Attorney (SPA) signed and executed by
Rosario Jurado-Benedicto (Benedicto), the Assistant Vice-President of BPI, granting
Ramos the authority to represent the bank and sign the verification and certification
against forum shopping on BPIs behalf. Also, it submitted a copy of the certified true
copy of BPIs Corporate Secretary’s Certificate showing that Benedicto was among
those authorized by the banks Executive Committee to grant and extend a SPA to other
bank officers to appear in court in cases where BPI is the complainant or plaintiff. BPI
contended that its submissions already constituted substantial compliance with the
procedural rules and should be applied in this case to facilitate and effectuate the ends
of substantial justice. BPI also contended that the petitioners, by raising the issue of
Ramos authority only in their May 26, 2008 motion to dismiss and after having already
filed several motions in court, are now estopped from raising and are deemed to have
waived this issue by reason of laches

RTC denied the motion to dismiss after the filing several of the same motions in court
(presumably, in violation of the Omnibus Motion Rule) and denied the motion for
reconsideration as well. Spouses Lim filed for a petition for review on certiorari with the
Supreme Court.

Issue: Whether Ramos lack of authority from signing the verification and certification
against forum shopping warrants the dismissal of the case
Ruling: NO.
A closer look into the SPA and the Corporate Secretary’s Certificate submitted by BPI
reveals that, at the time the subject complaint was filed on January 26, 1999, Ramos did
not have the express authority to file and sign the verification and certification against
forum shopping attached to BPIs complaint. The SPA, which appointed Ramos and/or
Atty. Mateo G. Delegencia as BPIs attorneys-in-fact in the case against the petitioners,
was executed only on July 8, 2008. Even the Corporate Secretary’s Certificate that
named the officers authorized by the BPIs Executive Committee to grant and extend a
SPA to other officers of the bank was executed only on February 21, 2007. The
Executive Committee is part of the banks permanent organization and, in between
meetings of BPIs Board of Directors, possesses and exercises all the powers of the
board in the management and direction of the banks affairs.

BPIs subsequent execution of the SPA, however, constituted a ratification of Ramos

unauthorized representation in the collection case filed against the petitioners. A
corporation can act only through natural persons duly authorized for the purpose or by a
specific act of its board of directors, and can also ratify the unauthorized acts of its
corporate officers. The act of ratification is confirmation of what its agent or delegate
has done without or with insufficient authority.

We recognized that certain officials or employees of a company could sign the

verification and certification without need of a board resolution, such as, but not limited
to: the Chairperson of the Board of Directors, the President of a corporation, the
General Manager or Acting General Manager, Personnel Officer, and an Employment
Specialist in a labor case. For other corporate officials and employees, the
determination of the sufficiency of their authority is done on a case-to-case basis.

We note that, at the time the complaint against the petitioners was filed, Ramos also
held the position of Assistant Vice-President for BPI Northern Mindanao and was then
the highest official representing the bank in the Northern Mindanao area. This position
and his standing in the BPI hierarchy, to our mind, place him in a sufficiently high and
authoritative position to verify the truthfulness and correctness of the allegations in the
subject complaint, to justify his authority in filing the complaint and to sign the
verification and certification against forum shopping. Whatever is lacking, from the
strictly corporate point of view, was cured when BPI subsequently (although belatedly)
issued the appropriate SPA.