The Importance of Proving Payment: A Key Lesson for Debtors in Loan Disputes

Decena v. Asset Pool A (SPV-AMC), Inc., G.R. No. 239418, October 12, 2020

Imagine waking up to a demand letter for a debt you believed was settled years ago. For Danilo Decena and Cristina Castillo, this nightmare became a reality, leading them to the Supreme Court of the Philippines. Their case underscores a crucial legal principle: when a creditor presents evidence of a debt, the burden shifts to the debtor to prove that the debt has been paid. This ruling not only affected the Decenas but also set a precedent for how similar disputes might be resolved in the future.

The central issue in this case was whether the Decenas were still liable for a loan they had taken out from Prudential Bank, which was later assigned to Asset Pool A (SPV-AMC), Inc. The Supreme Court’s decision hinged on the absence of proof of payment from the Decenas, despite their claims of settlement.

The Legal Framework: Burden of Proof in Debt Repayment

In Philippine law, the principle that governs debt repayment disputes is clear: the debtor must prove payment. This is rooted in the Civil Code, which states that the burden of proof lies with the party who alleges a fact. In the context of loans, Article 1233 of the Civil Code specifies that a debt is presumed to exist until the debtor proves its extinguishment.

Key legal terms to understand include:

• Burden of Proof: The obligation to present evidence to support one’s claim. In debt disputes, the debtor must prove payment.
• Promissory Note: A written promise to pay a specified sum of money to a creditor at a specified time or on demand.

The Supreme Court has consistently upheld this principle in cases such as Royal Cargo Corporation v. DFS Sports Unlimited, Inc., where it was ruled that the party alleging payment must prove it. This principle ensures that creditors can rely on legal documents like promissory notes as evidence of an outstanding debt unless the debtor can provide concrete proof of payment.

The Journey of Decena v. Asset Pool A (SPV-AMC), Inc.

Danilo Decena and Cristina Castillo, once married, had taken out loans from Prudential Bank, which merged with the Bank of the Philippine Islands (BPI). In 2006, BPI assigned their debt to Asset Pool A (SPV-AMC), Inc. When the Decenas failed to respond to demand letters, Asset Pool A filed a complaint for the sum of money and damages in 2008.

The Decenas argued that they had substantially paid their loans and that their properties had been foreclosed to settle the debt. However, they failed to provide any documentary evidence to support these claims. The Regional Trial Court (RTC) ruled in favor of Asset Pool A, a decision that was partially affirmed by the Court of Appeals (CA).

The Supreme Court emphasized the importance of the promissory notes, stating, “The creditor’s possession of the evidence of debt is proof that the debt has not been discharged by payment.” The Court also noted that Danilo Decena admitted the authenticity of his signatures on the promissory notes, further solidifying the evidence of the debt.

The procedural steps included:

1. Filing of the complaint by Asset Pool A in the RTC.
2. Decenas’ response, claiming substantial payment and foreclosure of properties.
3. RTC ruling in favor of Asset Pool A, ordering the Decenas to pay the debt.
4. Appeal to the CA, which partially affirmed the RTC’s decision.
5. Final appeal to the Supreme Court, which upheld the debt but modified the interest rates.

Practical Implications and Key Lessons

This ruling reinforces the importance of maintaining records of loan payments. For individuals and businesses, it serves as a reminder to keep thorough documentation of all financial transactions, especially loan repayments. The Supreme Court’s decision also highlights the significance of understanding the terms of a loan agreement and the potential consequences of failing to meet repayment obligations.

Key lessons include:

• Always keep detailed records of loan payments and any related transactions.
• Understand the terms of your loan agreement, including interest rates and repayment schedules.
• If you believe a debt has been settled, ensure you have proof to present in court.

For businesses, this ruling underscores the need for robust financial management practices to avoid similar disputes.

Frequently Asked Questions

What happens if I can’t prove I paid a loan?

If you cannot provide evidence of payment, the court may presume the debt still exists, and you could be held liable for the outstanding amount.

Can a creditor demand payment if they have a promissory note?

Yes, a promissory note in the hands of a creditor is considered evidence of indebtedness, and the creditor can demand payment unless the debtor proves otherwise.

What should I do if I receive a demand letter for a debt I believe is paid?

Immediately gather all documentation related to the loan and payments. Consult with a lawyer to review your case and prepare a response.

How can I protect myself from similar legal disputes?

Keep meticulous records of all financial transactions, especially loans. Ensure that any payments made are properly documented and acknowledged by the creditor.

What are the interest rates applicable to unpaid loans?

The Supreme Court has set guidelines for interest rates on unpaid loans, with a 12% per annum rate applicable until June 30, 2013, and 6% per annum from July 1, 2013, until full payment.

ASG Law specializes in debt and loan disputes. Contact us or email hello@asglawpartners.com to schedule a consultation.