Kaunlaran Lending Investors, Inc. vs. Uy

A real estate mortgage and promissory note supported by proven receipt of loan proceeds are valid and cannot be annulled on uncorroborated claims of fraud, especially where the finding of receipt rests on the trial court's credibility assessment and documentary acknowledgments, and the contrary testimony is a recantation that must be received with caution.

Loreta Q. Uy was the registered owner of two parcels of land in Quezon City covered by Transfer Certificates of Title Nos. 78622 and 78623. Kaunlaran Lending Investors, Inc. was a lending company holding office in a building leased from Lelia Chua Sy, then a Branch Manager of the Far East Bank and Trust Co., Inc. in Dagupan City whom Loreta alleged to be KLII's controlling owner. Jose U. Sim was Loreta's son and holder of her special power of attorney to obtain a loan secured by her lands, while Wilfredo Chua was the intermediary who scouted for financing and Virgilio Sim was to manage a contemplated second-hand motor vehicle business.

Sometime in 1987, Jose U. Sim, his cousin Virgilio Sim, and Wilfredo Chua agreed to establish a buy-and-sell business for second-hand motor vehicles in which Virgilio would be manager, Wilfredo would scout for a financier, and Jose would provide security for any loan. Through Wilfredo, Lelia Chua Sy, then Branch Manager of the Far East Bank and Trust Co., Inc. in Dagupan City, allegedly agreed to arrange a loan. Loreta Q. Uy, Jose's mother, executed a Special Power of Attorney authorizing Jose to obtain a loan from any bank, financial institution or person and to secure payment by constituting a real estate mortgage over her two Quezon City parcels covered by TCT Nos. 78622 and 78623, to receive the check and cash proceeds, and to sign related documents.

Jose entrusted his mother's titles and related documents to Wilfredo, who delivered them to Lelia. Lelia then sent Jose to Manila with two KLII men to have the lands appraised at the FEBTC main office. Wilfredo later brought to Loreta's residence loan forms consisting of a promissory note he had pre-signed as co-maker, a real estate mortgage, and a loan disclosure statement; after Jose examined them, Loreta signed them. Soon Jose and Virgilio left for Manila to canvass prices of second-hand vehicles.

According to Loreta, while the two were in Manila, Magno Zareno, then KLII manager, returned to her residence with the earlier-signed forms and another set of loan forms, together with a blank Solidbank check drawn from KLII's account and a check voucher. In the presence of her daughter-in-law Arlene Sim, Magno allegedly explained that the new forms would be sent to Manila and the proceeds promptly delivered once Loreta signed the check and voucher. When Jose returned and learned of the signing, he confronted Magno at the KLII office and was told the loan papers had already been sent to Lelia and the signatures procured on Lelia's instructions. Virgilio and Jose tried to withdraw the application and titles, but Lelia said it was no longer possible; in a later conference among Lelia, Jose, Virgilio, and Wilfredo, Lelia allegedly admitted applying the P800,000 proceeds to Wilfredo's personal debt to her.

Petitioners, for their part, maintained that after approval Wilfredo and Loreta signed the promissory note and Loreta signed the mortgage in the presence of Magno and others before notary Atty. Teofilo Guadiz III, that KLII's president and treasurer issued Solid Bank Check No. 0232250 for P800,000 in favor of Loreta who immediately endorsed it to KLII which exchanged it for cash, and that Loreta signed a discount statement and the check as proof of receipt. Verification at the Quezon City Register of Deeds showed a P800,000 mortgage in favor of KLII annotated on Loreta's titles, the filed copy bearing only Loreta's signature and allegedly notarized in her absence. Loreta and Jose sent telegrams to KLII and the Register of Deeds to set aside the transaction and deny registration, to no avail, then filed the civil annulment suit and an estafa complaint on the theory that the mortgage, promissory note, check and related documents were null for absence of consideration and vitiated consent.

The trial court found that Lelia was not a part-owner but merely KLII's lessor, that KLII had funds as shown by a P800,000 loan from financier Salome Cenidoza on January 28, 1988 and P1,700,288.10 cash on hand, and that Loreta and Wilfredo received P800,000 cash on January 28, 1988 after KLII itself encashed the check, as proven by Loreta's signatures on the check and discount disclosure. It found no evidence that Lelia conspired with Wilfredo, applied a disputable presumption that Wilfredo appropriated the money after receipt since he did not testify, and deemed Magno's trial testimony not credible as a complete turnabout from his counter-affidavit.

• Credibility of Magno Zareno: Petitioners argued that the appellate court gravely abused its discretion and misappreciated Magno's testimony by crediting it, contrary to the trial court's findings after hearing and observing him testify as a recanting and therefore incredible witness.
• Weight of Witnesses: Petitioners argued that the appellate court erred in giving more credence to respondent's witnesses, in direct contrast to the trial court's assessment of demeanor and credibility.
• Attorney's Fees: Petitioners argued that the P100,000 award of attorney's fees inclusive of litigation expenses was erroneous where moral and exemplary damages were not awarded and no reason for the award was explained in the decision.
• Corporate Verification Authority: Petitioners maintained that the president's certification should be sustained because, as chief executive with general supervision and control under the by-laws, acts done in the ordinary course of business are presumed duly authorized unless the contrary appears.

• Defective Verification and Forum Shopping: Respondent countered that the petition should be dismissed for defective verification and certificate of non-forum shopping, there being no proof that KLII president Rolando Tan was authorized by the board to sign on its behalf.
• Factual Issues: Respondent argued that the petition raises factual issues inappropriate for review.

• Verification and Non-Forum Shopping: Whether the petition must be denied for failure to present board authorization proving that KLII's president was empowered to sign the verification and certificate of non-forum shopping.
• Validity of Mortgage and Promissory Note: Whether the P800,000 real estate mortgage, promissory note, and related documents are null and void for absence of consideration and vitiated consent.
• Attorney's Fees: Whether the award of P100,000 attorney's fees inclusive of litigation expenses was proper.

• Verification and Non-Forum Shopping: No, as a matter of outcome. Although the certificate was defective for lack of board authorization, the merits justified relaxation of the rule.
• Validity of Mortgage and Promissory Note: No. The mortgage, promissory note, and related documents are valid and legal, receipt of P800,000 having been proved and nullity not established by preponderance of evidence.
• Attorney's Fees: No. The P100,000 award was set aside with the reversal of the appellate decision and reinstatement of the dismissal.

• Verification and Non-Forum Shopping: A corporation's certificate must be signed by a specifically authorized officer with personal knowledge, and even regular officers like the chairman and president require board authorization; without needed board proof the certificate is defective. Relaxation was nevertheless warranted because review of the records showed Loreta had not proven by preponderance of evidence that she was deceived into signing the loan documents.
• Validity of Mortgage and Promissory Note: The appellate reversal rested on Magno's testimony as hostile witness that Lelia sent him to secure Loreta's signatures in blank and that no proceeds were delivered, yet no reason was proffered for deviating from the trial court's contrary credibility assessment despite the doctrine requiring strong and cogent reason to do so. Magno's testimony required cautious reception because it contradicted his sworn Counter-Affidavit and Rejoinder in I.S. No. 88-498 and his verification of the joint Answer, and recantation does not necessarily cancel an earlier declaration but is tested for credibility. The Solidbank bookkeeper's testimony that KLII lacked P800,000 in bank as of January and February 1988 was irrelevant given the trial finding that drawer-KLII itself converted the check to cash, which Loreta received as proven by her signature on the check and discount statement acknowledging P800,000 cash.
• Attorney's Fees: With the mortgage and related documents declared valid and the complaint dismissed, no basis remained for holding petitioners jointly and severally liable for attorney's fees and litigation expenses as imposed by the appellate court.

• Deference to trial court findings on credibility — Findings of fact of the trial court carry great weight and are entitled to respect on appeal absent any strong and cogent reason to the contrary, since it is in a better position to decide credibility. Applied to sustain the trial court's rejection of Magno's testimony and acceptance of receipt of proceeds over the Court of Appeals' contrary assessment without stated justification.
• Recantation and prior inconsistent statements — Courts do not generally look with favor on retraction or recanted testimony, which could have been secured by considerations other than truth-telling; a recantation does not necessarily cancel an earlier declaration but is subject to the test of credibility and should be received with caution, and a witness may be impeached by a previous contradictory statement. Applied to discredit Magno's turnabout from his counter-affidavit, rejoinder, and verified answer.
• Corporate verification and certificate of non-forum shopping — The certificate for a corporation must be signed for and on its behalf by a specifically authorized officer or agent with personal knowledge of the facts to be disclosed; without board proof the certificate is defective, and even the chairman and president must be board-authorized. Applied to find petitioners' certification defective for lack of proof of Rolando Tan's authority, though the rule was relaxed on the merits.
• Burden of proof in annulment for lack of consideration — Annulment for absolute nullity due to absence of consideration and vitiated consent requires proof by preponderance of evidence. Applied to hold that Loreta failed to prove deception where documentary acknowledgments established receipt of P800,000 cash.

• "findings of fact of the trial court carry great weight and are entitled to respect on appeal absent any strong and cogent reason to the contrary, since, it is in a better position to decide the question of credibility of witnesses." — States the deference doctrine that barred the appellate court's unexplained departure from the trial court's credibility assessment of Magno.
• "courts do not generally look with favor on any retraction or recanted testimony, for it could have been secured by considerations other than to tell the truth and would make solemn trials a mockery and place the investigation of the truth at the mercy of unscrupulous witnesses." — Defines the cautious treatment of recantation applied to Magno's contradictory trial testimony.
• "A recantation does not necessarily cancel an earlier declaration, but like any other testimony the same is subject to the test of credibility and should be received with caution." — Articulates the rule for weighing Magno's later statements against his prior sworn counter-affidavit, rejoinder, and verified pleading.
• "In case of a corporation, it has long been settled that the certificate [of non-forum shopping] must be signed for and on its behalf by a specifically authorized officer or agent who has personal knowledge of the facts required to be disclosed." — States the strict authorization requirement that rendered petitioners' certificate defective, though relaxed on the merits.

• Metro Drug Distribution, Inc. vs. Narciso, G.R. No. 147478, July 17, 2006, 495 SCRA 286, 293 — Controlling precedent for the rule that corporate officers including president and chairman need board authorization to sign the certificate of non-forum shopping.
• People vs. Atadero, 435 Phil. 888, 905 (2002) — Authority for deference to trial court findings on witness credibility absent strong and cogent reason to the contrary.
• Francisco vs. National Labor Relations Commission, G.R. No. 170087, August 31, 2006, 500 SCRA 690, 701-702 — Authority for viewing retraction or recanted testimony with disfavor.
• People vs. Mindac, G.R. No. 83030, December 14, 1992, 216 SCRA 558, 572 — Authority that a witness may be impeached by prior contradictory statement and that later contradiction does not by itself prove earlier testimony false.

• Section 13, Rule 132, Rules of Court — Governs impeachment of a witness by a previous contradictory statement; invoked to test Magno's credibility in light of his prior sworn statements contradicting his trial testimony.

Quisumbing, Chairperson, Carpio, Tinga, Velasco, Jr., JJ., concur.