G.R. No. 154974 ; February 4, 2008
KAUNLARAN LENDING INVESTORS, INC. AND LELIA CHUA SY, petitioners, vs. LORETA UY, respondent.

FACTS

Respondent Loreta Uy filed a complaint for annulment of real estate mortgage and related documents plus damages against petitioners Kaunlaran Lending Investors, Inc. (KLII) and Lelia Chua Sy, along with Wilfredo Chua and Magno Zareno. She alleged that in 1987, her son Jose Sim, nephew Virgilio Sim, and Wilfredo agreed to establish a buy-and-sell business for second-hand motor vehicles. Wilfredo, through Lelia (alleged to be the controlling interest owner of KLII and a bank branch manager), arranged for a loan. Jose, holding a Special Power of Attorney from Loreta, entrusted his mother’s land titles to Wilfredo, who delivered them to Lelia. Loreta signed loan documents presented by Wilfredo. Later, during Jose’s absence, KLII manager Magno brought another set of loan documents and a blank Solidbank check to Loreta’s residence, instructing her to sign them, with a promise that the loan proceeds would be delivered. Jose later confronted Magno and was told the documents were sent to Lelia on her instructions. Attempts to withdraw the loan application and retrieve the titles failed. In a conference, Lelia admitted applying the P800,000 loan proceeds to Wilfredo’s personal debt. Verification showed a real estate mortgage annotated on Loreta’s titles, bearing only her signature and notarized in her absence. Loreta sought annulment, claiming absence of consideration and vitiated consent. A related estafa case was filed. Petitioners denied the allegations, with Lelia denying ownership in KLII and knowledge of the loan, and KLII and Magno asserting that Loreta and Wilfredo signed the promissory note and mortgage, received the P800,000 cash proceeds from a check, and endorsed it back to KLII. The trial court dismissed the civil case, finding KLII had sufficient funds, the check was encashed, and Loreta and Wilfredo received the cash. The Court of Appeals reversed this decision.

ISSUE

Whether the Court of Appeals erred in reversing the trial court’s dismissal of the complaint for annulment of real estate mortgage and related documents based on the findings regarding the validity of the loan transaction and the receipt of the loan proceeds.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals’ decision. The Court found that the trial court’s conclusions were not supported by the evidence. Petitioners failed to substantiate their claim that Loreta received the P800,000 loan proceeds. The sole witness for KLII and Magno, Aurelia Lambino, could not confirm the actual release of cash to Loreta, and her testimony was based on records she did not personally prepare. The check voucher and discount statement presented as evidence were not conclusive proof of receipt, as they only indicated a transaction between KLII and itself, not an actual disbursement to Loreta. The testimony of Magno was deemed not credible by the trial court itself. Furthermore, Lelia’s admission that she applied the loan proceeds to Wilfredo’s personal debt, coupled with the absence of proof that Loreta received any consideration, supported the finding that the real estate mortgage was void for lack of consideration. The Court upheld the appellate court’s reversal, annulling the mortgage and related documents.