SIAIN ENTERPRISES, INC., PETITIONER, VS. CUPERTINO REALTY CORP. AND EDWIN R. CATACUTAN, RESPONDENTS.

Siain Enterprises versus Cupertino Realty

The Case

This is a petition for review on certiorari brought by Siain Enterprises, Inc. against Cupertino Realty Corporation and Notary Public Edwin R. Catacutan, arising from a complaint to restrain an extrajudicial foreclosure and to nullify the amended real estate mortgage that secured the debt. The borrower insists that the mortgage is void because the additional loan it was meant to secure was never released to it, while the creditor insists that the amount was in fact received. The case matters because it shows how the Supreme Court treats a borrower's bare denial against the disputable presumptions of consideration that attach to loan documents, and how far it will disturb the factual findings of the trial court and the Court of Appeals.

Procedural History

Siain Enterprises filed a verified complaint before the Regional Trial Court of Iloilo City, praying for a restraining order to stop Notary Public Catacutan from conducting the scheduled public auction, and later filing a supplemental complaint to nullify the auction sale and to cancel the annotation of the certificate of notarial sale. After trial, the Regional Trial Court dismissed the complaint and ordered Siain Enterprises to pay Cupertino Realty actual and exemplary damages of 100,000 pesos each, and 500,000 pesos as attorney's fees. It also recalled and set aside its earlier order that had declared the notarial foreclosure null and void. Siain Enterprises appealed to the Court of Appeals, which affirmed the trial court's ruling in full. Siain Enterprises then came to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

On April 10, 1995, Siain Enterprises obtained a loan of 37,000,000 pesos from Cupertino Realty, covered by a promissory note signed by the presidents of both corporations. The note authorized Cupertino Realty to place the proceeds in escrow with a bank to pay off Siain Enterprises' obligation to the Development Bank of the Philippines. On the same date, Siain Enterprises executed a real estate mortgage over two parcels of land and other immovables to secure the loan. Two days later, the parties executed an amendment to the promissory note providing for seventeen percent interest per annum.

On August 16, 1995, Cua Le Leng signed a second promissory note in favor of Cupertino Realty for 160,000,000 pesos, signing as maker for Siain Enterprises and as co-maker in her personal capacity. The note was prefaced with the words "for value received" and carried compounding interest of thirty percent per annum, a penalty of three percent per month, attorney's fees, and a pledge of her shares in Siain Enterprises. On the same date, the parties executed an amendment of the real estate mortgage, reciting that the loan payable had increased to 197,000,000 pesos and substituting that amount for the original 37,000,000 pesos secured.

On March 11, 1996, Siain Enterprises demanded the release of the 160,000,000 pesos, and demanded again on May 17, 1996. Cupertino Realty denied that the amount had not been released, and said the demand was made to evade a just obligation after it had itself demanded payment of the 37,000,000 peso loan. Cupertino Realty then instituted extrajudicial foreclosure proceedings, with the auction set for October 11, 1996 and Notary Public Catacutan commissioned to conduct it. This prompted Siain Enterprises to file its complaint.

Issues

• Whether or not the amended real estate mortgage is void for lack of consideration, the borrower claiming it never received the 160,000,000 peso loan increase.
• Whether or not the factual findings of the trial court, affirmed by the Court of Appeals, may be reviewed and reversed by the Supreme Court.
• Whether or not the doctrine of piercing the veil of corporate fiction was properly applied to preclude Siain Enterprises from disavowing receipt of the amount.

Applicable Provisions

Section 3, Rule 131 of the Rules of Court provides:

SEC. 3. Disputable presumptions. The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by other evidence.

This is the general rule on disputable presumptions that the Court applies to the loan documents.

The same Section 3, Rule 131 supplies the specific presumptions relied upon:

(r) That there was sufficient consideration for a contract;

This presumption supports the amended real estate mortgage as a contract.

(s) That a negotiable instrument was given or indorsed for a sufficient consideration;

This presumption supports the promissory notes that the mortgage secured.

Section 24 of the Negotiable Instruments Law provides:

SEC. 24. Presumption of consideration. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.

This supplies the prima facie presumption of consideration for the promissory notes signed by Siain Enterprises and Cua Le Leng.

Ruling

On the first issue, the Court held that the amended real estate mortgage is valid and supported by consideration. All the loan documents, on their face, unequivocally declare Siain Enterprises' indebtedness to Cupertino Realty: the first promissory note prefaced with "for value received," the mortgage securing the 37,000,000 pesos, the amendment setting interest at seventeen percent, the second promissory note for 160,000,000 pesos likewise prefaced with "for value received," and the amendment of the mortgage reciting the increase to 197,000,000 pesos. From this chain of transactions, a presumption arose that the loan documents were supported by a consideration. Against that presumption, Siain Enterprises offered only a bare denial of receipt, which the Court held did not even dent, much less overcome, the presumption. As between the borrower's bare denial and negative evidence, and the creditor's affirmative evidence of consideration, the latter must prevail.

On the second issue, the Court held that the factual findings of the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and are conclusive between the parties. Review is not warranted except upon a showing of highly meritorious circumstances, and the Court found that none of the recognized exceptions obtained.

On the third issue, the Court upheld the application of the doctrine of piercing the veil of corporate fiction, which precluded Siain Enterprises from disavowing receipt of the 160,000,000 pesos and from escaping its obligation under the amended real estate mortgage.

Doctrine

A contract is presumed to have sufficient consideration, and every negotiable instrument is deemed prima facie to have been issued for a valuable consideration, with every person whose signature appears thereon presumed to have become a party for value. These are disputable presumptions, satisfactory if uncontradicted, but they may be contradicted and overcome by other evidence. A borrower who attacks a loan document for lack of consideration bears the burden of overcoming the presumption with affirmative evidence; a bare denial of receipt will not suffice. Factual findings of the trial court, affirmed by the Court of Appeals, are conclusive on the Supreme Court absent any of the recognized exceptions.

Disposition

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals, upholding the amended real estate mortgage and the award of damages and attorney's fees in favor of Cupertino Realty.

Remember This

Memorize this line: a bare denial of receipt cannot overcome the presumption of consideration that attaches to loan documents and negotiable instruments. Examiners use this case to test the disputable presumptions under Rule 131 and the conclusiveness of factual findings on appeal.