G.R. No. 110672 - Rural Bank of Sta. Maria, Pangasi vs. Court of Appeals

A 49,969-sqm parcel in Baguio City (TCT T-29817) was registered in the name of Manuel Behis and mortgaged to Rural Bank of Sta. Maria, Pangasinan, on October 23, 1978, as security for loans totaling P156,750.00.
Manuel’s co-heirs had earlier executed extrajudicial settlement and confirmation documents (1978, 1983) showing co-ownership but agreed to facilitate transactions as if Manuel were sole owner.

On January 9, 1985, Manuel Behis executed a Deed of Absolute Sale with Assumption of Mortgage in favor of Rosario R. Rayandayan and Carmen R. Arceao for P250,000.00, with Cristina Behis’s signature.
Simultaneously the parties signed a confidential Agreement fixing the true purchase price at P2,400,000.00, granting Manuel recourse over portions of the land in case of default.

Plaintiffs negotiated in Manila with Engr. Edilberto Natividad (bank stockholder), disclosing only the P250,000.00 sale price; the bank agreed to substitute plaintiffs as debtors on revised terms.
On August 1, 1985, the bank and plaintiffs executed a Memorandum of Agreement providing for:

Plaintiffs paid a total of P143,000.00 (albeit not strictly on schedule), after which bank promised release of the original mortgage.

Cristina Behis protested (Sept. 5 & Oct. 28, 1985) her signature was forged and later denied any authority (Feb. 15, 1986).
The bank refused to comply with the MOA, declared it canceled for plaintiffs’ alleged fraud and non-performance, and, on July 28, 1986, assigned the original mortgage to Halsema, Inc. for P520,765.45.
Halsema foreclosed, bought the land at public auction (Sept. 2, 1986) as sole bidder. Plaintiffs then annotated their adverse claim on TCT T-29817.

Plaintiffs sued the bank and Halsema (Civil Case No. 890-R) for specific performance, nullity of the assignment, and damages (Sept. 5, 1986).
RMT Branch 6 (March 6, 1989):

Declared the Deed of Sale and secret Agreement valid until annulled;
Annulled the MOA for plaintiffs’ fraud;
Awarded mutual moral, exemplary damages, attorney’s fees, and litigation expenses to both sides;
Ordered set-off of damages.

Upheld validity of the Deed of Sale and MOA;
Rejected finding of plaintiffs’ bad faith;
Ordered the bank to pay plaintiffs P229,135.00 (actual), P30,000.00 (moral), P10,000.00 (exemplary), P20,000.00 (attorney’s fees), and P5,000.00 (litigation expenses);
Dismissed all other counterclaims.

SC consolidated petitions (G.R. Nos. 110672 & 111201) and, on September 14, 1999, denied all relief, affirming the CA decision.

Whether the Memorandum of Agreement is voidable and must be annulled for fraud, on the ground that plaintiffs concealed the true P2,400,000.00 purchase price.
Whether plaintiffs acted in bad faith and are thus disqualified from recovering moral damages, exemplary damages, attorney’s fees, and litigation expenses.