G.R. No. 193804 - Spouses Ramos vs. Obispo

Case Summary (G.R. No. 193804)

Material Facts

In August 1996 the Ramos spouses executed and had notarized a Real Estate Mortgage (REM) over their property in favor of FEBTC. The mortgage document on its face secured credit accommodations extended to Raul Obispo in the principal amount of P1,159,096.00. Petitioners contend they signed only to secure a P250,000.00 loan they received through Obispo, that they paid that amount in full to Obispo, and that Obispo later refused to return their title. On September 17, 1999 petitioners wrote FEBTC stating Obispo had used their title as collateral for a P1,159,096.00 loan and that petitioners had only received P250,000.00 and had fully paid that amount. When FEBTC did not act, petitioners filed an action on October 12, 1999 for annulment of the REM with damages against FEBTC and Obispo, alleging that they had signed a blank REM form given by Obispo, were defrauded, and that consent was vitiated.

Trial Court Disposition

The Regional Trial Court (Quezon City, Branch 82) found for petitioners. The RTC declared the REM null and void, ordered FEBTC to cancel the encumbrance and surrender the owner’s duplicate title to petitioners, and awarded moral damages of P200,000, attorney’s fees of P50,000, and costs against respondents. FEBTC’s cross-claim against Obispo was dismissed. Obispo was declared in default for failure to answer.

Appellate Disposition (Court of Appeals)

On appeal the Court of Appeals reversed and set aside the RTC decision, declaring that petitioners were third-party (accommodation) mortgagors under Article 2085 of the Civil Code and that petitioners failed to prove their allegations. The CA dismissed the complaint for lack of evidence that petitioners did not consent to the REM securing Obispo’s indebtedness.

Issues for Supreme Court Review

The petition to the Supreme Court raised principally (1) whether the CA erred in upholding the REM as valid and characterizing petitioners as accommodation mortgagors despite alleged lack of consent and fraudulent preparation of the contract; (2) whether the CA disregarded law and jurisprudence in failing to declare FEBTC not a mortgagee in good faith; and (3) whether the CA erred in deleting the trial court’s award of damages, attorney’s fees and costs.

Legal Standards and Evidentiary Burdens Applied

The Court reiterated that an accommodation mortgage is recognized by Article 2085 of the Civil Code (third persons may secure an obligation by pledging or mortgaging their property). The general civil evidentiary rule is that allegations must be proved by a preponderance of evidence; fraud, mistake, duress or undue influence must be proved by clear and convincing evidence. The Court emphasized that parties rely on the strength of their own proof and that a defaulting defendant’s absence does not lessen the plaintiff’s obligation to prove alleged facts. Estoppel, laches and ratification principles were also considered: unreasonable delay in challenging an encumbrance may amount to ratification or waiver.

Supreme Court Majority Analysis and Findings

The majority sustained the CA’s factual findings. It found petitioners failed to substantiate with credible, probative evidence the allegation that Obispo fraudulently filled up the REM in blank to secure his personal indebtedness. The Court emphasized several evidentiary deficiencies and inconsistencies in petitioners’ case: petitioners admitted knowing FEBTC was the lending institution yet accepted loan proceeds from Obispo rather than direct bank disbursements; they did not present documentary evidence (bank receipts, checks, vouchers, amortization schedules) to show that the P250,000.00 disbursement came from FEBTC or that they had made payments directly to the bank; they continued to remit payments to Obispo despite his failure to provide receipts over a period of more than a year, and they did not promptly pursue remedies against Obispo when documents were withheld. The majority considered such conduct inconsistent with ordinary prudence and more consistent with an accommodation-mortgagor relationship in which Obispo was the borrower. Given the dearth of corroborating documentary evidence and the lack of clear and convincing proof of fraud, the majority concluded petitioners did not meet their burden to annul the mortgage.

Legal Conclusions on Accommodation Mortgage and Estoppel

Applying Article 2085 and the evidentiary standards, the majority determined the REM on its face identified the mortgage as security for Obispo’s credit accommodations, and that the surrounding circumstances—absence of bank-originated disbursement evidence, acceptance of funds from Obispo, continued dealing with Obispo and long delay—supported the inference that petitioners allowed their property to serve as collateral for Obispo’s credit line. The Court reaffirmed that a mortgage will not be annulled absent a preponderance (and in fraud claims, clear and convincing) showing of the asserted infirmity. Petitioners’ unexplained omissions and delay gave rise to estoppel and ratification; thus the CA did not err in treating the REM as valid and in dismissing the complaint.

Disposition by the Supreme Court

The petition for review on certiorari was denied for lack of merit. The Decision of the Court of Appeals (January 27, 2010) in CA-G.R. CV No. 82378 was affirmed and upheld. Costs were imposed against petitioners.

Dissenting Opinion (Chief Justice Sereno) — Rationale

Chief Justice Sereno dissented and would have reinstated the RTC decision. The dissent accepted the trial court’s factual finding that the Ramos spouses signed a blank mortgage and were defrauded by Obispo. The dissent stressed the bank’s obligation to exercise extraordinary diligence in loan and mortgage transactions because banking is a business imbued with public interest. It highlighted testimony by a bank officer who admi

Case Syllabus (G.R. No. 193804)

Procedural Posture

Petition for review on certiorari under Rule 45 filed by petitioners challenging the Court of Appeals (CA) Decision dated January 27, 2010 in CA-G.R. CV No. 82378.
The CA had reversed and set aside the Regional Trial Court (RTC) Quezon City, Branch 82 Decision dated January 29, 2004 in Civil Case No. Q-99-38988.
The RTC had originally rendered judgment in favor of petitioners (spouses Ramos) and against respondents Raul Obispo and Far East Bank and Trust Company (FEBTC).
Petitioners’ motion for reconsideration before the CA was denied; they elevated the case to the Supreme Court by petition for review.
The Supreme Court issued a Decision (Villarama, Jr., J.) dated February 27, 2013 denying the petition for review and affirming the CA decision; costs were imposed against petitioners.
There is a recorded dissenting opinion by Chief Justice Sereno, who would have reversed the CA and reinstated the RTC decision.

Relevant Dates, Parties and Documents

Parties: Petitioners — Spouses Nilo Ramos and Eliadora Ramos; Respondents — Raul Obispo and Far East Bank and Trust Company (FEBTC; later referred to as Bank of the Philippine Islands in pleadings).
Key dates:
- August 1996: Execution of a notarized Real Estate Mortgage (REM) over property covered by Transfer Certificate of Title (TCT) No. RT-64422 (369370).
- September 17, 1999: FEBTC received letter from petitioners informing about alleged misuse of title and asking for documents.
- October 12, 1999: Petitioners filed complaint for annulment of real estate mortgage with damages.
- January 29, 2004: RTC Decision rendered in favor of petitioners.
- January 27, 2010: CA Decision reversing RTC.
- February 27, 2013: Supreme Court Decision denying the petition.
Financial figures and instruments:
- Mortgage secured credit accommodations stated as P1,159,096.00 in the REM.
- Petitioners asserted they sought a P250,000.00 loan and paid that amount in full through Obispo.
- Petitioners alleged initial handing over of P100,000.00, then balance later; they claimed full payment of P250,000.00 to Obispo.
- RTC awarded P200,000.00 moral damages and P50,000.00 attorney’s fees jointly and severally against Obispo and FEBTC.

Factual Background

Petitioner-spouses and respondent Obispo became close acquaintances/friends while working together in Saudi Arabia; upon return, petitioners visited Obispo who operated a hardware store.
Petitioners executed a notarized Real Estate Mortgage (REM) in August 1996 in favor of FEBTC (Fairview Branch), and the REM was registered and annotated on TCT No. RT-64422 (369370).
The REM, on its face, secured credit accommodations extended to Obispo in the amount of P1,159,096.00.
Petitioners later wrote to FEBTC (Sept. 17, 1999) alleging they had entrusted their title to Obispo to be used as collateral for a P250,000.00 loan “in their behalf,” but discovered later that the REM secured a P1,159,096.00 loan and that Obispo had not returned their title despite their alleged full payment of P250,000.00 to him.
Petitioners claimed they were given a blank REM form by Obispo and signed it; they alleged Obispo filled it up contrary to instructions and negotiated with the bank; they demanded loan documents from the bank which were not furnished.
FEBTC’s position in its Answer with Counterclaim and Cross-claim: petitioners agreed to execute the REM as partial security for Obispo’s loans totaling P2,500,000.00 (alleged by bank); the obligation was unpaid so the bank should not be compelled to release the mortgage; petitioners guilty of laches and estoppel; cross-claim against Obispo for indemnity in event petitioners succeed.

RTC Proceedings and Judgment

Respondent Obispo was declared in default for failure to file a responsive pleading despite personal receipt of summons.
After trial, RTC rendered judgment in favor of petitioners ordering:
- Declaration that REM in favor of FEBTC is null and void.
- FEBTC to cancel encumbrance on TCT No. RT-64422 (369370) and deliver the Owner’s Duplicate to petitioners.
- Obispo and FEBTC to pay P200,000.00 moral damages and P50,000.00 attorney’s fees jointly and severally, plus costs of suit.
- Dismissal of FEBTC’s cross-claim against Obispo for lack of merit.

CA Proceedings and Holding

FEBTC appealed to the CA which reversed the RTC decision and dismissed the complaint.
The CA held that petitioners were third-party (accommodation) mortgagors under Article 2085 of the Civil Code.
The CA found petitioners failed to present evidence to prove their allegations of fraud, vitiated consent, or misrepresentation; therefore the REM was valid as an accommodation mortgage securing Obispo’s credit.
The CA reasoning emphasized:
- The REM on its face stated it secured credit accommodations obtained by Raul De Jesus Obispo amounting to P1,159,096.00.
- Petitioners received P250,000.00 from Obispo (not from the bank), and the record lacked evidence that petitioners gave their title to Obispo to facilitate petitioners’ own loan.
- The possibility that the P250,000.00 was remuneration for allowing Obispo to use the title as collateral.
- Petitioners’ failure to produce documentary evidence (receipts, bank vouchers, checks) or other proof to substantiate their version.
- The burden of proof under the Rules on Evidence rests on the party alleging facts.

Issues Presented in the Petition to the Supreme Court

Whether the CA erred in upholding the validity of the REM and ruling petitioners were accommodation mortgagors despite petitioners’ assertion of no consent and allegations of fraud/misrepresentation.
Whether the CA disregarded laws and jurisprudence in not declaring FEBTC as not a mortgagee in good faith, contrary to trial court findings.
Whether the CA erred in deleting the RTC award of damages, attorney’s fees, and costs of suit in favor of