Title
Spouses Sierra vs. Paic Savings and Mortgage Bank, Inc.
Case
G.R. No. 197857
Decision Date
Sep 10, 2014
Petitioners claimed mortgage nullity due to alleged fraud, but the Supreme Court ruled they knowingly acted as accommodation mortgagors, with claims barred by prescription and laches.
spouses sierra
foreclosure proceedings
accommodation mortgagors
A

Case Summary (G.R. No. 197857)

Factual Background

On May 31, 1983, Goldstar Conglomerates, Inc. (GCI), through Guillermo Zaldaga, obtained a loan of P1,500,000.00 from First Summa Savings and Mortgage Bank evidenced by a loan agreement and six promissory notes. As primary security GCI executed a deed of real estate mortgage over TCT No. 308475. As additional security, petitioners executed a deed of real estate mortgage over four parcels in Antipolo City covered by TCT Nos. 308476–308479, registered in their names. Zaldaga delivered to petitioner Francisco Sierra manager’s checks aggregating P200,000.00 and several post-dated checks. GCI defaulted. PSMB initiated extrajudicial foreclosure under Act No. 3135, gave notice to petitioners, and emerged as highest bidder at the public auction on June 27, 1984 for P2,467,272.66. Petitioners failed to redeem and the titles were cancelled and reissued in PSMB’s name.

Petitioners’ Allegations

Petitioners alleged that they were deceived into signing the mortgage deed by a group representing that it had bank connections and would secure a loan disbursed by checks drawn on Summa Bank. They claimed lack of education and lack of proper instruction, that the deed was not explained in a language or dialect known to them and that they were not provided loan documents. Petitioners asserted that when they presented checks for payment, the earliest checks were dishonored for “Account Closed,” and that they later discovered the loan account secured by the mortgage was in another person’s name. They alleged they were not notified of any assignment to PSMB, and they were not furnished with a statement of account or with copies of foreclosure pleadings prior to the extrajudicial foreclosure, which they claimed failed to comply with posting and notice requirements. Petitioners prayed for declaration that the mortgage and foreclosure were null and void ab initio, reconveyance of the properties, and damages.

Respondent’s Contentions

PSMB denied actionable wrongdoing and maintained that Summa Bank and PSMB were the same entity. It asserted that petitioners were not borrowers, that it never extended any loan to them, that it acted in good faith, that petitioners’ remedy lay against the fraudulent group, and that the mortgage was valid, notarized, and executed with free consent. PSMB contended the foreclosure complied with legal formalities and that petitioners had slept on their rights. It interposed a counterclaim for compensatory, moral, and exemplary damages and attorney’s fees.

Trial Court Proceedings and Ruling

Petitioners filed their complaint in the RTC on September 16, 1991. The RTC, in its April 24, 2006 Decision, declared the mortgage deed and extrajudicial foreclosure void, cancelled PSMB’s titles, and ordered reinstatement of petitioners’ titles. The RTC found that, while the loan between Summa Bank and GCI was valid, petitioners’ consent to the mortgage was vitiated because they were misled to believe they were principal obligors. The RTC also held petitioners not at fault for failing to heed notice of foreclosure given their alleged unawareness of the bank’s name change. The RTC nonetheless found petitioners liable for the P200,000.00 they had received and directed conditions for payment, and awarded moral and exemplary damages, attorney’s fees, and costs. Motions for reconsideration and a motion for discretionary execution were denied. PSMB appealed.

Court of Appeals’ Ruling

In its June 27, 2011 Decision, the Court of Appeals reversed the RTC and dismissed petitioners’ complaint. The CA found petitioners failed to prove lack of education or lack of understanding, rejecting the uncorroborated testimony of petitioner Francisco Sierra. The CA observed prior mortgaging by Francisco and Rosario Sierra to the Rural Bank of Antipolo as evidence of familiarity with mortgage transactions and noted that the deed clearly identified petitioners as mortgagors and GCI as borrower. The CA also held the action prescribed, applying the four-year rule from discovery but reckoning discovery from the dishonor of checks on January 9, 1984, and it found petitioners barred by laches for failing to act after receiving notice of the scheduled auction.

Issues Presented to the Supreme Court

The Supreme Court identified the essential issues as whether the Court of Appeals erred in (a) finding petitioners were aware they were mere accommodation mortgagors, and (b) dismissing the complaint on the grounds of prescription and laches.

Standard of Proof and Burden on Allegations of Vitiated Consent

The Court reiterated that allegations of defect in consent must be proved by full, clear, and convincing evidence, not by mere preponderance, and that mistake or error is presumed not to exist in regular private transactions. Where lack of education or absence of instruction is alleged to vitiate consent, the claimant must establish that personal circumstances prevented free, voluntary, and spontaneous consent. The Court cited Ramos v. Obispo, Leonardo v. CA, and other authorities for these propositions.

Supreme Court’s Analysis on Vitiation of Consent

Upon reviewing the record, the Court found petitioners’ evidence insufficient to establish that their consent was vitiated. The Court agreed with the CA that the testimony of petitioner Francisco Sierra was uncorroborated and that the other mortgagors did not testify to being prevented by their circumstances from understanding the deed. The Court relied on the prior mortgaging of properties by Francisco and Rosario Sierra as evidence of their familiarity with mortgage transactions. The Court further noted petitioners did not seek loan documents, did not demand release of any remaining proceeds, and did not offer to repay the P200,000.00 until filing suit in 1991. These circumstances, the Court held, demonstrated that petitioners knowingly and voluntarily acted as accommodation mortgagors. The Court applied the doctrine that an accommodation mortgagor is a third person who secures another’s obligation by mortgaging his property and who, like an accommodation party, functions effectively as a surety. As accommodation mortgagors, petitioners were not entitled to loan proceeds and were not entitled to be furnished loan documents or notice of borrower’s default or foreclosure proceedings unless the deed expressly stipulated such rights.

Prescription and Nature of the Action

The Court addressed petitioners’ argument that Article 1142’s ten-year prescriptive period for mortgage actions applied. The Court adopted controlling jurisprudence that a “mortgage action” means an action to enforce rights necessarily arising from a mortgage, whereas petitioners sought to be relieved from the mortgage. Thus, the complaint was not a mortgage action under Article 1142. The Court further observed that, because petitioners failed to prove their consent was vitiated, they lacked a valid cause of action and the prescription question was largely academic. Assuming a valid cause of action existed, the Court held the four-year prescriptive period for annulment of voidable contracts under Articles 1390 and 1391 would apply. The Court found the discovery of the alleged mistake should be reckoned from June 19, 1984, the date petitioners received PSMB’s letter informin

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