FACTS:
Maxima Castro,
accompanied by Severino Valencia, went to the Rural Bank of Caloocan to apply
for a loan. Valencia arranged everything about the loan with the bank. He
supplied to the latter the personal data required for Castro's loan
application. After the bank approved the loan for the amount of P3,000.00,
Castro, accompanied by the Valencia spouses, signed a promissory note
corresponding to her loan in favor of the bank. On the same day, the Valencia
spouses obtained from the bank an equal amount of loan for P3,000.00. They
signed another promissory note (Exhibit "2") corresponding to their
loan in favor of the bank and had Castro affixed thereon her signature as
co-maker.
Both loans
were secured by a real-estate mortgage on Castro's house and lot. Later, the
sheriff of Manila sent a notice to Castro, saying that her property would be
sold at public auction to satisfy the obligation covering the two promissory
notes plus interest and attorney's fees. Upon request by Castro and the
Valencias and with conformity of the bank, the auction sale was postponed, but
was nevertheless auctioned at a later date.
Castro claimed
that she is a 70-year old widow who cannot read and write in English. According
to her, she has only finished second grade. She needed money in the amount of
P3,000.00 to invest in the business of the defendant spouses Valencia, who
accompanied her to the bank to secure a loan of P3,000.00. While at the bank,
an employee handed to her several forms already prepared which she was asked to
sign, with no one explaining to her the nature and contents of the documents.
She also alleged that it was only when she received the letter from the sheriff
that she learned that the mortgage contract which was an encumbrance on her
property was for P6.000.00 and not for P3,000.00 and that she was made to sign
as co-maker of the promissory note without her being informed.
Castro filed a
suit against petitioners contending that thru mistake on her part or fraud on
the part of Valencias she was induced to sign as co-maker of a promissory note
and to constitute a mortgage on her house and lot to secure the questioned
note. At the time of filing her complaint, respondent Castro deposited the
amount of P3,383.00 with the court a quo in full payment of her personal loan
plus interest.
Castro prayed
for:
(1)the
annulment as far as she is concerned of the promissory note (Exhibit
"2") and mortgage (Exhibit "6") insofar as it exceeds
P3,000.00; and (2)for the discharge of her personal obligation with the bank by
reason of a deposit of P3,383.00 with the court a quo upon the filing of her
complaint.
ISSUE:
Whether or not
respondent court correctly affirmed the lower court in declaring the promissory
note (Exhibit 2) invalid insofar as they affect respondent Castro vis-a-vis
petitioner bank, and the mortgage contract (Exhibit 6) valid up to the amount
of P3,000.00 only.
HELD: Yes.
RATIO:
While the
Valencias defrauded Castro by making her sign the promissory note and the
mortgage contract, they also misrepresented to the bank Castro's personal
qualifications in order to secure its consent to the loan. Thus, as a result of the fraud upon Castro and the
misrepresentation to the bank inflicted by the Valencias both Castro and the bank
committed mistake in giving their consents
to the contracts. In other words, substantial mistake vitiated their
consents given. For if Castro had been aware of what she signed and the bank of
the true qualifications of the loan applicants, it is evident that they would
not have given their consents to the contracts.
Article 1342
of the Civil Code which provides:
Art. 1342.
Misrepresentation by a third person does not vitiate consent, unless such misrepresentation
has created substantial mistake and the same is mutual.
We cannot
declare the promissory note valid between the bank and Castro and the mortgage contract
binding on Castro beyond the amount of P3,000.00, for while the
contracts may not be invalidated insofar as they affect the bank and
Castro on the ground of fraud because the bank was not a participant
thereto, such may however be invalidated on the ground of substantial mistake
mutually committed by them as a consequence of the fraud and misrepresentation
inflicted by the Valencias.
Thus, in the
case of Hill vs. Veloso, this Court declared that a contract may be annulled on
the ground of vitiated consent if deceit by a third person, even without
connivance or complicity with one of the contracting parties, resulted in
mutual error on the part of the parties to the contract.
The fraud
particularly averred in the complaint, having been proven, is deemed sufficient
basis for the declaration of the promissory note invalid insofar as it affects
Castro vis-a-vis the bank, and the mortgage contract valid only up to the
amount of P3,000.00.
1 comment:
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