FACTS:
Metropolitan Fabrics,
Incorporated (MFI), a family corporation, owned a 5.8hectare industrial
compound at No. 685 Tandang Sora Avenue, Novaliches, Quezon City which was
covered by TCT No. 241597.Pursuant to a P2 million, 10-year 14% per annum loan
agreement with Manphil Investment Corporation (Manphil) dated April 6, 1983,
the said lot was subdivided into11 lots, with Manphil retaining four lots as
mortgage security.
The other seven lots, now
covered by TCT Nos. 317699 and 317702 to 317707, were released to MFI. In July
1984, MFI sought from PCRI a loan in the amount of P3,443,330.52, the balance
of the cost of its boiler machine, to prevent its repossession by the seller.
PCRI, also family-owned corporation licensed since 1980 to engage in money
lending, was represented by Domingo Ang (“Domingo”) its president, and his son
Caleb, vice-president. The parties knew each other because they belonged to the
same familyassociation, the Lioc Kui Tong Fraternity.
On the basis only of his
interview with Enrique, feedback from the stockholders and the Chinese
community, as well as information given by his own father Domingo, and without
further checking on the background of Enrique and his business and requiring
him to submit a company profile and a feasibility study of MFI, Caleb
recommended the approval of the P3.44 million with an interest ranging from 24%
to 26% per annum and a term of between five and ten years (Decision, p. 5).
According to the court, it
sufficed for Caleb that Enrique was a well-respected Chinese businessman, that
he was the presidentof their Chinese family association, and that he had other
personal businesses aside fromMFI, such as the Africa Trading.However, in
September 1984, the first amortization check bounced for insufficient fund due
to MFI’s continuing business losses. It was then that the appellees allegedly
learnedthat PCRI had filled up the 24 blank checks with dates and amounts that
reflected a 35%interest rate per annum, instead of just 24%, and a two year
repayment period, instead of10 years.
On September 4, 1986,
Enrique received a Notice of Sheriff’s Sale dated August 29, 1986, announcing
the auction of the seven lots on September 24, 1986 due to unpaid indebtedness
of P10.5 million. Vicky (daughter of owner of MFI, because their father went
into a coma because of intense pressure from the foreclosure) insisted that
prior to the auction notice, they never received any statement or demand letter
from the defendants to pay P10.5 million, nor did the defendants inform them of
the intended foreclosure.
ISSUES: Was
the Mortgage Contract VOID?
HELD:
No. As the records show,
petitioners really agreed to mortgage their properties as security for their
loan, and signed the deed of mortgage for the purpose. Thereafter, they
delivered the TCTs of the properties subject of the mortgage to respondents.
Consequently, petitioners’ contention of absence of consent had no firm moorings.
It remained unproved. To begin with, they neither alleged nor established that
they had been forced or coerced to enter into the mortgage. Also, they had
freely and voluntarily applied for the loan, executed the mortgage contract and
turned over the TCTs of their properties. And, lastly, contrary to their
modified defense of absence of consent, Vicky Ang’s
testimony tended at best to prove the vitiation of their consent through
insidious words, machinations or misrepresentations amounting to fraud, which
showed that the contract was voidable.
Where the consent was
given through fraud, the contract was voidable, not void ab initio. This is
because a voidable or annullable contract is existent, valid and binding,
although it can be annulled due to want of capacity or because of the vitiated
consent of one of the parties. Article 1390, in relation to Article 1391 of the Civil
Code, provides that if the consent of the contracting parties was obtained
through fraud, the contract is considered voidable and may be annulled within
four years from the time of the discovery of the fraud.
According to Article 1338 of the Civil Code, there is fraud when one of
the contracting parties, through insidious words or machinations, induces the
other to enter into the contract that, without the inducement, he would not
have agreed to. Yet, fraud, to vitiate consent, must be the causal (dolo
causante), not merely the incidental (dolo incidente), inducement to the making
of the contract. In Samson v. Court of Appeals, causal fraud is defined as
“a deception employed by one party prior to or simultaneous to the contract in
order to secure the consent of the other.”
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