SECOND DIVISION
[G.R. No. 212182. June 16, 2014.]
SPS. CELESTINO & GLICERIA BALCON, SPS. PATRICIO & CELESTINA MANRIQUEZ AND SPS. MANUEL & PAMELA NOVAL, petitioners, vs. TREADSETTER PHILIPPINES, INC. (TSPI), FIDELINO ATILANO IN HIS CAPACITY AS PRESIDENT AND GENERAL MANAGER OF TSPI, THE LAND BANK OF THE PHILIPPINES, MAXIMO LASACA, JR. IN HIS CAPACITY AS BRANCH MANAGER OF LBP, AND JESSIE BELARMINO IN HIS CAPACITY AS SHERIFF OF THE PROVINCE OF CEBU, respondents.
NOTICE
Sirs/Mesdames :
Please take notice that the Court, Second Division, issued a Resolution dated 16 June 2014 which reads as follows:
G.R. No. 212182 (Sps. Celestino & Gliceria Balcon, Sps. Patricio & Celestina Manriquez And Sps. Manuel & Pamela Noval, petitioners, v. Treadsetter Philippines, Inc. (TSPI), Fidelino Atilano in his Capacity as President and General Manager of TSPI, the Land Bank of the Philippines, Maximo Lasaca, Jr. in his capacity as Branch Manager of LBP, and Jessie Belarmino in his capacity as Sheriff of the Province of Cebu, respondents.)
This is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules on Civil Procedure assailing the Decision 1 and Resolution 2 of the Twentieth Division of the Court of Appeals (CA), Cebu City in CA-G.R. CV No. 02864 dated 21 June 2012 and 12 March 2014, respectively.
In 1994, private respondent Treadsetter Philippines, Inc. (TSPI) applied for a loan with the Land Bank of the Philippines (LBP). Needing a collateral for its loan, TSPI convinced petitioners Sps. Celestino & Gliceria Balcon, Sps. Patricio & Celestina Manriquez and Sps. Manuel & Pamela Noval to use the latter's real properties as security with an agreement in writing that in exchange for said use, petitioners would receive an annual risk compensation equivalent to 15% of the appraised value of their properties. Accordingly, TSPI's application for loan was approved on 24 January 1995 which granted a credit line in the amount of P30,000,000.00. TSPI, however, eventually defaulted on its loan which resulted to the foreclosure and the sale at public auction of the mortgaged subject properties of petitioners. Hence, petitioners filed a complaint seeking the annulment of the real estate mortgage on the grounds of fraud and machination among private respondents TSPI, Fidelino Atilano in his capacity as President and General Manager of TSPI, the LBP, Maximo Lasaca, Jr. in his capacity as Branch Manager of LBP, and Jessie Belarmino in his capacity as Sheriff of the Province of Cebu.
On 25 November 2008, Branch 11 of the Regional Trial Court (RTC), Cebu City, in Civil Case No. CEB-21406, rendered a Decision in favor of petitioners which granted their complaint for Declaration of Nullity of Real Estate Mortgage and Annulment of Petition for Extrajudicial Foreclosure with prayer for issuance of restraining order and/or writ of preliminary injunction with damages, the dispositive portion of which reads[:] TAIESD
WHEREFORE, premises considered, judgment is rendered in favor of [petitioners] Sps. Celestino and Gliceria Balcon, Sps. Patricio and Celestina Manriquez, Manuel and Pamela Noval, Sps. Nestor R. Baisac and Barbara B. Baisac and Emeliana Cortes Vda de Basubas and against [TSPI], represented by its President and General Manager Fidelino Atilano, Landbank of the Philippines, Maximo Lasaca, Jr., in his capacity as General Manager of defendant LBP, Tito P. Ranara and Oscar Relacion who are ordered to:
1. Return the respective properties of [petitioners] used as collateral of the contract of loan of defendant TSPI with LBP;
2. Pay jointly and severally moral damages in the amount of P100,000.00;
3. Pay exemplary damages in the amount of P50,000.00;
4. Pay attorney's fees in the amount of P100,000.00; [and]
5. Cost of the suit. 3
The trial court explained that at the time TSPI applied for a loan with the LBP, it was already in financial distress which could have been considered by the bank officers/credit investigators in evaluating TSPI's financial conditions. Such intentional failure on their part to notify petitioners as to the real financial status of TSPI impliedly showed a conspiracy between the officers of TSPI and LBP, resulting to the commission of fraud against petitioners. Likewise, based on a report issued by the Commission on Audit (COA), the LBP officers involved in the loan transaction violated various terms and conditions of the loan contract between TSPI and the LBP, such as releasing the same in favor of TSPI which was then used for a different purpose, done before the purchase of all chattels, and the registration of the deeds, among others.
In other words, based on the factual appreciation of the RTC, it concluded that there existed a possible link of conspiracy among TSPI and the LBP, through their officers, based on the following: (1) failure to inform petitioners of the real financial condition and management problems of TSPI; (2) failure of the LBP to consider the request to hold in abeyance the release of the proceeds of the loan in spite of the information sent by one of the petitioners as to TSPI's financial status; and (3) act of the LBP in releasing the loan notwithstanding its alleged knowledge that the collaterals are below the amount applied for and the release of the loan in spite of the fact that the loan was under collateralized. Consequently, applying the concept of the "principal-agent rule," the LBP was determined to be liable for the actuations of its officers and employees who allegedly acted outside the scope of their authority in relation to the subject transaction.
Aggrieved, private respondents elevated said RTC Decision before the CA arguing that petitioners failed to prove by clear and convincing evidence that they had acted fraudulently to justify the annulment of the mortgages since, at most, petitioners were only able to establish that TSPI, through its President and General Manager, had defrauded them into allowing their properties to be mortgaged to the LBP. In the assailed 21 June 2012 Decision, the CA ruled in favor of private respondents stating that the real estate mortgage agreement between petitioners and the LBP, being an accessory contract, merely flowed from the principal contract of loan between TSPI and the LBP, the latter contract's validity and due execution were never questioned by any of the parties thereto. Hence, the accessory contract of mortgage could not be annulled due to fraud since it was executed with all the formalities of law, including petitioners' consent to have their properties utilized as collaterals.
Moreover, the CA explained that the LBP, as the mortgagor bank, did not induce the petitioners to use their titles as collaterals for the loan of TSPI. As a matter of fact, petitioners admitted during the trial that they allowed their respective titles to be used for such purpose and, therefore, signed the mortgage contracts freely and voluntarily; thus, subjecting themselves to the liabilities as a mortgagor. Likewise, the LBP did not in any way act in bad faith or with fraud in releasing the loan in favor of TSPI; otherwise, it would have breached its reciprocal obligation towards TSPI under the contract of loan which was valid and duly executed. Accordingly, the CA set aside the RTC Decision. aCSTDc
Subsequently, the CA denied petitioners' motion for reconsideration of the aforesaid Decision in its 12 March 2014 Resolution for lack of merit.
Hence, this appeal raising the sole issue of whether or not the CA erred in reversing and setting aside the RTC Decision dated 25 November 2008.
Upon perusal of petitioners' contentions, we find that there is no error on the part of the CA in rendering its assailed Decision and Resolution dated 21 June 2012 and 12 March 2014, respectively, in CA-G.R. CV No. 02864.
To begin with, Article 1338 of the Civil Code provides that there is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. 4 In Samson v. Court of Appeals, 5 causal fraud was defined as "a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other." More so, fraud must be serious and its existence must be established by clear and convincing evidence. As ruled by this Court in Sierra v. Court of Appeals, 6 mere preponderance of evidence is not adequate.
Fraud refers to all kinds of deception — whether through insidious machination, manipulation, concealment or misrepresentation — that would lead an ordinarily prudent person into error after taking the circumstances into account. 7 The deceit employed must be serious. It must be sufficient to impress or lead an ordinarily prudent person into error, taking into account the circumstances of each case. 8
Unfortunately, petitioners were unable to establish clearly and precisely how the LBP committed the alleged fraud. They failed to convince us that they were deceived, through misrepresentations and/or insidious actions, into using the titles of their subject properties as security to contract of loan. Quite the contrary, factual circumstances indicate the weakness of their submissions considering that it was solely the President and General Manager of TSPI who convinced/persuaded them to use their properties as collaterals; that petitioners signed freely and voluntarily a Memorandum of Agreement containing a stipulation that they would receive a 15% annual risk compensation for the use of their titles indicating that they were fully aware of the risks and contingencies involved in the agreement that they have made with TSPI; and that petitioners allowed their properties to be the subject of the mortgage contract with the LBP. Accordingly, petitioners' liabilities were clear under the mortgage contract which categorically grants the LBP the right to foreclose the mortgaged properties. ISADET
As correctly pointed out by the appellate court, the root cause of petitioners' predicament was their acquiescence in the utilization of their titles as collateral for TSPI's loan from the LBP. Based on the evidence presented, TSPI was able to secure the petitioners' consent in using their certificates of title as collateral freely and voluntarily considering that they are privy to the President and General Manager of TSPI, and considering further that this was not the first instance that some of the petitioners agreed for their properties to be used as collateral. Consequently, such voluntary act in allowing their properties to be used as collateral for a mortgage loan assumed a certain risk, i.e. foreclosure of the property in the event of non-payment of loan, and it was their own lookout that the person or entity to whom they entrusted their property was worthy of their trust. In other words, petitioners cannot pass the burden of ascertaining the financial condition of TSPI to LBP because it was, in the first place, their sole responsibility to do so. Otherwise, it would give petitioners an excuse to absolve themselves of their mortgage obligations, which should bind them unconditionally.
With the foregoing discussion, the issues on the applicability of the "principal-agent rule," and the relevancy of the COA Investigation Report alleging the "conspiracy theory" between TSPI and the LBP become moot. The only point in contention is whether or not petitioners, through fraud, were indeed induced to enter into the real estate mortgage contract. This, we ruled in the negative.
In fine, this Court holds that the Deed of Real Estate Mortgage was valid and binding against petitioners. Thus, pursuant to the said mortgage contract, LBP indeed has the right to foreclose the subject properties owned by petitioners as a consequence of TSPI's failure to pay its obligations.
WHEREFORE, finding no reversible error committed by the Court of Appeals in its 21 June 2012 Decision and 12 March 2014 Resolution, in CA-G.R. CV No. 02864, the petition is hereby DENIED. J. Carpio, on leave, J. Brion, Acting Chairperson, per Special Order No. 1699 dated 13 June 2014, J. Mendoza, Acting Member, per Special Order No. 1696 dated 13 June 2014.
SO ORDERED. HDacIT
Very truly yours,
(SGD.) MA. LOURDES C. PERFECTODivision Clerk of Court
Footnotes
1. Rollo, pp. 88-98; Penned by Associate Justice Ramon Paul L. Hernando with Associate Justices Carmelita S. Manahan and Zenaida T. Galapate-Laguilles concurring.
2. Id. at 100-102.
3. Id. at 119-120; RTC Decision.
4. See Tongson v. Emergency Pawnshop Bula, Inc., G.R. No. 167874, 15 January 2010, 610 SCRA 150, 159 citing Woodhouse v. Halili, 93 Phil. 526, 537 (1953).
5. G.R. No. 108245, 25 November 1994, 238 SCRA 397, 404.
6. G.R. No. 90270, 24 July 1992, 211 SCRA 785, 793.
7. Solidbank Corporation v. Mindanao Ferroalloy Corporation, 502 Phil. 651, 669 (2005).
8. Mayor v. Belen, G.R. No. 151035, 3 June 2004, 430 SCRA 561, 565.