Rural Bank of Sta. Maria, Pangasinan v. Court of Appeals
REITERATIONFacts
The Antecedents: Manuel Behis mortgaged a parcel of land to Rural Bank of Sta. Maria, Pangasinan (Bank) to secure loans. Subsequently, Manuel Behis sold the land to Rosario R. Rayandayan and Carmen R. Arceño (Rayandayan and Arceño) through a Deed of Absolute Sale with Assumption of Mortgage for P250,000.00, with the agreement that Rayandayan and Arceño would pay Manuel Behis P2,400,000.00. Rayandayan and Arceño did not register these contracts nor inform the Bank of the P2,400,000.00 consideration. They paid Manuel Behis partially and covered his hospitalization and burial expenses. The Bank initiated foreclosure proceedings due to Manuel Behis's delinquency. Rayandayan and Arceño then presented the Deed of Absolute Sale with Assumption of Mortgage to the Bank, but not the Agreement detailing the P2,400,000.00 consideration. A Memorandum of Agreement was executed between Rayandayan and Arceño (as assignees) and the Bank, restructuring the payment of Manuel Behis's P343,782.22 debt, with initial payments totaling P143,000.00 and a balance of P200,000.00 to be renewed annually. Rayandayan and Arceño made payments, though not on time. Cristina Behis, Manuel Behis's widow, protested the mortgage and the sale, claiming her signature was forged. The Bank, citing Cristina Behis's objections and the delayed payments, considered the Memorandum of Agreement cancelled. The Bank then entered into an Assignment of Mortgage with Halsema, Inc., assigning Manuel Behis's original mortgage to Halsema for P520,765.45. Halsema foreclosed the property, and Rayandayan and Arceño registered an adverse claim. Procedural History: Rayandayan and Arceño filed a case against the Bank and Halsema for Specific Performance, Declaration of Nullity and/or Annulment of Assignment of Mortgage and Damages. The Regional Trial Court (RTC) declared the Deed of Sale and the Agreement valid until annulled, ordered the Bank to pay damages to Rayandayan and Arceño for bad faith, and ordered Rayandayan and Arceño to pay damages to the Bank for deceiving it. The RTC also annulled the Memorandum of Agreement due to the fraud of Rayandayan and Arceño. Both Rayandayan and Arceño, and Halsema appealed. The Court of Appeals (CA) declared the Deed of Absolute Sale with Assumption of Mortgage and the Memorandum of Agreement valid as between the parties, ordered the Bank to pay Rayandayan and Arceño actual, moral, and exemplary damages, attorney's fees, and litigation expenses, and reversed other dispositions inconsistent with its decision. The CA denied motions for reconsideration. The Bank filed a petition for review on certiorari (G.R. No. 110672), while Rayandayan and Arceño's petition (G.R. No. 111201) was denied for being filed out of time and for late payment of docket fees. The Petition: The Rural Bank of Sta. Maria, Pangasinan, in G.R. No. 110672, assails the CA decision, arguing that the Memorandum of Agreement is voidable due to fraud and that Rayandayan and Arceño are not entitled to damages.
Issue(s)
Whether the Memorandum of Agreement is voidable due to fraud vitiating the Bank's consent. Whether Rayandayan and Arceño are in bad faith and thus not entitled to damages.
Ruling
The petition is devoid of merit. The decision of the Court of Appeals is affirmed. The Memorandum of Agreement is valid, and the Bank's claim of fraud is unsubstantiated. The Bank's claim that Rayandayan and Arceño's concealment of the P2,400,000.00 purchase price constituted fraud is rejected. The Bank is ordered to pay Rayandayan and Arceño the awarded damages.
Ratio Decidendi
On the issue of fraud vitiating consent: The Court held that the non-disclosure of the real purchase price of P2,400,000.00 between Manuel Behis and Rayandayan and Arceño does not constitute fraud that would annul the Memorandum of Agreement. Fraud, as contemplated by Article 1338 of the Civil Code, requires insidious words or machinations that induce a party to enter into a contract they would not have otherwise agreed to. The Court found that the consideration for the sale between Behis and Rayandayan and Arceño was not the determining cause for the Bank to enter into the Memorandum of Agreement. The Bank's primary concern was the payment of Manuel Behis's indebtedness, and its security remained unimpaired regardless of the actual purchase price between the buyer and the original debtor. The Court noted that the Bank received payments under the Memorandum of Agreement and that its claim of nullity was an afterthought raised only after it was sued. Furthermore, the Court stated that silence or concealment, by itself, does not constitute fraud unless there is a duty to disclose, which was not present here. The Bank had the means to verify the financial capacity of Rayandayan and Arceño and could not claim to be in the dark. The elements of fraud, including inducement and resulting damages to the party seeking annulment, were not sufficiently established by the Bank. On the issue of bad faith and entitlement to damages: Since the Court found no fraud on the part of Rayandayan and Arceño in their dealings with the Bank, their alleged bad faith, premised on the non-disclosure of the purchase price, is also negated. Consequently, their entitlement to the awarded damages, including actual, moral, and exemplary damages, attorney's fees, and litigation expenses, is upheld. The Court pointed out that the Bank did not appeal the trial court's decision regarding the damages awarded to Rayandayan and Arceño, and therefore, it could not seek affirmative relief on that matter from the appellate court. The Bank's contention that Rayandayan and Arceño were in bad faith for deceiving the Bank into entering the Memorandum of Agreement was rejected, as the Court found no such deceit that would vitiate the Bank's consent.
Main Doctrine
The non-disclosure of the real purchase price of a property in a sale with assumption of mortgage, when not the determining cause of the contract and does not result in damages to the other party, does not constitute fraud that vitiates consent. The bank's consent to a Memorandum of Agreement for the assumption of a mortgage debt is not vitiated by fraud if the undisclosed higher purchase price between the buyer and the original debtor does not affect the bank's security or its ability to collect the mortgage debt.