Jayme v. Court of Appeals
REITERATIONFacts
The Antecedents: Spouses Graciano and Mamerta Jayme owned Lot 2700. They entered into a Contract of Lease with George Neri (president of Cebu Asiancars Inc., later Cebu Asiancars Inc. or Asiancars) for one-half of the lot, with a stipulation that any building constructed would become their property upon lease termination. Later, the spouses executed a Special Power of Attorney in favor of Neri to mortgage the lot for a P300,000 loan, which was paid. Subsequently, Asiancars obtained a P6,000,000 loan from Metropolitan Bank and Trust Company (MBTC), offering the entire Lot 2700 as collateral. The Jayme spouses signed a Deed of Real Estate Mortgage (REM) in favor of MBTC. Neri and other officers of Asiancars executed an undertaking to compensate the Jaymes for any damages arising from the mortgage. Asiancars later conveyed ownership of the building on the leased premises to MBTC via dacion en pago as partial payment for the loan, but a balance remained. MBTC foreclosed the mortgage, with MBTC as the highest bidder. Graciano Jayme died, and his heirs, along with Mamerta Jayme, filed a civil complaint for Annulment of Contract and Damages, alleging fraud and deceit in the execution of the REM, claiming they only intended to be guarantors. Procedural History: The Regional Trial Court (RTC) declared the REM valid and binding, upheld the undertaking, allowed the Jaymes to redeem the property within 90 days, and held Neri and others jointly liable on their undertaking. The Court of Appeals (CA) affirmed the RTC's ruling on the validity of the REM and foreclosure but modified the dispositive portion, declaring the foreclosure sale valid, the redemption period expired, ordering the issuance of a definite deed of sale to MBTC, declaring the dacion en pago valid, and ordering MBTC to pay rentals for the use of the land. The CA also ordered Asiancars and its officers to pay damages and attorney's fees. Petitioners' motion for reconsideration was denied. The Petition: Petitioners assail the CA's decision, arguing grave abuse of discretion in declaring the REM, foreclosure, and dacion en pago valid, and in ruling that the redemption period had expired. They contend the REM was a deed of guaranty, not a mortgage, due to vitiated consent, and that the dacion en pago was illegal and extinguished the debt.
Issue(s)
Whether the Deed of Real Estate Mortgage (REM) executed by the Jayme spouses in favor of MBTC is valid and binding, or if it should be annulled due to vitiated consent. Whether the period to redeem Lot 2700 had expired. Whether the dacion en pago executed by Asiancars in favor of MBTC is valid and binding. Whether the dacion en pago extinguished the indebtedness of Asiancars, and the liability of Neri and Asiancars.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals with a modification regarding the computation of rentals owed by MBTC. The Court ruled that the Deed of Real Estate Mortgage is valid and binding, the foreclosure proceedings were valid, and the redemption period had expired. The dacion en pago was also deemed valid. MBTC was ordered to pay petitioners rentals in the amount of P602,083.33 with interest.
Ratio Decidendi
On the validity of the Real Estate Mortgage (REM) and vitiated consent: The Court held that the REM, being a notarized document, enjoys the presumption of regularity. To overcome this presumption, clear, convincing, and more than merely preponderant evidence is required. The Court found that the Jayme spouses voluntarily and knowingly entered into the transaction, supported by their trust in George Neri and the assistance of their lawyer, Atty. Cirilo Sanchez, who even signed as a witness to a Special Power of Attorney authorizing Neri to mortgage the property. The Court noted that even though the spouses were illiterate, their consultation with their literate children and the presence of legal counsel negated any claim of vitiated consent. The Court reiterated that a third party's property can be validly mortgaged to secure another's obligation, making the property directly liable for the fulfillment of the principal obligation, citing Lustan vs. CA. Therefore, the spouses could not disclaim the validity of a transaction they knowingly entered into, even if it later proved prejudicial. On the expiration of the redemption period: The Court affirmed the appellate court's finding that the redemption period had expired. Under Section 78 of the General Banking Act then in force, the right to redeem foreclosed property is one year from the registration of the certificate of sale. In this case, the certificate of sale was registered on February 23, 1981, giving the petitioners until February 23, 1982, to redeem the property. Since they failed to do so within this period, ownership of the property vested absolutely in the purchaser, MBTC. The Court emphasized that courts cannot relieve parties from bad bargains or foolish acts, citing Vales v. Villa. On the validity and effect of the dacion en pago: The Court found the dacion en pago executed by Asiancars in favor of MBTC to be valid. The ownership of the building, though stipulated to transfer to the Jaymes upon lease termination, was considered to be with the lessee-mortgagor (Asiancars) during the subsistence of the lease. Asiancars, as mortgagor, could validly exercise rights of ownership, including alienation, during this period. Dacion en pago is a special mode of payment where the debtor offers property as an accepted equivalent of the performance of an obligation, essentially partaking of the nature of a sale. The Court found that the essential elements of consent, object, and consideration were present. On whether the dacion en pago extinguished the indebtedness of Asiancars, and the liability of Neri and Asiancars: The Court clarified that while the dacion en pago was valid, it only served as partial payment for the loan, as a balance of P2,942,449.66 remained, which justified the foreclosure. The Court also noted that MBTC was a purchaser in good faith, as it had no knowledge of the stipulation in the lease contract regarding the building's ownership transfer, and such stipulation was not annotated on the title. The Court reiterated that while petitioners could not recover from MBTC due to the validity of the mortgage and foreclosure, they had recourse against George Neri and other members of his family through the undertaking they executed. This undertaking bound Asiancars and its signatories to reimburse petitioners for damages suffered due to the mortgage. The Court also affirmed the award of moral and exemplary damages, finding that bad faith attended Asiancars' transfer of the building to MBTC, disregarding the Jaymes' rights.
Main Doctrine
A notarized deed of real estate mortgage, absent clear and convincing evidence of fraud, is presumed valid and binding. A third party who mortgages their property to secure another's loan, even if not directly liable for the debt, makes their property liable for the obligation. The failure to redeem foreclosed property within the statutory period vests absolute ownership in the buyer.