Metropolitan Fabrics v. Prosperity Credit Resources
REITERATIONFacts
The Antecedents: Metropolitan Fabrics, Inc. (MFI) owned an industrial compound. MFI obtained a P3.44 million loan from Prosperity Credit Resources Inc. (PCRI), represented by Domingo and Caleb Ang, with an interest rate ranging from 24% to 26% per annum and a term of five to ten years. MFI alleged that the loan documents, including the real estate mortgage, promissory note, and surety agreement, were signed in blank. PCRI allegedly released the loan and subsequently filled in the blanks with a 35% interest rate and a two-year repayment period, contrary to MFI's understanding. MFI claimed that seven of its lots were mortgaged as security, but its appraisal report indicated the value of four lots alone was P6.8 million, and all seven were worth P11 million. MFI experienced business losses, and its first amortization check bounced. MFI protested the interest rate and repayment period, claiming the terms were unconscionable. Negotiations for offsetting properties and adjusting terms occurred. MFI received a Notice of Sheriff's Sale for the auction of all seven lots due to an alleged unpaid indebtedness of P10.5 million, which MFI claimed was significantly higher than its last statement. The auction was postponed multiple times due to negotiations, including a potential sale of three lots to Winston Wang for P3.5 million. PCRI eventually accepted the P3 million payment from Wang for three lots, with conditions for MFI to pay attorney's fees and real estate taxes. MFI continued to negotiate for the release of the remaining four lots. PCRI later demanded MFI vacate the remaining lots, and MFI complied. Enrique Ang, MFI's president, became ill and eventually died. MFI filed a case seeking to declare the mortgage and foreclosure null and void. Procedural History: The Regional Trial Court (RTC) ruled in favor of MFI, declaring the real estate mortgage and foreclosure null and void, ordering reconveyance of the properties, and awarding damages. The Court of Appeals (CA) reversed the RTC's decision, finding that the action had prescribed and that MFI was estopped from assailing the mortgage. The CA dismissed both the complaint and the counterclaim. The Petition: MFI appealed to the Supreme Court, arguing that the CA erred in disregarding the RTC's factual findings, in not holding that the absence of consent made the contract void, in not holding that an action to declare a contract void does not prescribe, and in not holding that petitioners were not guilty of estoppel and laches.
Issue(s)
Whether the Court of Appeals committed reversible error in disregarding the factual findings of the trial court. Whether the Court of Appeals committed reversible error in not holding that the absence of consent makes a contract void, not merely voidable. Whether the Court of Appeals committed reversible error in not holding that an action to declare a contract void does not prescribe. Whether the Court of Appeals committed reversible error in not holding that petitioners are not guilty of estoppel and laches.
Ruling
The Supreme Court denied the petition for review on certiorari, affirming the decision of the Court of Appeals. The Court held that the action to annul the mortgage had prescribed and that MFI was estopped from denying the validity of the mortgage contract. The complaint and the counterclaim were dismissed.
Ratio Decidendi
On the issue of disregarding factual findings: The Supreme Court held that while appellate courts generally do not disturb the factual findings of lower courts, they may do so if the trial court overlooked, misunderstood, or misapplied facts or circumstances that would affect the outcome. The CA was not bound by the RTC's conclusions if they were not supported by evidence or if substantial facts were overlooked. The Supreme Court found it necessary to revisit the evidence due to conflicting findings between the RTC and the CA. On the issue of absence of consent making a contract void: The Court found that MFI's contention of absence of consent lacked firm mooring and remained unproved. MFI voluntarily applied for the loan, executed the mortgage, and delivered the titles, demonstrating their intent to mortgage the properties. The Court clarified that if consent was obtained through fraud, the contract is voidable, not void ab initio, as it is existent, valid, and binding until annulled. The evidence presented by MFI, primarily the testimony of Vicky Ang, at best pointed to vitiated consent through fraud, not a complete absence thereof. On the issue of prescription of action to declare a contract void: The Court reiterated that a contract entered into through fraud is voidable, not void. Under Article 1391 of the Civil Code, an action to annul a voidable contract based on fraud must be brought within four years from the discovery of the fraud. The Court held that registration of the mortgage on September 5, 1984, served as constructive notice, meaning the action should have been filed before September 5, 1988. Since the complaint was filed on October 10, 1991, the action had already prescribed. On the issue of estoppel and laches: The Court found that MFI's actions demonstrated their recognition of the mortgage's validity and the foreclosure sale. These actions included surrendering the titles, repeatedly pleading for the resetting of the foreclosure sale, negotiating for partial redemption, finding a buyer for some lots, and Vicky Ang's letters which were conciliatory and sought leniency rather than protesting fraud. The Court concluded that these circumstances indicated that fraud was not attendant and that MFI was estopped from denying the validity of the mortgage contract. The Court also noted that MFI's inaction for seven years was contrary to human experience, further supporting the claim of estoppel.
Main Doctrine
The genuineness and due execution of a deed of real estate mortgage acknowledged before a notary public are presumed, and any allegation of fraud and forgery against it must be established by clear and competent evidence. An action to annul a voidable contract based on fraud prescribes within four years from the discovery of the fraud, with registration serving as constructive notice.