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Rural Bank of Caloocan vs. CA

Rural Bank of Caloocan vs. CA

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Published by Elaine Atienza

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Categories:Types, School Work
Published by: Elaine Atienza on Feb 20, 2012
Copyright:Attribution Non-commercial


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G.R. No. L-32116 April 2l, 1981RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR.,
Maxima Castro, accompanied by Severino Valencia, went to the Rural Bank of Caloocan to apply for a loan. Valencia arranged everything about the loan with thebank. He supplied to the latter the personal data required for Castro's loanapplication. After the bank approved the loan for the amount of P3,000.00, Castro,accompanied by the Valencia spouses, signed a promissory note corresponding toher loan in favor of the bank. On the same day, the Valencia spouses obtained fromthe bank an equal amount of loan for P3,000.00. They signed another promissorynote (Exhibit "2") corresponding to their loan in favor of the bank and had Castroaffixed thereon her signature as co-maker.Both loans were secured by a real-estate mortgage on Castro's house and lot. Later,the sheriff of Manila sent a notice to Castro, saying that her property would be soldat public auction to satisfy the obligation covering the two promissory notes plusinterest and attorney's fees. Upon request by Castro and the Valencias and withconformity of the bank, the auction sale was postponed, but was neverthelessauctioned at a later date.Castro claimed that she is a 70-year old widow who cannot read and write inEnglish. According to her, she has only finished second grade. She needed money inthe amount of P3,000.00 to invest in the business of the defendant spousesValencia, who accompanied her to the bank to secure a loan of P3,000.00. While atthe bank, an employee handed to her several forms already prepared which shewas asked to sign, with no one explaining to her the nature and contents of thedocuments. She also alleged that it was only when she received the letter from thesheriff that she learned that the mortgage contract which was an encumbrance onher property was for P6.000.00 and not for P3,000.00 and that she was made tosign as co-maker of the promissory note without her being informed.Castro filed a suit against petitioners contending that thru mistake on her part orfraud on the part of Valencias she was induced to sign as co-maker of a promissorynote and to constitute a mortgage on her house and lot to secure the questionednote. At the time of filing her complaint, respondent Castro deposited the amount of P3,383.00 with the court
a quo
in full payment of her personal loan plus interest.Castro prayed for:
the annulment as far as she is concerned of the promissory note (Exhibit "2")and mortgage (Exhibit "6") insofar as it exceeds P3,000.00; and
for the discharge of her personal obligation with the bank by reason of adeposit of P3,383.00 with the court
a quo
upon the filing of her complaint.
Whether or not respondent court correctly affirmed the lower court in declaring thepromissory note (Exhibit 2) invalid insofar as they affect respondent Castro vis-a-vispetitioner bank, and the mortgage contract (Exhibit 6) valid up to the amount of P3,000.00 only.
While the Valencias defrauded Castro by making her sign the promissory note andthe mortgage contract, they also misrepresented to the bank Castro's personalqualifications in order to secure its consent to the loan. Thus,
as a result of thefraud upon Castro and the misrepresentation to the bank inflicted by theValencias both Castro and the bank committed mistake in giving theirconsents to the contracts
. In other words, substantial mistake vitiated theirconsents given. For if Castro had been aware of what she signed and the bank of the true qualifications of the loan applicants, it is evident that they would not havegiven their consents to the contracts.Article 1342 of the Civil Code which provides:Art. 1342. Misrepresentation by a third person does not vitiate consent,unless such misrepresentation has created substantial mistake and thesame is mutual.
We cannot declare the promissory note valid between the bank and Castroand the mortgage contract binding on Castro beyond the amount of P3,000.00, for while the contracts may not be invalidated insofar as theyaffect the bank and Castro on the ground of fraud because the bank wasnot a participant thereto, such may however be invalidated on the groundof substantial mistake mutually committed by them as a consequence of the fraud and misrepresentation inflicted by the Valencias
. Thus, in the case of 
Hill vs. Veloso
, this Court declared that a contract may beannulled on the ground of vitiated consent if deceit by a third person, even withoutconnivance or complicity with one of the contracting parties, resulted in mutualerror on the part of the parties to the contract. The fraud particularly averred in the complaint, having been proven, is deemedsufficient basis for the declaration of the promissory note invalid insofar as it affectsCastro vis-a-vis the bank, and the mortgage contract valid only up to the amount of P3,000.00.

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