#114 G.R. No.

L-32116 April 2l, 1981

RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR., petitioners, vs.
THE COURT OF APPEALS and MAXIMA CASTRO, respondents.

Topic: Real Mortagage

Facts: Castro, 70 years old and uneducated, accompanied by Valencia, applied for an
industrial loan of P3, 000 from Rural Bank signing a promissory note in favour of the bank. On
the same day Valencia spouses obtained from the bank an equal amount of P3,000 also
signing a promissory note and defrauded Castro to affix her signature as co-maker. The two
loans were made secured by a real-estate mortgage on Castro's house and lot covered by
TCT. The property was sold at public auction to satisfy the obligation covering the two
promissory notes plus interest and atty’s fees.

Castro filed a complaint for annulment of the 2nd promissory note and mortgage insofar as it
exceeds P3,000. Alleging that thru mistake or fraud she was induced to sign as-comaker and
to constitute a mortgage on her house and lot to secure the questioned note made by
Valencia.
Issue:

Whether the mortgage contract is valid up to the amount of P3, 000 only which was
equivalent to Castro’s personal loan to the bank.

Ruling: Yes. In the case of Hill vs. Veloso, this Court declared that a contract may be
annulled on the ground of vitiated consent if deceit by a third person, even without
connivance or complicity with one of the contracting parties, resulted in mutual error on the
part of the parties to the contract.

Thus, the fraud particularly averred in the complaint, having been proven, is deemed
sufficient basis for the declaration of the promissory note invalid insofar as it affects Castro
vis-a-vis the bank, and the mortgage contract valid only up to the amount of P3,000.00.