G.R. No.

197857               September 10, 2014

SPOUSES FRANCISCO SIERRA (substituted by DONATO, TERESITA, TEODORA, LORENZA,

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari  is the Decision  dated June 27, 2011 of the Court of
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Appeals (CA) in CA-G.R. CV No. 91999 which reversed and set aside the Decision  dated April 24,
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2006 of the Regional Trial Court of Antipolo City, Branch 74 (RTC) in Civil Case No. 91-2153,
dismissing petitioners’ complaint for declaration of nullity of real estate mortgage and extrajudicial
foreclosure proceedings.

The Facts

On May 31, 1983, Goldstar Conglomerates, Inc. (GCI), represented by Guillermo Zaldaga (Zaldaga),
obtained from First Summa Savings and Mortgage Bank (Summa Bank), now respondent Paic
Savings and Mortgage Bank, Inc. (PSMB),  a loan in the amount of ₱1,500,000.00 as evidenced by
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a Loan Agreement  dated May 31, 1983. As security therefor, GCI executed in favor of PSMB six (6)
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promissory notes  in the aggregate amount of ₱1,500,000.00 as well as a Deed of Real Estate
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Mortgage over a parcel of land covered by Transfer Certificate of Title (TCT) No. 308475.  As 7

additional security, petitioners Francisco Sierra, Rosario Sierra, and Spouses Felix Gatlabayan and
Salome Sierra mortgaged four(4) parcels of land in Antipolo City, covered by TCT Nos. 308476,
308477, 308478, and 308479,  and respectively registered in their names (subject properties).
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Records show that after the signing of the mortgage deed, Zaldaga gave petitioner Francisco
Sierra  four (4) manager’s checks with an aggregate amount of ₱200,000.00, which werelater
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successfully encashed,  as well as several post-dated checks.

Eventually, GCI defaulted in the payment of its loan to PSMB, thereby prompting the latter to
extrajudicially foreclose the mortgage on the subject properties in accordance with Act No. 3135,  as12

amended, with due notice to petitioners.  In the process, PSMB emerged as the highest bidder in
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the public auction sale held on June 27, 1984 for a total bid price of ₱2,467,272.66.  Since
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petitioners failed to redeem the subject properties within the redemption period, their certificates of
title were cancelled and new ones were issued in PSMB’s name. 15

On September 16, 1991, petitioners filed a complaint  for the declaration of nullity ofthe real estate
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mortgage and its extrajudicial foreclosure, and damages against PSMB and Summa Bank before the
RTC, docketed as Civil Case No. 91-2153.

In the said complaint, petitioners averred that under pressing need of money, with very limited
education and lacking proper instructions, they fell prey to a group who misrepresented to have
connectionswith Summa Bank and, thus, could help them secure a loan.  They were made to
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believe that they applied for a loan, the proceeds of which would be released through checks drawn
against Summa Bank.  Relying in good faith on the checks  issued to them, petitioners
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unsuspectingly signed a document denominated as Deed of Real Estate Mortgage (subject deed),
couched in highly technical legal terms, which was notinterpreted in a language/dialect known to
them, and which was not accompanied by the loan documents. However, when they presented for
payment the earliest-dated checks to the drawee bank, the same were dishonored for the reason
"Account Closed." Upon confrontation, some members of the group assured petitioners that there
was only a misunderstanding and that their certificates of titles would be returned.  Subsequently,
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petitioners learned that: (a) the loan account secured by the real estate mortgage was in the nameof
another person and not in their names as they were made to understand; (b) despite lack of special
authority from them, foreclosure proceedings over the subject properties were initiated by PSMB and
not Summa Bank in whose favor the mortgage was executed; (c) the period of redemption had
already lapsed; and (d) the ownership over the subject properties had already been consolidated in
the name of PSMB.  Petitioners likewise lamented that they were not furnished copies of the loan
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and mortgage documents, or notified/apprised of the assignment to PSMB, rendering them unable to
comply with their obligations under the subject deed. They further claimed that theywere not
furnished a copy of the statement of account, which was bloated with unconscionable and unlawful
charges, assessments, and fees, nor a copy of the petition for foreclosure prior to the precipitate
extrajudicial foreclosure and auction sale which failed to comply with the posting and notice
requirements.  In light of the foregoing, petitioners prayed that the real estate mortgage and the
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subsequent foreclosure proceedings, and all derivative titles and rights arising therefrom be declared
null and void ab initio, and that the subject properties be reconveyed back to them, with further
prayer for compensatory and exemplary damages, and attorney’s fees. 23

PSMB filed its answer,  averring that PSMB and Summa Bank are one and the same entity.  It
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prayed for the dismissal of the complaint, claiming that petitioners have no cause of action against it
because it never extended any loan to them.  PSMB maintained that: (a) it acted in good faith with
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respect to the subject transactions and that petitioners’ action should be directed against the group
who deceived them;  (b) the subject properties were mortgaged to securean obligation covered by
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the loan agreement with GCI;  (c) the mortgage was valid, having been duly signed by petitioners
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before a notary public;  (d) the foreclosure proceedings were regular, having complied with the
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formalities required by law;  and (e) petitioners allowed time topass without pursuing their purported
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right against Summa Bank and/or PSMB.  PSMB thereby interposed a counterclaim for
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compensatory, moral and exemplary damages, and attorney’s fees for the baseless suit. 32

The RTC Ruling

In a Decision  dated April 24, 2006, the RTC: (a) declared the subject deed and the extrajudicial
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foreclosure proceedings null and void; (b) cancelled the certificates of title of PSMB; and (c) directed
the reinstatement of petitioners’ certificates of title.
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While the RTC ruled that the loan transaction was a valid and binding agreement between Summa
Bank and GCI, it held that the subject deed did not reflect the true intent and agreement between
Summa Bank and petitioners who were made tobelieve that they were the principal obligors in the
loan, thereby invalidating their consent to the mortgage.  It likewise held that petitioners cannot be
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faulted for failing to heed the notice of extrajudicial foreclosure sale by PSMB considering their lackof
notice that Summa Bank had changed its name to PSMB.  Nonetheless, considering that petitioners
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had received partial loan proceeds of ₱200,000.00, the RTC heldthem liable for such amount and
accordingly directed PSMB to (a) allow petitioners to pay for their loan in the amount of ₱200,000.00
plus 12% interest, and (b) pay moral and exemplary damages, attorney’sfees, and the costs of suit. 37

Aggrieved, PSMB filed a motion for reconsideration,  while petitioners filed a motion for discretionary
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execution  which were, however, denied in an Order  dated February 11, 2008. Dissatisfied, PSMB
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interposed an appeal to the CA.

In a Decision  dated June 27, 2011, the CAreversed and set aside the RTC Decision and dismissed
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petitioners’ complaint for lack of merit.42

It held that petitioners were not able to sufficiently prove their claim that they were uneducated
and/or unschooled, rejecting the self-serving and uncorroborated testimony of petitioner Francisco
Sierra on such claim.  In this relation, it pointed out that petitioners had knowingly and voluntarily
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executed the subject deed, observing that: (a) prior to its execution, petitioners Francisco and
Rosario Sierra had previously mortgaged their properties twice to the Rural Bank of Antipolo,
showing that they were familiar with the intricacies of obtaining a loan and of the terms and
conditions of a mortgage, and (b) the page on which the parties affixed their signatures clearly
indicated petitioners as the mortgagors and GCI as the borrowers. Moreover, petitioners did not
demand for the release of the remaining amount of their alleged loan, raising issue thereon only in
their complaint filed in 1991.44

The CA likewise ruled that the action to annul the subject deed had already prescribed, since the
same was brought more than four (4) years from the discovery of the mistake orfraud, reckoned from
the time the earliest checks issued to petitioners were dishonored, or on January 9, 1984, this being
the time the consideration orprice for the execution of the subject deed turned out to be false.45

The CA further held that petitioners were barred by lachesfrom asserting any claim on the subject
properties considering that despite receipt of the letter dated June 11, 1984 informing them of the
scheduled auction sale, they failed to attend the sale or file an adverse claim, or to thereafter
redeem the subject properties. 46

Unperturbed, petitioners filed the instant petition.

The Issues Before The Court

The essential issues in this case are whether or not the CA erred in: (a) ruling that petitioners were
aware that they were mere accommodation mortgagors, and (b) dismissing the complaint on the
grounds of prescription and laches.

The Court’s Ruling

The petition lacks merit.

A. Vitiation of Consent.

Time and again, the Court has stressed that allegations must be proven by sufficient evidence
because mere allegation is not evidence.  Thus,one who alleges any defect or the lack ofa valid
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consent toa contract must establish the same by full, clear, and convincing evidence, not merely by
preponderance of evidence.  The rule is that he who alleges mistake affecting a transaction must
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substantiatehis allegation, since it is presumed that a person takes ordinary care of his concerns and
that private transactions have been fair and regular.  Where mistake or error is alleged by parties
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who claim to have not had the benefit of a good education, as in this case, they must establish that
their personal circumstances prevented them from giving their free, voluntary, and spontaneous
consent to a contract. 50
After a judicious perusal of the records, the Court finds petitioners’ claim of mistake or error (that
they acted merely as accommodation mortgagors) grounded on their "very limited education" and
"lack of proper instruction" not to be firmly supported by the evidence on record.

As correctly observed by the CA, the testimony of petitioner Francisco Sierra as to petitioners’
respective educational backgrounds 51