G.R. No. 110672 & G.R. No. 111201. September 14, 1999.
RURAL BANK OF STA. MARIA, PANGASINAN, petitioner, vs. THE HONORABLE COURT OF APPEALS, ROSARIO R. RAYANDAYAN, CARMEN R. ARCEÑO, respondents. / ROSARIO R. RAYANDAYAN and CARMEN R. ARCEÑO, petitioners, vs. COURT OF APPEALS, HALSEMA INC. and RURAL BANK OF STA. MARIA, PANGASINAN, INC., respondents.

FACTS

A parcel of land covered by TCT T-29817 was registered in the name of Manuel Behis, married to Cristina Behis. Manuel Behis mortgaged this land to the Rural Bank of Sta. Maria, Pangasinan (the Bank) on October 23, 1978, to secure loans totaling P156,750.00. The mortgage and loan documents bore the signatures of both Manuel and Cristina Behis. Manuel Behis became delinquent in his loan payments. On January 9, 1985, Manuel Behis sold the land to Rosario R. Rayandayan and Carmen R. Arceño (the plaintiffs) through a Deed of Absolute Sale with Assumption of Mortgage for P250,000.00, which also bore the signature of Cristina Behis. On the same date, the plaintiffs and Manuel Behis executed a separate Agreement stating the real consideration was P2,400,000.00, payable in installments. The plaintiffs did not register these documents or have the title transferred to their names. They made partial payments to Manuel Behis. The Bank initiated foreclosure proceedings due to the delinquent loan, which had ballooned to P316,368.13 by May 30, 1985. On August 1, 1985, the plaintiffs and the Bank entered into a Memorandum of Agreement (MOA) where the plaintiffs, as assignees of Manuel Behis, agreed to redeem the property. The MOA stipulated: (a) payment of P35,000.00 upon signing; (b) payment of P108,000.00 in three monthly installments; (c) renewal of the P200,000.00 balance secured by a new mortgage; and (d) the Bank would release the old mortgage and consent to the transfer of title to the plaintiffs. The plaintiffs fully paid the P143,000.00 under items (a) and (b), albeit not strictly on the dates specified. Meanwhile, Cristina Behis wrote to the Bank claiming her signature on the mortgage was forged and that she did not authorize anyone to redeem the property. On January 7, 1986, the plaintiffs demanded the Bank comply with the MOA. The Bank refused, citing Cristina Behis’s protest. Subsequently, the Bank extrajudicially foreclosed the mortgage and sold the property at auction to Halsema, Inc. on March 19, 1986. The plaintiffs filed a case against the Bank and Halsema, Inc. The trial court ruled in favor of the plaintiffs, declaring the foreclosure and sale null and void, ordering the Bank to execute the necessary documents to transfer the title to the plaintiffs upon their execution of a new mortgage for P200,000.00, and awarding damages. The Court of Appeals affirmed the trial court’s decision but deleted the award of actual damages. Both the Bank and the plaintiffs filed petitions for review.

ISSUE

The primary issue is whether the Bank was justified in refusing to comply with the Memorandum of Agreement and in proceeding with the foreclosure of the mortgage, based on the protest of Cristina Behis regarding the validity of her signature on the original mortgage and her lack of consent to the redemption.

RULING

The Supreme Court denied both petitions and affirmed the decision of the Court of Appeals. The Court held that the Bank was not justified in reneging on the MOA. The MOA was a valid and binding contract. The Bank’s obligation under the MOA was not contingent upon the resolution of Cristina Behis’s claim. Her claim of forgery pertained to the original mortgage contract, not the MOA. The MOA was a separate contract where the Bank agreed to release the mortgage and transfer title upon the plaintiffs’ payment, which they substantially complied with by paying the P143,000.00. The Bank’s refusal to honor the MOA constituted a breach of contract. The subsequent foreclosure was therefore invalid as it violated the terms of the MOA. The Court also found no fraud on the part of the plaintiffs in dealing with the Bank. The award of moral and exemplary damages and attorney’s fees by the lower courts was affirmed. The Court of Appeals’ deletion of the award of actual damages was also sustained.