G.R. No. 128669 ; October 4, 2002
MAMERTA VDA. DE JAYME, et al., petitioners, vs. HON. COURT OF APPEALS, SIXTEENTH DIVISION, CEBU ASIANCARS INC., GEORGE NERI, et al., respondents.

FACTS

Spouses Graciano and Mamerta Jayme were the registered owners of Lot 2700 in Mandaue City. On January 8, 1973, they entered into a 20-year Contract of Lease with George Neri, president of Cebu Asiancars Inc. (Asiancars), covering one-half of the lot. The contract allowed Asiancars to use the leased premises as collateral for a loan solely for building construction, with the building to become the Jaymes’ property upon lease termination. A Special Power of Attorney was executed in favor of Neri, who used the lot to secure a loan from General Bank and Trust Company, which was fully paid. In October 1977, Asiancars obtained a P6,000,000 loan from Metropolitan Bank and Trust Company (MBTC), with the entire Lot 2700 offered as collateral. The Jayme spouses signed a Deed of Real Estate Mortgage dated November 21, 1977, to secure this loan. Neri and other Asiancars officers executed an undertaking promising to compensate the Jaymes for any damages arising from the mortgage. Asiancars later encountered financial difficulties and conveyed the building on the leased premises to MBTC by way of “dacion en pago” as partial loan payment. MBTC extrajudicially foreclosed the mortgage, and a public auction was held on February 4, 1981, with MBTC as the highest bidder. After Graciano Jayme’s death, his heirs filed a complaint for Annulment of Contract with Damages, alleging they were deceived into signing the mortgage, believing they were signing as guarantors only, and that the deed was presented in blank. Respondents denied fraud, asserting the spouses were fully advised and voluntarily signed. The Regional Trial Court declared the mortgage valid and binding, allowed redemption by the Jaymes, and held the Asiancars officers liable on their undertaking. The Court of Appeals affirmed with modifications, declaring the mortgage and foreclosure valid, the redemption period expired, and ordering MBTC to pay rentals and the Asiancars officers to pay damages. Petitioners sought reconsideration, which was denied.

ISSUE

The primary issue is whether the Real Estate Mortgage executed by the Jayme spouses is valid and binding, or whether it should be annulled on grounds of fraud, deceit, or mistake as to their role as mere guarantors rather than mortgagors.

RULING

The Supreme Court AFFIRMED the decision of the Court of Appeals with MODIFICATION. The Court held that the Real Estate Mortgage was valid and binding. Petitioners failed to prove by clear and convincing evidence that fraud or deceit vitiated their consent. The Deed of Real Estate Mortgage clearly identified the Jayme spouses as mortgagors, and their signatures were affixed with understanding and voluntariness. The Court found no merit in the claim that they signed as guarantors only, as the document explicitly constituted a mortgage. The Court also upheld the validity of the foreclosure and the “dacion en pago.” The award of damages by the Court of Appeals was sustained, as the breach of trust by Asiancars and its officers warranted moral and exemplary damages. The Court modified the rental award to MBTC, ordering it to pay petitioners a total of P602,083.33 for the use of the land, with interest.