G.R. No. 197857 September 10, 2014
SPOUSES FRANCISCO SIERRA (substituted by DONATO, TERESITA, TEODORA, LORENZA, LUCINA, IMELDA, VILMA, and MILAGROS SIERRA) and ANTONINA SANTOS, SPOUSES ROSARIO SIERRA and EUSEBIO CALUMA LEYVA, and SPOUSES SALOME SIERRA and FELIX GATLABAYAN (substituted by BUENA VENTURA, ELPIDIO, PAULINO, CATALINA, GREGORIO, and EDGARDO GATLABAYAN, LORETO REILLO, FERMINA PEREGRINA, and NIDA HASHIMOTO), Petitioners, vs. PAIC SAVINGS AND MORTGAGE BANK, INC., Respondent.

FACTS

On May 31, 1983, Goldstar Conglomerates, Inc. (GCI) obtained a loan from First Summa Savings and Mortgage Bank (Summa Bank), now respondent Paic Savings and Mortgage Bank, Inc. (PSMB). As security, GCI executed promissory notes and a Deed of Real Estate Mortgage over its land. As additional security, petitioners mortgaged four parcels of land registered in their names. After signing the mortgage deed, petitioner Francisco Sierra received and encashed four manager’s checks totaling ₱200,000.00 and several post-dated checks from GCI’s representative. GCI defaulted on the loan, prompting PSMB to extrajudicially foreclose the mortgages on the petitioners’ properties. PSMB emerged as the highest bidder at the auction sale on June 27, 1984. Petitioners failed to redeem the properties, leading to the cancellation of their titles and the issuance of new ones in PSMB’s name. On September 16, 1991, petitioners filed a complaint to declare the real estate mortgage and its foreclosure null and void, alleging they were deceived into believing they were the principal loan applicants, that the mortgage document was not explained to them, and that the checks they received were later dishonored. They claimed they only discovered later that the loan was in GCI’s name and that the foreclosure was conducted by PSMB. The Regional Trial Court (RTC) declared the mortgage and foreclosure null and void, ordered the reinstatement of petitioners’ titles, but held them liable for the ₱200,000.00 they received. The Court of Appeals (CA) reversed the RTC, dismissing the complaint on grounds that petitioners failed to prove vitiation of consent, that their action had prescribed, and that they were barred by laches.

ISSUE

1. Whether the Court of Appeals erred in ruling that petitioners were aware they were mere accommodation mortgagors and not principal debtors.
2. Whether the Court of Appeals erred in dismissing the complaint on the grounds of prescription and laches.

RULING

The Supreme Court denied the petition, affirming the CA’s decision.
1. On vitiation of consent: The Court ruled that petitioners failed to prove by full, clear, and convincing evidence that their consent was vitiated by mistake or fraud. Their claim of having “very limited education” and lacking “proper instruction” was based solely on the uncorroborated testimony of Francisco Sierra. The Court noted that petitioners Francisco and Rosario Sierra had previous experience mortgaging properties, indicating familiarity with such transactions. Furthermore, the Deed of Real Estate Mortgage clearly identified them as mortgagors and GCI as the borrower. Their failure to demand loan documents or question the transaction for years undermined their claim of being deceived.
2. On prescription and laches: The Court held that the action to annul the mortgage had prescribed. An action based on mistake or fraud must be filed within four years from its discovery. The earliest checks issued to petitioners were dishonored on January 9, 1984, which the Court deemed as the time they discovered the alleged fraud. Since the complaint was filed only on September 16, 1991, more than four years had elapsed. Additionally, petitioners were barred by laches. They received notice of the foreclosure sale on June 19, 1984, but did not attend the sale, file an adverse claim, or redeem the properties within the redemption period. Their inaction for over seven years before filing suit constituted neglect, warranting the application of laches.