RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR., vs.

THE COURT OF APPEALS and MAXIMA CASTRO

G.R. No. L-32116
April 2l, 1981

FACTS:

Maxima Castro, accompanied by Severino Valencia, went to the Rural

Bank of Caloocan to apply for a loan. Valencia arranged everything about the loan with
the bank. He supplied to the latter the personal data required for Castro's loan application.
After the bank approved the loan for the amount of P3,000.00, Castro, accompanied by
the Valencia spouses, signed a promissory note corresponding to her loan in favor of the
bank. On the same day, the Valencia spouses obtained from the bank an equal amount
of loan for P3,000.00. They signed another promissory note (Exhibit "2") corresponding
to their loan in favor of the bank and had Castro affixed thereon her signature as co-
maker. Both loans were secured by a real-estate mortgage on Castro's house and lot.
Later, the sheriff of Manila sent a notice to Castro, saying that her property would be sold
at public auction to satisfy the obligation covering the two promissory notes plus interest
and attorney's fees. Upon request by Castro and the Valencias and with conformity of the
bank, the auction sale was postponed, but was nevertheless auctioned at a later date.
Castro claimed that she is a 70-year old widow who cannot read and write in English.
According to her, she has only finished second grade. She needed money in the amount of
P3,000.00 to invest in the business of the defendant spouses Valencia, who accompanied
her to the bank to secure a loan of P3,000.00. While at the bank, an employee handed
to her several forms already prepared which she was asked to sign, with no one
explaining to her the nature and contents of the documents. She also alleged that it was
only when she received the letter from the sheriff that she learned that the mortgage
contract which was an encumbrance on her property was for P6.000.00 and not for
P3,000.00 and that she was made to sign as co-maker of the promissory note without
her being informed. Castro filed a suit against petitioners contending that thru mistake on
her part or fraud on the part of Valencias she was induced to sign as co-maker of a
promissory note and to constitute a mortgage on her house and lot to secure the
questioned note. At the time of filing her complaint, respondent Castro deposited the
amount of P3,383.00 with the court a quo in full payment of her personal loan plus
interest.

Castro prayed for: the annulment as far as she is concerned of the promissory note
(Exhibit "2")and mortgage (Exhibit "6") insofar as it exceeds P3,000.00; and for the
discharge of her personal obligation with the bank by reason of a deposit of P3,383.00
with the court a quo upon the filing of her complaint.
ISSUE:

Whether or not respondent court correctly affirmed the lower court in declaring the
promissory note (Exhibit 2) invalid insofar as they affect respondent Castro vis-à-vis
petitioner bank, and the mortgage contract (Exhibit 6) valid up to the amount of P3,000.00
only.

HELD:
 Yes. While the Valencias defrauded Castro by making her sign the promissory
note and the mortgage contract, they also misrepresented to the bank Castro's personal
qualifications in order to secure its consent to the loan. Thus, as a result of the fraud upon
Castro and the misrepresentation to the bank inflicted by the Valencias both Castro and the bank
committed mistake in giving their consents to the contracts

In other words, substantial mistake vitiated their consents given. For if Castro had
been aware of what she signed and the bank of the true qualifications of the loan
applicants, it is evident that they would not have given their consents to the contracts.
Article 1342 of the Civil Code which provides: Art. 1342. Misrepresentation by a third
person does not vitiate consent, unless such misrepresentation has created substantial
mistake and the same is mutual.

We cannot declare the promissory note valid between the bank and Castro and the mortgage
contract binding on Castro beyond the amount of P3,000.00, for while the contracts may not be
invalidated insofar as they affect the bank and Castro on the ground of fraud because the bank was
not a participant thereto, such may however be invalidated on the ground of substantial
mistake mutually committed by them as a consequence of the fraud and misrepresentation inflicted by
the Valencias

Thus, 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. 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.
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM vs. CA
and THE PHILIPPINE NATIONAL BANK
G.R. No. L-62943
July 14, 1986

FACTS:

By special arrangement with PNB, MWSS used personalized checks in drawing from its
account. The checks were printed by its printer, F. Mesina Enterprises. 23 checks were paid and
cleared by PNB, and debited against MWSS’ account from March to May 1969. The checks were
deposited by payees Raul Dizon, Arturo Sison, and Antonio Mendoza in their account with
PCIBank. Said persons were later found to be fictitious. MWSS requested PNB to restore the
amount debited due to the 23 checks, allegedly forged, to its account. The bank refused. Hence,
the present action.

ISSUE:

Whether or not the bank shall bear the loss resulting from the alleged forged checks.

HELD:

No. There was no express and categorical finding that the 23 checks were forged or signed
by persons other than the authorized MWSS signatories. Forgery is not presumed but should be
established by clear, positive and convincing evidence. MWSS is barred from setting up defense
of forgery under Section 23 of the Negotiable Instruments Law as MWSS committed gross
negligence in the printing of its personalized checks, failed to reconcile its bank statements with
its own records, and failed to provide appropriate security measures over its own record. PNB, the
drawee bank, had taken necessary measures in the detection of forged checks and the prevention
of their fraudulent encashment through constant reminders to all its current account bookkeepers
informing them of the activities of forgery syndicates. MWSS’ gross negligence was the proximate
cause of the loss (P3 million), and should bear the loss.
GUIANG v. COURT OF APPEALS
291 SCRA 372
June 26, 1998

FACTS:

The sale of a conjugal property requires the consent of both the husband and the wife. The
absence of the consent of one renders the sale null and void, while the vitiation thereof makes it
merely voidable. Only in the latter case can ratification cure the defect.

Over the objection of private respondent Gilda Corpuz and while she was in Manila seeking
employment (with the consent of her husband), her husband sold to the petitioners-spouses
Antonio and Luzviminda Guiang one half of their conjugal peoperty, consisting of their residence
and the lot on which it stood. Upon her return to Cotabato, respondent gathered her children and
went back to the subject property. Petitioners filed a complaint for trespassing. Later, there was an
amicable settlement between the parties. Feeling that she had the shorter end of the bargain,
respondent filed an Amended Complaint against her husband and petitioners. The said Complaint
sought the declaration of a certain deed of sale, which involved the conjugal property of private
respondent and her husband, null and void.

ISSUE:
WON contract without the consent of wife is void

HELD:

Yes. Art 124 of the FC rules that In the event that one spouse is incapacitated or otherwise
unable to participate in the administration of the conjugal properties, the other spouse may assume
sole powers of administration. These powers do not include the powers of disposition or
encumbrance which must have the authority of the court or the written consent of the other spouse.
In the absence of such authority or consent, the disposition or encumbrance shall be void.

Respondent’s consent to the contract of sale of their conjugal property was totally
inexistent or absent. The nullity of the contract of sale is premised on the absence of private
respondent’s consent. To constitute a valid contract, the Civil Code requires the concurrence of
the following elements: (1) cause, (2) object, and (3) consent, the last element being indubitably
absent in the case at bar.

A void contract cannot be ratified.

Neither can the “amicable settlement” be considered a continuing offer that was accepted
and perfected by the parties, following the last sentence of Article 124. The order of the pertinent
events is clear: after the sale, petitioners filed a complaint for trespassing against private
respondent, after which the barangay authorities secured an “amicable settlement” and petitioners
filed before the MTC a motion for its execution. The settlement, however, does not mention a
continuing offer to sell the property or an acceptance of such a continuing offer. Its tenor was to
the effect that private respondent would vacate the property. By no stretch of the imagination, can
the Court interpret this document as the acceptance mentioned in Article 124.
BRAGANZA V. VILLA ABRILLE
G.R. NO. L-12471
13 APRIL 1959

FACTS:
Rosario Braganza and her sons loaned from De Villa Abrille P70,000 in Japanese war notes
and in consideration thereof, promised in writing to pay him P10,000 + 2% per annum in legal
currency of the Philippines 2 years after the cessation of the war. Because they have not paid,
Abrille sued them in March 1949.

The Manila court of first instance and CA held the family solidarily liable to pay according
to the contract they signed. The family petitioned to review the decision of the CA whereby they
were ordered to solidarily pay De Villa Abrille P10,000 + 2% interest, praying for consideration
of the minority of the Braganza sons when they signed the contract.
They also averred that Guillermo and Rodolfo were minors when they signed the promissory note.
Court of Appeals found them liable pursuant to the following reasoning:

. . . . These two appellants did not make it appears in the promissory note that they were
not yet of legal age. If they were really to their creditor, they should have appraised him on their
incapacity, and if the former, in spite of the information relative to their age, parted with his money,
then he should have contended with the consequence of his act. But, that was not the case. Perhaps
defendants in their desire to acquire much-needed money, they readily and willingly signed the
promissory note, without disclosing the legal impediment with respect to Guillermo and Rodolfo.

When minor, like in the instant case, pretended to be of legal age, in fact, they were not,
they will not, later on, be permitted to excuse themselves from the fulfillment of the obligation
contracted by them or to have it annulled. (Mercado, et al. vs. Espiritu, 37 Phil., 215.)

ISSUE:

Whether or not the minors are liable for the promissory note?

RULING:

No, in order to hold them liable, the fraud must be actual and not constructive. It has been
held that his mere silence when making a contract as to his age does not constitute a fraud which
can be made the basis of an action of deceit. The fraud of which an infant may be held liable to
one who contracts with him in the belief that he is of full age must be actual, not constructive, and
mere failure of the infant to disclose his age is not sufficient.

However, the boys though not bound by the provisions of the contract, are still liable to
pay the actual amount they have profited from the loan. Art. 1340 states that even if the written
contract is unenforceable because of their non-age, they shall make restitution to the extent that
they may have profited by the money received.