CASE #10

Metropolitan Fabrics Inc. and Enrique Ang vs. Prosperity Credit

Resources Inc., Domingo Ang and Caleb Ang
G.R. 154390. 17 March 2014

FACTS:
Metropolitan Fabrics Inc. (MFI) owned a 5.8 ha industrial compound in
Quezon City. Pursuant to a P2M, 10-year loan agreement with Manpil
Investment Corporation (Manpil) dated April 6, 1963, the lot was subdivided
into 11 lots, with Manpil retaining four lots as mortgage security while the
remaining seven lots were released to MFI. In July 1984, MFI obtained a loan
from PCRI in the amount of P3.5M, represented by herein respondents
Domingo and Caleb Ang. The blank loan forms had no entries specifying the
rate of interest and schedules of amortization. In order to return the trust and
gesture of early release of the loan by the respondents, herein petitioner
Enrique Ang, together with his daughter Vicky Ang, entrusted to the
respondents their seven (7) titles covering an aggregate area of 3.36 ha and
left it to said respondents to choose from among the 7 titles those which
would be sufficient to secure the P3.5M loan. An appraisal report put the
value of four(4) of the said properties at P6.8M. Vicky also stated that it was
agreed that once PCRI had chosen the lots to be covered by the mortaged,
the respondents would return the remaining titles to the petitioners.
Thereafter, twenty-four(24) checks, bearning no dates and amounts and
signed in blank by Enrique and Natividad, were deliverd to PCRI to cover the
amortization payments. In September 1984, the first amortization check
bounced for insufficient fund due to MFIs continuing losses. It was then that
the petitioners learned that PCRI had filled up the said checks with dates and
amounts reflected at 35% interest rate per annum, instead of just 24%, and
a two-year repayment period, instead of 10 years. It was only upon such time
that PCRI finally furnished MFI with its copy of the loan documents.
Petitioners found the terms to be prohibitive, burdensome, and
unconscionable, and further averred that had they known them they would
have either negotiated or rejected the terms of the loan and withdrew the
application. Due to losses, petitioners business operations stopped. An
offsetting agreement was executed by the parties to cover the loan
obligation amounting to P4.1M. Thereafter, Vicky furnished respondents a
copy of the appraisal report prepared by Integrated Appraisal Corporation.
However, PCRIs statement showed that all seven(7) titles were placed as
collateral for their P3.5M loan. Petitioners averred that as per the appraisal
report, the value of the properties covered by the said titles were largely in

excess of the loan obligation. On September 1986, petitioner Enrique

received a Notice of Sherriffs Sale announcing the auction of the seven lots
due to an unpaid indebtedness of P10.5M. Vicky insisted that prior to the
notice, they never received any statement or demand letter from the
defendants to pay the said amount, nor did the respondents inform them of
the intended foreclosure. The auction was then reset to a later date after
petitioners assured PCRI that they had found a serious buyer for the lots. In
the meeting held between the parties and the said buyer, Winston Wang, it
was agreed that the mortgage was to be released upon payment of P3.5M
with an initial down-payment of P500,000.00 to be paid by MFI to PCRI as
partial settlement of the P3.5M loan. Thereafter, Winston Wang confronted
Vicky about the sale agreement and PCRIs refusal to accept the P3M
payment because according to the respondent Caleb, the three lots had been
foreclosed. However, the said foreclosure was executed before the lapse of
the agreed 60-day period for the payment of the balance. At the auction,
PCRI was the sole bidder. Subsequent agreements were further held for the
release of the disputed three lots involving all three parties. Upon failure to
raise the required money for the payments on account of such agreements,
MFI was ultimately forced to vacate the lots. The RTC ruled in favour of the
petitioners. However, the CA reversed the decision and dismissed the
complaint.
ISSUE:
Whether or not the action to assail the mortgage already prescribed
HELD:
YES. The Court held that in order to resolve the issue of prescription, it is
important to first determine if the mortgage was void or merely voidable. As
held by the CA, the petitioners contention of absence of consent which
would make the mortgage void was untenable. Herein petitioners failed to
prove that they had been forced or coerced to enter into the mortgage.
Where consent was given through fraud alone, the contract was voidable,
not void ab initio. With the contract being voidable, petitioners action to
annul the real estate mortage already prescribed. Article 1390, in relation to
Article 1391 of the Civil Code, provides that if the consent of the parties was
obtained through fraud, the contract is considered voidable and may be
annulled within four(4) years from the time of the discovery thereof. The
discovery of said document was reckoned from the time the document was
registered in the Register of Deeds in view of the rule that registration was
notice to the whole world. Thus, because the mortgage involving the seven
lots was registered on September 5, 1984, they had until September 5, 1988
within which to assail the validity of said mortgage. But their complaint was

instituted in the RTC on October 10, 1991. Hence, the action had already
prescribed.