Catapang v.
Lipa Bank
G.R. No. 240645, Jan 27, 2020
Topic: Terms of Contract; Burden of Proof
Caguioa, J.
Facts: Petitioner Redentor and his aunt, Casiana, alleged that the former's parents, the Spouses
Alejandro and Rosalinda Catapang (Sps. Catapang), obtained a loan from respondent Lipa Bank. The
loan was secured by a Deed of Real Estate Mortgage over the Sps. Catapang's property located at
Barrio Namuco, Rosario, Batangas. As the Sps. Catapang failed to pay their loan obligation, the
mortgage was foreclosed. The Sps. Catapang also failed to exercise their right of redemption.
Thereafter, in February 1999, the aforesaid property was consolidated in the name of respondent
Lipa Bank and a new title was issued in its favor.
Sps. Catapang was able to negotiate and settle their obligations with Lipa Bank. However, out of
the required P400,000.00 down payment, only the amount of P200,000.00 was paid by Redentor. In
order to secure the complete amount of downpayment, upon the advice of respondent Lipa Bank's
loan division head, Mr. Damian, petitioner Redentor supposedly secured a loan of P270,000.00 with
respondent Lipa Bank. As collateral for the said loan, petitioner Redentor presented and submitted
to respondent Lipa Bank the owner's duplicate copy of a TCT covering a certain parcel of land
registered in the name of his aunts Gregoria Catapang and petitioner Casiana, the subject property.
Allegedly, without Redentor's knowledge and consent, respondent Lipa Bank successfully
convinced petitioner Casiana to sign a Promissory Note dated Jun 30, 1999 for a P270,000.00 loan
and a Deed of Real Estate Mortgage dated Aug 6, 1999 over the subject property for P1,440,000.00.
Redentor and Casiana alleged that the execution of the aforesaid Promissory Note and Deed of
Real Estate Mortgage was tainted with fraud, undue influence, and trickery, considering that
petitioner was allegedly not a borrower of respondent Lipa Bank and that she has never been a
party to the Sales Contract. Casiana also alleged that she did not receive any proceeds from the
P270,000.00 loan. In short, Redentor and Casiana allege that the Promissory Note and Deed of Real
Estate Mortgage executed by the latter supposedly in relation to the Sales Contract were procured
with fraud as petitioner Casiana had nothing to do with the repurchase of the subject property.
Hence, petitioners Redentor and Casiana filed a Complaint dated Feb 14, 2006 before the RTC,
praying that the Promissory Note and the Deed of Real Estate Mortgage be declared null and void.
Petitioners Redentor and Casiana also prayed that the Sales Contract be declared null and void,
arguing that it was dependent on the supposedly null and void Promissory Note and Deed of Real
Estate Mortgage. Further, Redentor and Casiana also asked for the refund of the amount of
P200,000.00 paid by Redentor and for the return by respondent Lipa Bank of the owner's duplicate
copy of TCT.
On the part of Lipa Bank, it alleged in its Answer with Counterclaim dated May 18, 2006 that
Redentor voluntarily entered into a Sales Contract with the former on June 30, 1999, with
Redentor's father Alejandro even witnessing the execution of the said Contract. Redentor was able
to pay P200,000.00 of the P400,000.00 down payment that was agreed upon by the parties.
Respondent Lipa Bank then claimed that it was petitioner Redentor himself who wanted to secure a
loan in the amount of P270,000.00 in order to fully pay the downpayment. According to respondent
Lipa Bank, it was petitioner Redentor, together with petitioner Casiana, who voluntarily and
willingly submitted to respondent Lipa Bank the owner's duplicate copy of TCTso that the subject
property could be used as collateral to secure the loan.
With respect to the Promissory Note for P270,000.00 and Deed of Real Estate Mortgage, Lipa
Bank, claimed that such transactions were entered into by Casiana as transactions separate from
the Sales Contract. According to respondent Lipa Bank, petitioner Casiana issued the Promissory
Note in the amount of P270,000.00, as secured by the Deed of Real Estate Mortgage, not in relation
to the Sales Contract, but for the purchase of machineries, preventive maintenance of rice mill
equipment, and for a motor vehicle repair shop, as indicated on the face of the Promissory Note.
Also, respondent Lipa Bank alleged that petitioner Casiana received the net proceeds of her
personal loan with respondent Lipa Bank, as evidenced by a Disbursement Voucher and Credit
Ticket. The case reached the Supreme Court with the issue, to wit:
Issue: Who has the burden of proof of proven that the contract was properly explained to the party
who is unable to read?
Ruling: It is Lipa Bank who has the burden of proving that Casiana was able to understand the
contract. Article 1332 of the Civil Code states that when a contract is in a language not understood
by one of the parties, and mistake or fraud is alleged, the person enforcing the contract has the
burden of proving that the terms of the contract were fully explained to the contracting party:
ART. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained
to the former.
Article 1332 was intended for the protection of a party to a contract who is at a disadvantage
due to his illiteracy, ignorance, mental weakness or other handicap. This article contemplates a
situation wherein a contract has been entered into, but the consent of one of the parties is vitiated
by mistake or fraud committed by the other contracting party.
the Court concurs with the factual finding of the RTC that Casiana is not capable of
understanding English and that she did not understand the words in the Promissory Note and
Deed of Real Estate Mortgage as they were in the English language. The Court finds the RTC's
factual finding supported by the evidence on record. As testified by petitioner Casiana on direct
examination, her highest educational attainment was Grade 6 and that she does not understand
English. On cross-examination, Casiana reiterated that she cannot comprehend the English
language. Casiana's testimony on her failure to understand English and low educational
attainment is corroborated by Rosalinda Catapang, who testified that Casiana is only an
elementary graduate.
In fact, during Casiana's cross-examination, the RTC itself observed the witness and
unequivocally stated on record that "[s]he does not know English, whether she is college graduate
or not, she does not know english."
It must be stressed that, as a general rule, the evaluation of testimonial evidence and the
condition of the witnesses by the trial courts is accorded great respect precisely because it is in the
best position to observe first-hand the demeanor of the witnesses, a matter which is important in
determining whether what has been testified to may be taken to be the truth or falsehood.
In disregarding the RTC's factual finding, the CA reasoned that because petitioner Casiana had
previously mortgaged her rights and interests over the subject property in favor of her brother,
Alejandro Catapang, it shows that petitioner Casiana was able to comprehend the subject loan
documents. The CA's argument is bereft of logic. The fact that petitioner Casiana was able to
previously mortgage the subject property does not support in any way the CA's belief that she
understands the English language or that she understood "garantiya" correctly. It is a non
sequitur argument.
In believing that Casiana understood English and was able to comprehend the tenor of the Deed
of Real Estate Mortgage, the CA relied heavily on the notarization of the Deed of Real Estate
Mortgage. Upon careful examination of the Deed of Real Estate Mortgage, however, it is clear that
it was irregularly notarized.
It is not disputed that the Deed of Real Estate Mortgage, which was dated and supposedly
notarized on August 6, 1999, was actually signed and executed by Casiana on June 30, 1999 at her
residence. Alayon, respondent Lipa Bank's own employee, unequivocally testified that he went
alone to the residence of Casiana on June 30, 1999. Aside from petitioner Casiana's husband, there
were no other persons present. There were no witnesses to the signing of the documents,
contrary to what is stated in the Deed of Real Estate Mortgage
