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Credit Trans

GR no. L-32116
April 21, 1981
FACTS:
Maxima Castro, accompanied by Severino Valencia, went to Rural Bank of Caloocan to
apply for industrial loan. The loan was secured by a real estate mortgage on Castros
house, after that, the bank approved the loan of P3000. Valencia obtained from the
bank an equal amount of loan affixing Castros signature as co-maker without its
knowledge. The sheriff then sent a notice announcing the property would be sold at
public auction to satisfy the obligation. Upon request, the auction sale which was
scheduled for March 10, 1961was postponed for April 10, 1961. But April 10 was
subsequently declared a special holiday so the sheriff sold the property on public
auction on April 11, 1961 which was the next succeeding business day following the
special holiday. Castro prayed for the annulment of sale alleging that there was fraud on
the part of Valencias who induced her to sign as co-maker of a promissory note since
she is a 70-year old widow who cannot read and write and it was only when she receive
the notice of sheriff, she learned that the encumbrance on her property was P6000 and
not for P3000, the amount of her loan.
ISSUES:
1. Whether or not the public auction sale was null and void for transferring the date
already set by law.
2. Whether or not the mortgage will extend to the loan of PhP3,000.00 given to
spouses Valencia
3. Whether or not the Bank will bear the loss as a result of the fraudulent act of
spouses Valencia
RULING:
1. The sale is null and void for not having in accordance with Act 3135 which states
that that a notice shall be given by posting notices of sale for not less than 20
days in at least 3public places and if the property is worth more than P400 such
notice shall also be published for in a newspaper of general circulation in the
municipality or city once a week for 3 consecutive weeks. The pretermission of a
holiday applies only where the day, or the last day for doing any act required or
permitted by law falls on a holiday or when the last day of a given period for
doing an act falls on holiday. It does not apply to a day fixed by an office or officer
of the government for an act to be done. Since April 10, 1961 was not the day or
the last day set by law for the extrajudicial foreclosure sale, nor the last day of a
given period but a date fixed by deputy sheriff, the sale cannot be legally made

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on the next succeeding business day without the notice of the sale in accordance
with Act no. 313
2. No. because Spouses Valencia committed fraud violating Art 1342 misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake.
It cannot be declared that the promissory note is 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.
3. Yes, The bank will bear the loss. The Bank should exercise prudent inquiry to
protect its interest and that of the public it serves. With the recent occurrence of
events that have supposedly affected adversely our banking system, attributable
to laxity in the conduct of bank business by its officials, the need of extreme
caution and prudence by said officials and employees in the discharge of their
functions cannot be over-emphasized.

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