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G.R. No. , 439 SCRA

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

DECISION

September 30, 2004

G.R. No. , ,
vs.
, .

, J.:

Before this Court is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. CV No. 385171 promulgated on October 23, 1998 which affirmed the decision and the resolution of the Regional Trial Court, Branch 17, Roxas City in Civil Case No. V-4941.

The facts are as follows:

On March 22, 1984, the spouses Ike and Zenaida Barza together with Gil Almosa2 filed a complaint with the Regional Trial Court of Roxas City against the spouses Rafael and Ma. Elena Dinglasan, the Rural Bank of Maayon (Capiz), Inc., (Maayon Bank) Rural Bank of Capiz (Roxas City), Inc., (Capiz Bank) and the Provincial Sheriff of Capiz, for annulment of contract and damages, with prayer for a temporary restraining order.

Spouses Barza allege that: they are owners of several fishponds with a total area of 145 hectares located in Panay, Capiz; respondent Rafael S. Dinglasan, Jr., meanwhile, is a lawyer-banker-businessman who effectively controls the Maayon Bank and has substantial stockholdings in the Rural Bank of Capiz (Roxas City) where he also acts as chairman of the board of directors; upon the enticement of Dinglasan, they mortgaged their fishponds in favor of Maayon Bank to secure loans from the Central Bank-International Bank for Reconstruction and Development (CB-IBRD) fund, which by law are available only to persons owning or cultivating lands of not more than fifty hectares in area; to qualify for said loans, they agreed to execute three fictitious documents of sale and fifteen simulated leases, with Gil Almosa as one of the dummy buyers; Dinglasan then caused to be filed with the Maayon Bank nineteen loan applications, one each for Ike Barza, the three fictitious owners and the fifteen dummy lessees by asking the applicants to sign promissory notes, real estate mortgages, checks, signature cards and withdrawal slips in blank; the applicants were also asked to open savings deposit accounts with the rural bank which retained the passbooks; Dinglasan, also induced them (spouses Barza) to invest, from the loan proceeds, P1.16 million in the Elmyra Trading, a store owned by the Dinglasans, and about P1.7 million to the Capiz Bank; in the meantime, they were deprived of the loan proceeds totaling P3.7 million; when they realized in 1983 that spouses Dinglasan abused their trust and confidence, they complained with the Central Bank which in turn conducted its investigation; in retaliation, Dinglasan initiated foreclosure proceedings on several parcels of their property which were under the names of the dummy owners and lessees. The Barza spouses claim that since the mortgages on their property are the product of schemes, contrivances and transactions contrary to law, morals, good customs and/or public policy, they are entitled to obtain a declaration of its nullity.3

In their Answer, the Dinglasan spouses argued that: the true nature of the properties mentioned in the complaint is all accurately shown by the public documents submitted by the spouses Barza and the mortgagors with Maayon Bank; if it is true that the spouses Barza merely simulated the sale and leases in favor of dummies, they are now estopped and should be bound by the mortgages in question; and whatever the spouses Barza did with their

money, such as deposit it with Capiz Bank or invest it elsewhere, is of their own volition and cannot nullify the transactions they made with Maayon Bank.4

On July 16, 1985, the trial court issued an Order terminating the pre-trial conference and setting the initial trial for the presentation of spouses Barza?s evidence. Several postponements were made by their counsel alleging sickness or conflict of schedule.

On March 16, 1988, Zenaida Barza was presented to testify as first witness for the spouses Barza. However she was not able to finish her direct testimony, despite several postponements, because she left for the United States. The Barza spouses then presented Precy Bascos, a private secretary of Zenaida Barza who identified tax declarations of real property in the name of the Barza spouses; and Alfredo Contreras, a supervising bank examiner of the Central Bank who testified how IBRD loans are granted by the rural banks and are administratively supervised by the Central Bank. After the testimony of Contreras, Atty. Jose Alovera, counsel for the Barza spouses, asked for time to formally offer their exhibits which the trial court granted on August 28, 1990. Motions for its extension were also granted twice by the trial court in its Orders dated October 24, 1990 and December 5, 1990.5

Due to the failure of the Barza spouses to make a formal offer of their evidence despite the extensions given them, the trial court issued an Order on January 29, 1991 as follows:

ACCORDINGLY, the plaintiffs are deemed to have waived their rights to offer their documentary exhibits in writing and the presentation of their evidence is hereby declared terminated. On motion by Atty. Arce