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MANUEL GO CINCO v. CA

FACTS:

The petitioners, spouses Manuel and Araceli Go Cinco, filed a petition for review on certiorari against the Court of Appeals (CA). The CA dismissed their complaint for specific performance, damages, and preliminary injunction against respondent Maasin Traders Lending Corporation (MTLC) and its President, Ester Servacio.

In December 1987, Manuel obtained a commercial loan from MTLC in the amount of P700,000, secured by a real estate mortgage. The loan was subject to a monthly interest rate of 3% or 36% per annum. By July 16, 1989, Manuel's outstanding obligation with MTLC amounted to P1,071,256.66, including principal, interest, and penalties.

The spouses Go Cinco applied for a loan with the Philippine National Bank (PNB) to pay off the loan to MTLC. The PNB approved the loan application for P1.3 Million, subject to the cancellation of the mortgage in favor of MTLC. Manuel informed Ester, the President of MTLC, about the loan from PNB. Ester verified the information, but the bank officers informed her that Manuel had no pending loan application with them. Manuel executed a Special Power of Attorney (SPA) authorizing Ester to collect the proceeds of his PNB loan, but Ester refused to sign the required deed of release/cancellation of the mortgage. Consequently, she did not collect the loan proceeds.

MTLC initiated foreclosure proceedings against the spouses as the loan was already due. The spouses filed an action with the Regional Trial Court (RTC) seeking specific performance, damages, and a preliminary injunction. The RTC ruled in favor of the spouses, but the CA reversed the decision, finding no explicit agreement for the cancellation of the MTLC mortgage and validating the foreclosure proceedings. The spouses then filed the present petition to challenge the CA's decision.

ISSUES:

  1. Whether the loan due the MTLC had been extinguished.

  2. Whether Ester's refusal to accept payment was unjustifiable.

  3. Whether the unjust refusal of Ester to accept the loan proceeds from PNB constitutes a completed tender of payment and consignation that would extinguish the spouses Go Cinco's obligation to MTLC.

  4. Whether the respondents are directed to accept the proceeds of the spouses Go Cinco's loan and consent to the release of the mortgage on the property given as security for the loan, upon the acknowledgment that the loan proceeds will cover the total indebtedness to respondent Maasin Traders Lending Corporation.

  5. Whether the award for loss of savings and unrealized profit should be deleted.

  6. Whether the award for moral damages should be reduced.

  7. Whether the awards for exemplary damages, attorney's fees, and expenses of litigation should be retained.

RULING:

  1. Yes, the loan due the MTLC had been extinguished. The Court held that payment as a mode of extinguishing obligations requires not only the delivery of money but also the performance, in any other manner, of an obligation. In the present case, Manuel authorized Ester to collect the proceeds of the PNB loan through a Special Power of Attorney (SPA). If Ester had collected the loan proceeds as authorized and presented the SPA to the bank to sign the deed of release/cancellation of mortgage, it would have constituted payment of the MTLC loan and extinguished the obligation.

  2. Yes, Ester's refusal to accept payment was unjustifiable. The Court ruled that Ester's refusal based on the ground that the spouses Go Cinco should have obtained her consent before offering the mortgaged properties as security for the PNB loan was without basis. The law recognizes the validity of subsequent mortgages, subject to the prior rights of previous mortgages. Ester could not require consent for the PNB loan and mortgage. Furthermore, given Manuel's intent to fully settle the MTLC loan and pay through the PNB loan, the refusal to collect and allow cancellation of the mortgage was unreasonable.

  3. No, the unjust refusal of Ester to accept the loan proceeds from PNB does not constitute a completed tender of payment and consignation that would extinguish the spouses Go Cinco's obligation to MTLC. However, the spouses Go Cinco have shown that they have legitimately secured means of paying off the loan and were only prevented from doing so by the unjust refusal of Ester. As such, the Court ordered MTLC and Ester to release the mortgage upon acknowledgment of the proceeds and to accept the proceeds as payment for Manuel's loan.

  4. The respondents are directed to accept the proceeds of the spouses Go Cinco's loan and consent to the release of the mortgage on the property given as security for the loan, upon the acknowledgment that the loan proceeds will cover the total indebtedness to respondent Maasin Traders Lending Corporation.

  5. The award for loss of savings and unrealized profit is deleted.

  6. The award for moral damages is reduced to P100,000.00.

  7. The awards for exemplary damages, attorney's fees, and expenses of litigation are retained.

PRINCIPLES:

  • Obligations are extinguished by payment or performance.

  • Payment requires not only the delivery of money but also the performance, in any other manner, of an obligation.

  • Acceptance by the creditor is impliedly required for payment to extinguish an obligation.

  • Subsequent mortgages are valid, subject to the prior rights of previous mortgages.

  • A stipulation forbidding the owner from alienating the immovable mortgaged is considered void.

  • If the mortgagor-owner is allowed to convey the entirety of his interests in the mortgaged property, the lesser right to encumber his property with other liens must also be recognized.

  • Refusal by the creditor without just cause to accept payment allows the debtor to be released from responsibility by consignation of the thing or sum due.

  • Tender of payment and consignation are the definitive acts of offering the creditor what is due, together with the demand that the creditor accept the same. (Far East Bank and Trust Company v. Diaz Realty, Inc.)

  • A refusal without just cause is not equivalent to payment. To have the effect of payment and extinguishment of the obligation, the law requires both tender of payment and consignation. (Principle of consignation)

  • When payment is available and unjustifiably refused, the debtor should be freed from the obligation to pay interest, and entitled to damages. (Article 19 of the Civil Code)

  • Damages must be sufficiently proved and cannot be based on speculation or conjecture. (Lucas v. Spouses Royo)

  • Exemplary damages may be awarded in cases of bad faith, abuse of rights, or oppressive conduct.

  • Spouses who are compelled to litigate to protect their interests are entitled to payment of attorney's fees and expenses of litigation (implied principle).

  • Courts have the power to modify or reverse a decision of a lower court.