G.R. No. 151903 - Spouses Cinco vs. Court of Appeals

In December 1987, Manuel Go Cinco obtained a P700,000 commercial loan from Maasin Traders Lending Corporation (MTLC), evidenced by a promissory note dated December 11, 1987, and secured by a real estate mortgage (December 15, 1987) over the spouses’ land and building in Maasin, Southern Leyte. The loan bore interest at 3% monthly (36% per annum) and was payable in 180 days, renewable once for another 180 days.
By July 16, 1989, the outstanding balance (principal, interest, penalties) amounted to P1,071,256.66.

To pay MTLC, the spouses applied for a P1.3 million loan from Philippine National Bank (PNB), offering the same mortgaged property as collateral. On July 8, 1989, PNB approved the application, with net proceeds of P1,203,685.17, conditioned on cancellation of MTLC’s mortgage.
On July 16, Manuel informed MTLC president Ester Servacio of the PNB funds; her bank inquiry first denied any application. On July 20, Manuel executed a Special Power of Attorney (SPA) authorizing Ester to collect PNB proceeds.
PNB required Ester to sign a deed of release/cancellation of MTLC’s mortgage before releasing funds; Ester refused and did not collect the proceeds.

With MTLC’s loan due, Ester instituted foreclosure proceedings on July 24, 1989.
The spouses filed in RTC for specific performance, damages, and preliminary injunction, alleging that the PNB proceeds assignment extinguished the MTLC loan and that Ester’s refusal was unjustified.
On August 16, 1994, RTC ruled for the spouses: it found the PNB proceeds available to satisfy the MTLC loan and condemned Ester’s refusal. It awarded:

P1,044,475.15 plus P535.63 per day as compensatory damages (loss of savings on interest);
P100,000 as unrealized profit;
P1,000,000 as moral damages;
P20,000 as exemplary damages;
P22,000 as litigation expenses;
10% of total amount as attorney’s fees plus costs.

On June 22, 2001, the Court of Appeals reversed: no explicit mortgage‐release agreement, SPA merely to collect funds, MTLC loan unpaid, foreclosure proper; it dismissed the complaint.
The spouses filed a Rule 45 petition for review on certiorari before the Supreme Court.

Whether the assignment of PNB loan proceeds and SPA execution extinguished the MTLC loan obligation.
Whether Ester’s refusal to collect PNB proceeds and execute the mortgage release was unjustified and equivalent to payment.
Whether the spouses are entitled to damages (actual, moral, exemplary) and attorney’s fees for MTLC’s and Ester’s alleged abuse of rights.