Title
Spouses Cinco vs. Court of Appeals
Case
G.R. No. 151903
Decision Date
Oct 9, 2009
Spouses secured PNB loan to settle MTLC debt; MTLC refused payment, initiated foreclosure. SC ruled MTLC unjustly refused payment, improper foreclosure, awarded damages.

Case Summary (G.R. No. 151903)

Petitioner’s Core Contentions

The spouses Go Cinco asserted that they had effectively secured payment of the MTLC loan by obtaining a PNB loan whose proceeds were available and that MTLC (through Ester) unjustifiably refused to accept those proceeds and to execute the mortgage release. They argued that creditors have a correlative duty to accept payment, that MTLC’s refusal was in bad faith and an abuse of rights, and that such conduct warranted damages.

Respondents’ Core Contentions

MTLC and Ester maintained there was no agreement that PNB proceeds would be applied to the MTLC loan and that the SPA only authorized collection of proceeds, not their application to extinguish the MTLC obligation. They argued foreclosure was proper because the MTLC loan remained unpaid. They also contended that factual issues were raised that could not be resolved under Rule 45.

Key Dates (Factual)

  • Promissory note for MTLC loan: December 11, 1987; mortgage executed December 15, 1987.
  • Outstanding MTLC obligation as of July 16, 1989: P1,071,256.66.
  • PNB approval of loan (net proceeds P1,203,685.17): July 8, 1989; release conditioned on cancellation of MTLC mortgage.
  • SPA executed in favor of Ester: July 20, 1989.
  • MTLC foreclosure instituted: July 24, 1989.
    (Decision date omitted from header per instruction.)

Applicable Law

  • Constitution applicable to the decision framework: 1987 Philippine Constitution.
  • Civil Code provisions on extinguishment by payment and related doctrines: Articles 1231–1238, 1244, 1248, 1256, 1258, 2220, 2232; Article 19 on honesty and good faith.
  • Rules of Civil Procedure: Rule 45 (petition for certiorari) cited as procedural vehicle; Section 4, Rule 68 (1997 Rules) on disposition of foreclosure proceeds referenced as relevant to rights of junior encumbrancers.
  • Controlling jurisprudence cited in the decision: Crystal v. Court of Appeals; Far East Bank & Trust Co. v. Diaz Realty, Inc.; Spouses Biesterbos v. Court of Appeals; Lucas v. Spouses Royo; Araneta and other cases as applied.

Factual and Procedural History

Manuel obtained a P700,000 commercial loan from MTLC secured by real property and a building. He later applied for and obtained a PNB loan the proceeds of which he intended to use to pay MTLC; he executed an SPA authorizing Ester to collect bank proceeds. PNB required a deed of release/cancellation of the MTLC mortgage before disbursing proceeds; Ester refused to sign and did not collect proceeds, and MTLC then moved to foreclose. The spouses filed suit in the Regional Trial Court (RTC) for specific performance, damages, and preliminary injunction. The RTC ruled for the spouses, awarding compensatory, moral, exemplary damages, litigation expenses, and attorney’s fees. The Court of Appeals reversed, holding there was no agreement to apply PNB proceeds to MTLC and that foreclosure was proper. The spouses petitioned to the Supreme Court by certiorari.

Preliminary Legal Considerations by the Court

The Supreme Court found no substantial factual dispute that would preclude review on certiorari because the decisive controversy was the legal conclusion to be drawn from the established facts. The primary legal question was whether the MTLC loan had been extinguished, a question of law suitable for Rule 45 review.

Legal Principles on Payment and Acceptance

The Court restated that obligations are extinguished by payment or performance (Civil Code, Art. 1231(1); Arts. 1232–1233). Payment requires actual delivery of the thing or sum due and, implicitly, acceptance by the creditor. Payment by means other than delivery of cash (e.g., mercantile documents) does not extinguish the obligation until accepted or cashed by the creditor (Crystal). Where a creditor unjustifiably refuses tender, Article 1256 authorizes consignation to achieve the effect of payment; tender without consignation does not equate to payment.

Court’s Analysis — Unjust Refusal to Accept Payment

On the facts, the Court concluded Ester’s refusal to collect PNB proceeds and to sign the deed of release lacked just cause. Legal doctrines recognize the mortgagor’s ability to grant subsequent encumbrances; Article 2130 (void stipulation forbidding alienation) and procedural rules on disposition of foreclosure proceeds support that a mortgagor may validly incur later mortgages subject to prior encumbrancers’ rights. The SPA, considered together with Manuel’s expressed intent and Ester’s own actions (going to PNB to inquire), supported a finding that Ester had authority, at least impliedly, to apply proceeds to the MTLC loan. Thus Ester’s stated reasons for refusal were not persuasive.

Court’s Analysis — Refusal Does Not Constitute Payment; Tender and Consignation

Although the refusal was unjustified, the Court affirmed the normative rule that a creditor’s unjustified refusal is not, by itself, equivalent to payment. Article 1256 requires that, if a creditor refuses tender without just cause, the debtor may consign the sum due to be released from liability; without consignation, the debtor’s obligation is not extinguished. The spouses could not consign because PNB would not disburse proceeds absent Ester’s execution of the release. Therefore, while tender (and effective means of payment) existed and was unreasonably refused, the legal requirement for consignation could not be fulfilled through no fault of the debtors.

Remedies Ordered and Practical Relief

Given that payment was available but unjustifiably refused, and that consignation was impossible because PNB conditioned release on Ester’s execution of the deed, the Court ordered specific relief: respondents were directed to accept the PNB proceeds, if still available, and to consent to the release of the MTLC mortgage upon PNB’s acknowledgment that proceeds sufficient to cover the indebtedness (computed as of June 20, 1989) shall be released. The Court also held that the debtors should be freed from liability to pay interest from the time of the

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