MANUEL GO CINCO and
ARACELI S. GO CINCO,
Petitioners, -
versus - COURT OF APPEALS, ESTER SERVACIO and
MAASIN TRADERS LENDING CORPORATION, Respondents. |
G.R. No. 151903
Present: *CORONA, J., **CARPIO-MORALES, Acting Chairperson, ***NACHURA, BRION, and
ABAD, JJ. Promulgated: October 9, 2009 |
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D E C I S I O N
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BRION, J.: |
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Before the Court is a petition
for review on certiorari[1] filed by
petitioners, spouses Manuel and Araceli Go Cinco (collectively, the spouses Go Cinco), assailing the decision[2]
dated June 22, 2001 of the Court of Appeals (CA) in CA-G.R. CV No. 47578, as well as the resolution[3]
dated January 25, 2002 denying the spouses Go Cinco’s motion for
reconsideration.
THE FACTUAL ANTECEDENTS
In December 1987, petitioner Manuel Cinco (Manuel) obtained
a commercial loan in the amount of P700,000.00 from respondent Maasin
Traders Lending Corporation (MTLC). The loan was evidenced by a promissory note dated
Under the terms of the promissory
note, the P700,000.00 loan was subject to a monthly interest rate of 3% or
36% per annum and was payable within a term of 180 days or 6 months, renewable
for another 180 days. As of P1,071,256.66, which amount
included the principal, interest, and penalties.[5]
To be able to pay the loan in favor of
MTLC, the spouses Go Cinco applied for a loan with the Philippine National
Bank, Maasin Branch (PNB or the bank) and offered as collateral the
same properties they previously mortgaged to MTLC. The PNB approved the loan application for P1.3
Million[6]
through a letter dated
On
On P1.3 Million loan, but they required Ester to first sign a deed of
release/cancellation of mortgage before they could release the proceeds of the
loan to her. Outraged that the spouses
Go Cinco used the same properties mortgaged to MTLC as collateral for the PNB
loan, Ester refused to sign the deed and did not collect the P1.3
Million loan proceeds.
As the MTLC loan was already due, Ester instituted foreclosure
proceedings against the spouses Go Cinco on
To prevent the foreclosure of their properties, the spouses Go Cinco filed
an action for specific performance, damages, and preliminary injunction[8]
before the Regional Trial Court (RTC),
Branch 25, Maasin,
Ester countered these allegations by claiming that she had not been previously
informed of the spouses Go Cinco’s plan to obtain a loan from the PNB and to use
the loan proceeds to settle Manuel’s loan with MTLC. She claimed that she had no explicit
agreement with Manuel authorizing her to apply
the proceeds of the PNB loan to Manuel’s loan with MTLC; the SPA merely authorized
her to collect the proceeds of the
loan. She thus averred that it was
unfair for the spouses Go Cinco to require the release of the mortgage to MTLC
when no actual payment of the loan had been made.
In a decision dated
(a)
P1,044,475.15 plus 535.63 per day
hereafter, representing loss of savings on interest, by way of actual or
compensatory damages, if defendant corporation insists on the original 3%
monthly interest rate;
(b)
P100,000.00 as unrealized profit;
(c)
P1,000,000.00 as moral damages;
(d)
P20,000.00 as exemplary damages;
(e)
P22,000.00 as litigation expenses;
and
(f)
10% of the total amount as
attorney’s fees plus costs.[11]
Through an appeal with the CA, MTLC and Ester successfully secured a
reversal of the RTC’s decision. Unlike
the trial court, the appellate court found it significant that there was no explicit
agreement between Ester and the spouses Go Cinco for the cancellation of the
MTLC mortgage in favor of PNB to facilitate the release and collection by Ester
of the proceeds of the PNB loan. The CA
read the SPA as merely authorizing Ester to withdraw
the proceeds of the loan. As Manuel’s
loan obligation with MTLC remained unpaid, the CA ruled that no valid objection
could be made to the institution of the foreclosure proceedings. Accordingly, it dismissed the spouses Go Cinco’
complaint. From this dismissal, the spouses
Go Cinco filed the present appeal by certiorari.
THE PETITION
The spouses Go Cinco impute error on the part of the CA for its failure to
consider their acts as equivalent to payment that extinguished the MTLC loan; their
act of applying for a loan with the PNB was indicative of their good faith and
honest intention to settle the loan with MTLC. They contend that the creditors have the
correlative duty to accept the payment.
The spouses Go Cinco charge MTLC and Ester with bad faith and ill-motive
for unjustly refusing to collect the proceeds of the loan and to execute the
deed of release of mortgage. They assert
that Ester’s justifications for refusing the payment were flimsy excuses so she
could proceed with the foreclosure of the mortgaged properties that were worth
more than the amount due to MTLC. Thus,
they conclude that the acts of MTLC and of Ester amount to abuse of rights that
warrants the award of damages in their (spouses Go Cinco’s) favor.
In refuting the claims of the spouses Go Cinco, MTLC and Ester raise the
same arguments they raised before the RTC and the CA. They claim that they were not aware of the
loan and the mortgage to PNB, and that there was no agreement that the proceeds
of the PNB loan were to be used to settle Manuel’s obligation with MTLC. Since the MTLC loan remained unpaid, they
insist that the institution of the foreclosure proceedings was proper. Additionally, MTLC and Ester contend that the
present petition raised questions of fact that cannot be addressed in a Rule 45
petition.
THE COURT’S RULING
The
Court finds the petition meritorious.
Preliminary Considerations
Our review of the records shows that
there are no factual questions involved in this case; the ultimate facts
necessary for the resolution of the case already appear in the records. The RTC and the CA decisions differed not so
much on the findings of fact, but on the conclusions derived from these factual
findings. The correctness of the
conclusions derived from factual findings raises legal questions when the
conclusions are so linked to, or are inextricably intertwined with, the appreciation of
the applicable law that the case requires, as in the present case.[12] The petition raises the issue of whether
the loan due the MTLC had been extinguished; this is a question of law
that this Court can fully address and settle in an appeal by certiorari.
Payment as Mode of
Extinguishing Obligations
Obligations are extinguished, among others, by payment or performance,[13]
the mode most relevant to the factual situation in the present case. Under Article 1232 of the Civil Code, payment
means not only the delivery of money but also the performance, in any other manner,
of an obligation. Article 1233 of the
Civil Code states that “a debt shall not be understood to have been paid unless
the thing or service in which the obligation consists has been completely
delivered or rendered, as the case may be.”
In contracts of loan, the debtor is expected to deliver the sum of money
due the creditor. These provisions must
be read in relation with the other rules on payment under the Civil Code,[14]
which rules impliedly require acceptance by the creditor of the payment in
order to extinguish an obligation.
In the present case, Manuel sought to pay Ester by authorizing her,
through an SPA, to collect the
proceeds of the PNB loan – an act that would have led to payment if Ester had
collected the loan proceeds as authorized. Admittedly, the delivery of the SPA was not,
strictly speaking, a delivery of the sum of money due to MTLC, and Ester could
not be compelled to accept it as payment based on Article 1233. Nonetheless, the SPA stood as an authority to
collect the proceeds of the already-approved PNB loan that, upon receipt by
Ester, would have constituted as payment of the MTLC loan.[15] Had Ester presented the SPA to the bank and
signed the deed of release/cancellation of mortgage, the delivery of the sum of
money would have been effected and the obligation extinguished.[16] As the records show, Ester refused to collect
and allow the cancellation of the mortgage.
Under these facts, Manuel posits two things: first,
that Ester’s refusal was based on completely unjustifiable grounds; and second, that the refusal was equivalent
to payment that led to the extinguishment of the obligation.
a. Unjust
Refusal to Accept Payment
After considering Ester’s arguments, we agree with Manuel that Ester’s
refusal of the payment was without basis.
Ester refused to accept the payment because the bank required her to first
sign a deed of release/cancellation of the mortgage before the proceeds of the
PNB loan could be released. As a prior
mortgagee, she claimed that the spouses Go Cinco should have obtained her
consent before offering the properties already mortgaged to her as security for
the PNB loan. Moreover, Ester alleged
that the SPA merely authorized her to collect the proceeds of the loan; there
was no explicit agreement that the MTLC loan would be paid out of the proceeds
of the PNB loan.
There is nothing legally objectionable in a mortgagor’s act of taking a
second or subsequent mortgage on a property already mortgaged; a subsequent
mortgage is recognized as valid by law and by commercial practice, subject to
the prior rights of previous mortgages.
Section 4, Rule 68 of the 1997 Rules of Civil Procedure on the
disposition of the proceeds of sale after foreclosure actually requires the
payment of the proceeds to, among others, the junior encumbrancers in the order
of their priority.[17] Under Article 2130 of the Civil Code, 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,
reason dictates that the lesser right to encumber his property with other liens
must also be recognized. Ester,
therefore, could not validly require the spouses Go Cinco to first obtain her
consent to the PNB loan and mortgage.
Besides, with the payment of the MTLC loan using the proceeds of the PNB
loan, the mortgage in favor of the MTLC would have naturally been cancelled.
We find it improbable for Ester to claim that there was no agreement to
apply the proceeds of the PNB loan to the MTLC loan. Beginning
b. Unjust
Refusal Cannot be Equated to Payment
While Ester’s refusal was unjustified and unreasonable, we cannot agree
with Manuel’s position that this refusal had the effect of payment that
extinguished his obligation to MTLC.
Article 1256 is clear and unequivocal on this point when it provides
that –
ARTICLE
1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it,
the debtor shall be released from responsibility by the consignation of the
thing or sum due. [Emphasis supplied.]
In short, a
refusal without just cause is not equivalent to payment; to have the effect of
payment and the consequent extinguishment of the obligation to pay, the law requires
the companion acts of tender of payment and consignation.
Tender of payment, as defined in Far East Bank and Trust Company v. Diaz
Realty, Inc.,[18]
is the definitive act of offering the creditor what is due him or her, together
with the demand that the creditor accept the same. When a creditor refuses the debtor’s tender
of payment, the law allows the consignation of the thing or the sum due. Tender and consignation have the effect of
payment, as by consignation, the thing due is deposited and placed at the disposal
of the judicial authorities for the creditor to collect.[19]
A sad twist in this case for Manuel was that he could not avail of consignation to extinguish his obligation to
MTLC, as PNB would not release the proceeds of the loan unless and until Ester had
signed the deed of release/cancellation of mortgage, which she unjustly refused
to do. Hence, to compel Ester to accept
the loan proceeds and to prevent their mortgaged properties from being
foreclosed, the spouses Go Cinco found it necessary to institute the present
case for specific performance and damages.
c. Effects of
Unjust Refusal
Under these circumstances, we hold
that while no completed tender of payment and consignation took place sufficient
to constitute payment, the spouses Go Cinco duly established that they have
legitimately secured a means of paying off their loan with MTLC; they were only
prevented from doing so by the unjust refusal of Ester to accept the proceeds
of the PNB loan through her refusal to execute the release of the mortgage on the
properties mortgaged to MTLC. In other
words, MTLC and Ester in fact prevented the spouses Go Cinco from the exercise
of their right to secure payment of their loan.
No reason exists under this legal situation why we cannot compel MTLC
and Ester: (1) to release the mortgage to
MTLC as a condition to the release of the proceeds of the PNB loan, upon PNB’s
acknowledgment that the proceeds of the loan are ready and shall forthwith be
released; and (2) to accept the proceeds, sufficient
to cover the total amount of the loan to MTLC, as payment for Manuel’s loan
with MTLC.
We also find that under the circumstances, the spouses Go Cinco have
undertaken, at the very least, the
equivalent of a tender of payment that cannot but have legal effect. Since
payment was available and was unjustifiably refused, justice and equity demand that
the spouses Go Cinco be freed from the
obligation to pay interest on the outstanding amount from the time the unjust
refusal took place;[20]
they would not have been liable for any interest from the time tender of
payment was made if the payment had only been accepted. Under Article 19 of the Civil Code, they
should likewise be entitled to damages, as the unjust refusal was effectively
an abusive act contrary to the duty to act with honesty and good faith in the
exercise of rights and the fulfillment of duty.
For these reasons, we delete the amounts awarded by the RTC to the spouses
Go Cinco (P1,044,475.15, plus P563.63 per month) representing loss of savings on interests for lack of
legal basis. These amounts were computed
based on the difference in the interest rates charged by the MTLC (36% per
annum) and the PNB (17% to 18% per annum), from the date of tender of payment
up to the time of the promulgation of the RTC decision. The trial court failed to consider the
effects of a tender of payment and erroneously declared that MTLC can charge
interest at the rate of only 18% per annum – the same rate that PNB charged,
not the 36% interest rate that MTLC charged; the RTC awarded the difference in
the interest rates as actual damages.
As part of the actual and compensatory
damages, the RTC also awarded P100,000.00 to the spouses Go Cinco
representing unrealized profits. Apparently, if the proceeds of the PNB loan (P1,203,685.17)
had been applied to the MTLC loan (P1,071,256.55), there would have been
a balance of P132,428.62 left, which amount the spouses Go Cinco could
have invested in their businesses that would have earned them a profit of at
least P100,000.00.
We find no factual basis for this award.
The spouses Go Cinco were unable to substantiate the amount they claimed
as unrealized profits; there was only their bare claim that the excess could
have been invested in their other businesses.
Without more, this claim of expected profits is at best
speculative and cannot be the basis for a claim for damages. In Lucas
v. Spouses Royo,[21]
we declared that:
In determining
actual damages, the Court cannot rely on speculation, conjecture or guesswork
as to the amount. Actual and compensatory damages are those
recoverable because of pecuniary loss
in business, trade, property, profession, job or occupation and the same must
be sufficiently proved, otherwise, if the proof is flimsy and unsubstantiated,
no damages will be given. [Emphasis supplied.]
We agree, however, that there was
basis for the award of moral and exemplary damages and attorney’s fees.
Ester’s act of refusing payment was
motivated by bad faith as evidenced by the utter lack of substantial reasons to
support it. Her unjust refusal, in her behalf and for the MTLC which she
represents, amounted to an abuse of rights; they acted in an oppressive manner
and, thus, are liable for moral and exemplary damages.[22] We nevertheless reduce the P1,000,000.00
to P100,000.00 as the originally
awarded amount for moral damages is plainly excessive.
We affirm the grant of exemplary damages by way of example or correction
for the public good in light of the same reasons that justified the grant of
moral damages.
As the spouses Go Cinco were compelled to litigate to protect their
interests, they are entitled to payment of 10% of the total amount of awarded
damages as attorney’s fees and expenses of litigation.
WHEREFORE, we GRANT the petitioners’ petition for
review on certiorari, and REVERSE the decision of
(1)
The
respondents are hereby directed to accept the proceeds of the spouses Go Cinco’s
PNB loan, if still available, and to consent to the release of the mortgage on
the property given as security for the loan upon PNB’s acknowledgment that the
proceeds of the loan, sufficient to cover the total indebtedness to respondent
Maasin Traders Lending Corporation computed as of June 20, 1989, shall
forthwith be released;
(2)
The award
for loss of savings and unrealized profit is deleted;
(3)
The award
for moral damages is reduced to P100,000.00; and
(4)
The awards
for exemplary damages, attorney’s fees, and expenses of litigation are retained.
The awards
under (3) and (4) above shall be deducted from the amount of the outstanding loan
due the respondents as of
SO ORDERED.
ARTURO
D. BRION
Associate
Justice
WE CONCUR:
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CONCHITA CARPIO
MORALES Associate Justice Acting Chairperson |
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RENATO C. CORONA Associate Justice |
ANTONIO EDUARDO B. NACHURA Associate
Justice |
ROBERTO
A. ABAD
Associate
Justice
ATTESTATION
I attest that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
CONCHITA
CARPIO-MORALES
Associate Justice
Acting Chairperson
CERTIFICATION
ANTONIO
T. CARPIO*
Acting Chief Justice
* Designated additional Member of the Second Division per Special
Order No. 718 dated
** Designated Acting
Chairperson of the Second Division per Special Order No. 690 dated
*** Designated additional Member
of the Second Division per Special Order No. 730 dated
[1] Under Rule 45 of the 1997
Rules of Civil Procedure. Rollo,
pp. 5-32.
[2] Penned by Associate Justice
Renato Dacudao (retired), with Associate Justice Romeo Callejo, Jr., who
retired as Member of this Court, and Associate Justice Sergio Pestaño,
concurring; id. at 75-84.
[3]
[4]
[5]
[6] The net proceeds of the PNB loan were P1,203,685.17.
[7] Rollo, p. 47.
[8] Docketed as Civil Case
No. R-2575.
[9] Penned by Judge
Numeriano
[10]
[11]
[12] See Philippine American
General Insurance Company v. Pks Shipping Company, 449 Phil. 223 (2003).
[13] CIVIL CODE, Article
1231 (1).
[14] The pertinent provisions of the Civil Code
on Payment are:
Art. 1235. When the obligee accepts the performance, knowing
its incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with.
Art. 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he
has paid, except that if he paid without the knowledge or against the will of
the debtor, he can recover only insofar as the payment has been beneficial to
the debtor.
Art. 1238. Payment made by a third person who does not intend
to be reimbursed by the debtor is deemed to be a donation, which requires the
debtor's consent. But the payment is in any case valid as to the creditor who
has accepted it.
Art. 1244. The debtor of a thing cannot compel the creditor
to receive a different one, although the latter may be of the same value as, or
more valuable than that which is due.
In obligations to do or not to do, an act or forbearance
cannot be substituted by another act or forbearance against the obligee's will.
Art. 1248. Unless there is an express stipulation to that
effect, the creditor cannot be compelled partially to receive the prestations
in which the obligation consists. Neither may the debtor be required to make
partial payments.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor may effect the payment of
the former without waiting for the liquidation of the latter.
[15] We apply here, by parity of reasoning, the
principle adopted in payment using mercantile documents. Payment by means of
mercantile documents like checks and promissory notes in lieu of the sum of
money due does not extinguish the obligation until they have been accepted and
cashed by the creditor. See
[16] The PNB’s officers testified that had the
required document (deed of release/cancellation of mortgage) been submitted,
the bank could have released the loan proceeds. Rollo, p. 81.
[17] SEC. 4. Disposition of proceeds of sale. - The amount realized from
the foreclosure sale of the mortgaged property shall, after deducting the costs
of the sale, be paid to the person foreclosing the mortgage, and when there
shall be any balance or residue, after paying off the mortgage debt due, the
same shall be paid to junior encumbrancers in the order of their priority, to
be ascertained by the court, or if there be no such encumbrancers or there be a
balance or residue after payment to them, then to the mortgagor or his duly
authorized agent, or to the person entitled to it.
[18] 416 Phil. 147 (2001).
[19] CIVIL CODE, Article
1258.
[20] Spouses Biesterbos v. Court of Appeals and Bartlome, 458 Phil. 265
(2003), citing Araneta, Inc. v. De
Paterno and Vidal, 91 Phil. 786 (1952).
[21] 398 Phil. 400 (2000).
[22] CIVIL CODE, Articles
2220 and 2232.
* Designated Acting
Chief Justice from