A loan is paid by delivery of the sum of money due (Article 1233 Civil Code). If the creditor unjustly refuses to accept the tender of payment, the loan will still be considered paid if the debtor makes a consignation or deposits the thing due or place it at the disposal of the judicial authorities for the creditor to collect. There must therefore be tender of payment and consignation (Article 1256 idem).
In this case of Noli and Cely, they are ready to make the tender of payment and consignation but the creditor prevented them from doing so by its unjust refusal to comply with some requirements. What is the effect of such unjust refusal? Is such refusal equivalent to the extinguishment of the obligation? These are the questions answered in this case.
On December 11, 1987, Noli obtained a commercial loan of P700,000 from a lending corporation (MTLC) secured by a real estate mortgage on their land with a 4-storey building. Under the terms of the Promissory Note, the loan was payable within 6 months renewable for another 6 months subject to a monthly interest of 3%. Noli however was not able to pay said loan on time so it became past due with the principal, interests and penalties already totaling P1,071,256.66 as of July 16, 1989.
To be able to pay his past due obligation to MTLC, Noli applied for a loan with a bank (PNB) and offered as collateral the same properties he and Cely mortgaged to MTLC. On July 8, 1989 PNB approved the loan amounting to P1.3 million but the release was conditioned on the cancellation of the mortgage in favor of MTLC.
Noli notified MTLC of such approval and on July 20, 1989, he executed a special Power of Attorney (SPA) in favor of Espie, the president of MTLC to collect the proceeds of the loan. The bank confirmed to Espie the existence of the P1.3 million loan but required her to first sign a deed of cancellation of mortgage of Noli and Cely’s land and building before releasing the proceeds of the loan to her. Outraged that the spouses used the same properties mortgaged to MTLC as collateral for the PNB loan, Espie refused to sign the deed and did not collect the P1.3 million loan proceeds because the spouses did not first obtain her consent to the PNB loan and mortgage. Instead Espie instituted foreclosure proceedings against Noli and Cely on July 28, 1989.
To prevent the foreclosure of their properties, Noli and Cely filed an action for Specific Performance, Damages and Preliminary Injunction before the Regional Trial Court (RTC). They alleged that foreclosure was no longer proper as there had already been settlement of Noli’s obligation with MTLC, claiming that: first, Espie’s refusal was completely unjustified so they are entitled to damages and second, that such unjust refusal to accept the assignment of the proceeds of the PNB loan amounted to the payment of the MTLC loan. Were they correct?
They are correct in claiming that Espie’s refusal of payment is without legal basis. Under the Civil Code (Article 2130), the owner-mortgagor is allowed to convey the entirety of his interest in the mortgaged property. Hence reason dictates that he could also encumber said property which is in effect a lesser right than alienating it. Therefore Espie could not validly require the spouses to first obtain her consent to the PNB loan and mortgage. Besides with the proceeds of the PNB loan, the MTLC loan would have been paid so the mortgage in favor of the MTLC would have naturally been cancelled. So Espie’s refusal is unjustified and unreasonable thereby entitling the spouses to damages under Article 19 of the Civil Code which requires a person to act with honesty and good faith in the exercise of his rights and in the fulfillment of his duty.
While Espie’s refusal was unjustified, it cannot however be equivalent to payment that will extinguish Noli’s obligation to MTLC. To have the effect of payment, the law requires the twin acts of tender of payment and consignation. In this case, the spouses have already obtained the means of paying off their loan with MTLC but were prevented from doing so by Espie’s refusal to execute the release of mortgage on their properties. Under the circumstances, the spouses have undertaken at the very least, the equivalent of a tender of payment. Hence justice and equity demands that they be freed from the obligation to pay interest on the outstanding amount from the time the unjust refusal took place.
Hence MTLC and Espie are ordered: (1) to release the mortgage on the spouses, property so that the proceeds of the PNB loan could be released; (2) to accept the proceeds of the PNB loan sufficient to cover the total amount of the MTLC loan as of July 20 1989; (3) to pay moral damages amounting to P100,000; and (4) to pay P20,000 exemplary damages, P22,000 litigation expenses and 10% of the total amount as attorney’s fees which shall be deducted from the outstanding loan as of July 20, 1989 (Go Sinco vs Court of Appeals et.al. G.R. 151903, October 9, 2009)
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