Delpher Trades vs IAC (Barter) the corporation and to avoid taxes; that in order to accomplish this end, two
tion and to avoid taxes; that in order to accomplish this end, two pieces of real
Facts: Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square
meters of real estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo
(now Valenzuela), Province of Bulacan.
the said co-owners leased to Construction Components International Inc. the same
property and providing that during the existence or after the term of this lease the lessor
should he decide to sell the property leased shall first offer the same to the lessee and the
letter has the priority to buy under similar conditions.
lessee Construction Components International, Inc. assigned its rights and obligations
under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed
conformity and consent of lessors Delfin Pacheco
contract of lease, as well as the assignment of lease were annotated at he back of the title,
as per stipulation of the parties (Exhs. A to D-3 inclusive)
On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia
Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the
latter the leased property (TCT No.T-4240) together with another parcel of land also located
in Malinta Estate, Valenzuela, Metro Manila
On the ground that it was not given the first option to buy the leased property pursuant to
the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an
amended complaint for reconveyance of Lot. No. 1095 in its favor under conditions similar
to those whereby Delpher Trades Corporation acquired the property from Pelagia Pacheco
and Delphin Pacheco.
lower court's decision was affirmed on appeal by the Intermediate Appellate Court.
The defendants-appellants, now the petitioners, filed a petition for certiorari to review the
appellate court's decision.
Issue: whether or not the "Deed of Exchange" of the properties executed by the Pachecos
on the one hand and the Delpher Trades Corporation on the other was meant to be a
contract of sale which, in effect, prejudiced the private respondent's right of first refusal
over the leased property included in the "deed of exchange."
Delpher Trades Corporation is a family corporation; that the corporation was organized by
the children of the two spouses (spouses Pelagia Pacheco and Benjamin Hernandez and
spouses Delfin Pacheco and Pilar Angeles) who owned in common the parcel of land leased
to Hydro Pipes Philippines in order to perpetuate their control over the property through
estate, including Lot No. 1095 which had been leased to Hydro Pipes Philippines, were
transferred to the corporation; that the leased property was transferred to the corporation
by virtue of a deed of exchange of property;
Under this factual backdrop, the petitioners contend that there was actually no transfer of
ownership of the subject parcel of land since the Pachecos remained in control of the
property.
The petitioners maintain that the Pachecos did not sell the property. They argue that there
was no sale and that they exchanged the land for shares of stocks in their own
corporation.
Ruling:
We rule for the petitioners.
After incorporation, one becomes a stockholder of a corporation by subscription or by
purchasing stock directly from the corporation or from individual owners thereof
In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original
unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently,
the Pachecos became stockholders of the corporation by subscription "The essence of the
stock subscription is an agreement to take and pay for original unissued shares of a
corporation, formed or to be formed."
It is to be stressed that by their ownership of the 2,500 no par shares of stock, the
Pachecos have control of the corporation. Their equity capital is 55% as against 45% of the
other stockholders, who also belong to the same family group.
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they
really did was to invest their properties and change the nature of their ownership from
unincorporated to incorporated form by organizing Delpher Trades Corporation to take
control of their properties and at the same time save on inheritance taxes.
The records do not point to anything wrong or objectionable about this "estate planning"
scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount
of what otherwise could be his taxes or altogether avoid them, by means which the law
permits, cannot be doubted."
The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation
cannot be considered a contract of sale. There was no transfer of actual ownership
interests by the Pachecos to a third party. The Pacheco family merely changed their
ownership from one form to another. The ownership remained in the same hands. Hence,
the private respondent has no basis for its claim of a light of first refusal under the lease
contract.
WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and
resolution of the then Intermediate Appellate Court are REVERSED and SET ASIDE.
Dao Heng Bank vs LAigo
Facts: Spouses Lilia and Reynaldo Laigo (respondents) obtained loans from Dao Heng
Bank, Inc. (Dao Heng) in the total amount of P11 Million, to secure the payment of which
they forged on October 28, 1996, November 18, 1996 and April 18, 1997 three Real Estate
Mortgages covering two parcels of land registered in the name of respondent "Lilia D. Laigo,
one containing 569 square meters and the other containing 537 square meters.
loans were payable within 12 months from the execution of the promissory notes covering
the loans. As of 2000, respondents failed to settle their outstanding obligation, drawing
them to verbally offer to cede to Dao Heng one of the two mortgaged lots by way of dacion
en pago.
Dao Heng was later to demand the settlement of respondents' obligation by letter of August
18, 20001wherein it indicated that they had an outstanding obligation of P10,385,109.92
inclusive of interests and other charges.
Dao Heng thereupon filed in September 2000 an application to foreclose the real estate
mortgages executed by respondents. The properties subject of the mortgage were sold
for P10,776,242 at a public auction conducted on December 20, 2000 to Banco de Oro
Universal Bank (hereafter petitioner) which was the highest bidder.
It appears that respondents negotiated for the redemption of the mortgages.
Vice President on Property Management & Credit Services Department, advised respondent
Lilia Laigo as follows:
This is to formally advise you of the bank's response to your proposal pertaining to the
redemption of the two (2) foreclosed lots located in Fairview, Quezon City as has been
relayed to you last June 13, 2001 as follows:
1. Redemption price shall be P11.5MM plus 12% interest based on diminishing
balance payable in staggered payments up to January 2, 2002 as follows:
a. P3MM - immediately upon receipt of this approval
b. Balance payable in staggered payments (plus interest) up to January 2,
2002
Other Conditions:
a. Payments shall be covered by post dated checks
b. TCT No. 92257 shall be the first property to be released upon payment of the
first P7.5MM plus interest
c. Arrangement to be covered by an Agreement
Nothing was heard from respondents, hence, petitioner by its Manager, Property
Management & Credit Services Department, advised her by letter of December 26,
20013 that in view of their failure to conform to the conditions set by it for the redemption
of the properties, it would proceed to consolidate the titles immediately after the expiration
of the redemption period on January 2, 2002.
Six days before the expiration of the redemption period or on December 27, 2001,
respondents filed a complaint before the Regional Trial Court (RTC) of Quezon City, for
Annulment, Injunction and for them to be allowed "to deliver by way of ‘dacion en pago' one
of the mortgaged properties as full payment of [their] mortgaged obligation" and to, in the
meantime, issue a TRO directing the defendant-herein petitioner to desist from
consolidating ownership over their properties.
By respondents' claim, Dao Heng verbally agreed to enter into a dacion en pago.
petitioner claimed that there was no meeting of the minds between the parties on the
settlement of respondents' loan via dacion en pago..
Petitioner thereupon filed a Motion to Dismiss the complaint on the ground that the claim
on which respondents' action is founded is unenforceable under the Statute of Frauds and
the complaint states no cause of action. Respondents opposed the motion, contending that
their delivery of the titles to the mortgaged properties constituted partial performance of
their obligation under the dacion en pago
trial court granted petitioner's Motion to Dismiss in this wise:
[P]laintiffs' claim must be based on a document or writing evidencing the
alleged dacion en pago, otherwise, the same cannot be enforced in an action in
court. As correctly pointed out by the defendants, the titles were not delivered to
them pursuant to the dacion en pago but by reason of the execution of the
mortgage loan agreement. If indeed a dacion en pago agreement was entered into
 between the parties, it is inconceivable that a written document would not be
drafted considering the magnitude of the amount involved
Appellate court held that the complaint states a cause of action, respondents
having alleged that there was partial performance of the agreement to settle their obligation
via dacion en pago when they agreed to have the properties appraised to thus place their
agreement within the exceptions provided under Article 14038 of the Civil Code on Statute
of Frauds.
Issue: w/n THE COMPLAINT ALLEGED A SUFFICIENT CAUSE OF ACTION DESPITE THE
ALLEGATIONS, AS WELL AS ADMISSIONS FROM THE RESPONDENTS, THAT THERE
WAS NO PERFECTED DACION EN PAGO CONTRACT
Ruling: presence of a cause of action is determined from the facts alleged in the complaint.
Sometime in the middle of the year 2000, defendant Dao Heng Bank as the creditor bank
agreed to the full settlement of plaintiffs' mortgage obligation of P9 Million through the
assignment of one of the two (2) mortgaged properties;
[5] As part of the agreement, defendant Dao Heng Bank had the mortgaged properties
appraised to determine which of the two (2) mortgaged properties shall be delivered as full
payment of the mortgage obligation; Also as part of the deal, plaintiffs for their part
paidP5,000.00 for the appraisal expense;
Sometime in December, year 2000, the protest of plaintiffs notwithstanding and in
blatant breach of the agreed "Dacion en pago" as the mode of full payment of plaintiffs'
mortgage obligation, defendant Dao Heng Bank proceeded to foreclose the mortgaged
properties
Even if a complaint states a cause of action, however, a motion to dismiss for insufficiency
of cause of action may be granted if the evidence discloses facts sufficient to defeat the
claim and enables the court to go beyond the disclosures in the complaint.
In its Opposition to respondents' application for the issuance of a TRO,11 petitioner,
responding to respondents' allegation that it agreed to the settlement of their obligation via
the assignment of one of the two mortgaged properties, alleged that there was no meeting
of the minds thereon:
4. Plaintiffs' claim that defendant Dao Heng Bank[s] foreclosure sale of the
mortgaged properties was improper because there was an agreement to dacion one
of the two (2) mortgaged properties as full settlement of the loan obligation and
that defendant Dao Heng Bank and Banco de Oro were already negotiating and
colluding for the latter's acquisition of the mortgaged [properties] for the
unsconscionably low price of P10,776.242.00 are clearly WITHOUT BASIS. Quite
to the contrary, there was no meeting of the minds between defendant Dao Heng
Bank and the plaintiffs to dacion any of the mortgaged properties as full settlement
of the loan. Although there was a PROPOSAL and NEGOTIATIONS to settle the
loan by way of dacion, nothing came out of said proposal, much less did the
negotiations mature into the execution of a dacion en pago instrument. Defendant
Dao Heng Bank found the offer to settle by way of dacion not acceptable and thus,
it opted to foreclose on the mortgage.
The law clearly provides that "the debtor of a thing cannot compel the creditor to
receive a different one, although the latter may be of the same value, or more
valuable than that which is due" (Article 1244, New Civil Code). "The oblige is
entitled to demand fulfillment of the obligation or performance as stipulated"
(Palmares v. Court of Appeals, 288 SCRA 422 at p. 444 [1998]). "The power to
decide whether or not to foreclose on the mortgage is the sole prerogative of the
mortgagee" (Rural Bank of San Mateo, Inc. vs. Intermediate Appellate Court, 146
SCRA 205, at 213 [1986]) Defendant Dao Heng Bank merely opted to exercise such
prerogative.
Dacion en pago as a mode of extinguishing an existing obligation partakes of the nature of
sale whereby property is alienated to the creditor in satisfaction of a debt in money.13 It is
an objective novation of the obligation, hence, common consent of the parties is required in
order to extinguish the obligation.
. . . In dacion en pago, as a special mode of payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking
really partakes in one sense of the nature of sale, that is, the creditor is really buying the
thing or property of the debtor, payment for which is to be charged against the debtor's
debt. As such the elements of a contract of sale, namely, consent, object certain, and cause
or consideration must be present. In its modern concept, what actually takes place
in dacion en pago is an objective novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation is considered as the object of the
contract of sale, while the debt is considered the purchase price. In any case, common
consent is an essential prerequisite, be it sale or novation, to have the effect of totally
extinguishing the debt or obligation."14 (Emphasis, italics and underscoring supplied;
citation omitted)
Being likened to that of a contract of sale, dacion en pago is governed by the law on
sales.15 The partial execution of a contract of sale takes the transaction out of the
provisions of the Statute of Frauds so long as the essential requisites of consent of the
contracting parties, object and cause of the obligation concur and are clearly established
to be present
no concrete showing, however, that after the appraisal of the properties, petitioner
approved respondents' proposal to settle their obligation via dacion en pago. The delivery to
petitioner of the titles to the properties is a usual condition sine qua non to the execution of
the mortgage, both for security and registration purposes. For if the title to a property is
not delivered to the mortgagee, what will prevent the mortgagor from again encumbering it
also by mortgage or even by sale to a third party.
Finally, that respondents did not deny proposing to redeem the mortgages,17 as reflected in
petitioner's June 29, 2001 letter to them, dooms their claim of the existence of a
perfected dacion en pago.
WHEREFORE, the Court of Appeals Decision of January 26, 2006 is REVERSED and SET
ASIDE.
Luzon Dev Bank vs Enriquez
Facts: Petitioner DELTA is a domestic corporation engaged in the business of developing
and selling real estate properties, particularly Delta Homes I in Cavite. De Leon and his
spouse obtained a ₱4 million loan from the BANK for the express purpose of developing
Delta Homes I.8 To secure the loan, the spouses De Leon executed in favor of the BANK a
real estate mortgage (REM) on several of their properties,9 including Lot 4. Subsequently,
this REM was amended10 by increasing the amount of the secured loan from ₱4 million to
₱8 million.
DELTA executed a Contract to Sell with respondent Angeles Catherine Enriquez
(Enriquez)14over the house and lot in Lot 4 for the purchase price of ₱614,950.00. Enriquez
made a downpayment of ₱114,950.00. The Contract to Sell contained the following
provisions:
That the vendee/s offered to buy and the Owner agreed to sell the above-described
property subject to the following terms
That the (sic) warning shall be served upon the Vendee/s for failure to pay x x x Provided,
however, that for failure to pay three (3) successive monthly installment payments, the
Owner may consider this Contract to Sell null and void ab initio without further
proceedings or court action and all payments shall be forfeited in favor of the Owner as
liquidated damages and expenses for documentations. x x x
That upon full payment of the total consideration if payable in cash, the Owner shall
execute a final deed of sale in favor of the Vendee/s. However, if the term of the contract is
for a certain period of time, only upon full payment of the total consideration that a final
deed of sale shall be executed by the Owner in favor of the Vendee/s.15
When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM,
agreed to a dation in payment or a dacion en pago. The Deed of Assignment in Payment of
Debt was executed on September 30, 1998 and stated that DELTA "assigns, transfers, and
conveys and sets over [to] the assignee that real estate with the building and improvements
existing thereon x x x in payment of the total obligation owing to [the Bank] x x
x."16 Unknown to Enriquez, among the properties assigned to the BANK was the house and
lot of Lot 4,17 which is the subject of her Contract to Sell with DELTA. The records do not
bear out and the parties are silent on whether the BANK was able to transfer title to its
name. It appears, however, that the dacion en pago was not annotated on the TCT of Lot 4.
Enriquez filed a complaint against DELTA and the BANK before the Region IV Office of the
HLURB19 alleging that DELTA violated the terms of its License to Sell by: (a) selling the
house and lots for a price exceeding that prescribed in Batas Pambansa (BP) Bilang
220;20 and (b) failing to get a clearance for the mortgage from the HLURB. Enriquez sought
a full refund of the ₱301,063.42 that she had already paid to DELTA, award of damages.
HLURB Arbiter Atty. Raymundo A. Foronda upheld the validity of the purchase price, but
ordered DELTA to accept payment of the balance of ₱108,013.36 from Enriquez, and (upon
such payment) to deliver to Enriquez the title to the house and lot free from liens and
encumbrances.
DELTA appealed the arbiter’s Decision to the HLURB Board of Commissioners
The Board held that all developers should obtain a clearance for mortgage from the
HLURB, regardless of the date when the mortgage was secured, because the law does not
distinguish. Having violated this legal requirement, DELTA was held liable to pay the
administrative fine.
The Board upheld the validity of the contract to sell between DELTA and Enriquez despite
the alleged violation of the price ceilings in BP 220. The Board held that DELTA and
Enriquez were presumed to have had a meeting of the minds on the object of the sale and
the purchase price
Enriquez moved for a reconsideration of the Board’s Decision30 upholding the contractual
purchase price. She maintained that the price for Lot 4 should not exceed the price ceiling
provided in BP 220.31lawph!l
Finding Enriquez’s arguments as having already been passed upon in the decision, the
Board denied reconsideration.
Both Enriquez and the BANK appealed to the Office of the President (OP).34 The BANK
disagreed with the ruling upholding Enriquez’s Contract to Sell; and insisted on its
ownership over Lot 4
Ruling of the Office of the President37
The OP adopted by reference the findings of fact and conclusions of law of the HLURB
Decisions, which it affirmed in toto.
Enriquez filed a motion for reconsideration, insisting that she was entitled to a reduction of
the purchase price, in order to conform to the provisions of BP 220
Only the BANK appealed the OP’s Decision to the CA.40 The BANK reiterated that DELTA
can no longer deliver Lot 4 to Enriquez because DELTA had sold the same to the BANK by
virtue of the dacion en pago
CA ruled against the validity of the dacion en pago executed in favor of the BANK on the
ground that DELTA had earlier relinquished its ownership over Lot 4 in favor of Enriquez
via the Contract to Sell.46
Since the dacion en pago is invalid with respect to Lot 4, the appellate court held that
DELTA remained indebted to the BANK to the extent of Lot 4’s value. Thus, the CA ordered
DELTA to pay the corresponding value of Lot 4 to the BANK
Should the dacion en pago over Lot 4 be invalidated and the property ordered to be
delivered to Enriquez, the BANK contends that DELTA should pay the corresponding value
of Lot 4 to the BANK. It maintains that the loan obligation extinguished by the dacion en
pago only extends to the value of the properties delivered; if Lot 4 cannot be delivered to
the BANK, then the loan obligation of DELTA remains to the extent of Lot 4’s value
Issue: Whether the Contract to Sell conveys ownership;
2. Whether the dacion en pago extinguished the loan obligation, such that DELTA has no
more obligations to the BANK;
Ruling: Mortgage contract void
As the HLURB Arbiter and Board of Commissioners both found, DELTA violated Section 18
of PD 957 in mortgaging the properties in Delta Homes I (including Lot 4) to the BANK
without prior clearance from the HLURB. This point need not be belabored since the
parties have chosen not to appeal the administrative fine imposed on DELTA for violation
of Section 18.
This violation of Section 18 renders the mortgage executed by DELTA void. We have held
before that "a mortgage contract executed in breach of Section 18 of [PD 957] is null and
void."61 Considering that "PD 957 aims to protect innocent subdivision lot and
condominium unit buyers against fraudulent real estate practices," we have construed
Section 18 thereof as "prohibitory and acts committed contrary to it are void.
Contract to sell does not transfer ownership
Both parties are correct in arguing that the Contract to Sell executed by DELTA in favor of
Enriquez did not transfer ownership over Lot 4 to Enriquez. A contract to sell is one where
the prospective seller reserves the transfer of title to the prospective buyer until the
happening of an event, such as full payment of the purchase price. What the seller obliges
himself to do is to sell the subject property only when the entire amount of the purchase
price has already been delivered to him.
While DELTA, in the instant case, failed to register Enriquez’s Contract to Sell with the
Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK from its
obligation to respect Enriquez’s Contract to Sell. Despite the non-registration, the BANK
cannot be considered, under the circumstances, an innocent purchaser for value of Lot 4
when it accepted the latter (together with other assigned properties) as payment for
DELTA’s obligation. The BANK was well aware that the assigned properties, including Lot
4, were subdivision lots and therefore within the purview of PD 957.
[The Bank] should have considered that it was dealing with a property subject of a real
estate development project. A reasonable person, particularly a financial institution x x x,
should have been aware that, to finance the project, funds other than those obtained from
the loan could have been used to serve the purpose, albeit partially.
Bound by the terms of the Contract to Sell, the BANK is obliged to respect the same and
honor the payments already made by Enriquez for the purchase price of Lot 4. Thus, the
BANK can only collect the balance of the purchase price from Enriquez and has the
obligation, upon full payment, to deliver to Enriquez a clean title over the subject
property.68
Dacion en pago extinguished the loan obligation
The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez, DELTA has the
obligation to pay the BANK the corresponding value of Lot 4. According to the BANK, the
dation in payment extinguished the loan only to the extent of the value of the thing
delivered. Since Lot 4 would have no value to the BANK if it will be delivered to Enriquez,
DELTA would remain indebted to that extent.
We are not persuaded. Like in all contracts, the intention of the parties to the dation in
payment is paramount and controlling. The contractual intention determines whether the
property subject of the dation will be considered as the full equivalent of the debt and will
therefore serve as full satisfaction for the debt. "The dation in payment extinguishes the
obligation to the extent of the value of the thing delivered, either as agreed upon by the
parties or as may be proved, unless the parties by agreement, express or implied, or by
their silence, consider the thing as equivalent to the obligation, in which case the
obligation is totally extinguished."69
In the case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a clear
intention by the parties that the assigned properties would serve as full payment for
DELTA’s entire obligatio
Without any reservation or condition, the Dacion stated that the assigned properties served
as full payment of DELTA’s "total obligation" to the BANK. The BANK accepted said
properties as equivalent of the loaned amount and as full satisfaction of DELTA’s debt. The
BANK cannot complain if, as it turned out, some of those assigned properties (such as Lot
4) are covered by existing contracts to sell. As noted earlier, the BANK knew that the
assigned properties were subdivision lots and covered by PD 957. It was aware of the
nature of DELTA’s business, of the location of the assigned properties within DELTA’s
subdivision development, and the possibility that some of the properties may be subjects of
existing contracts to sell which enjoy protection under PD 957. Banks dealing with
subdivision properties are expected to conduct a thorough due diligence review to discover
the status of the properties they deal with. It may thus be said that the BANK, in accepting
the assigned properties as full payment of DELTA’s "total obligation," has assumed the risk
that some of the assigned properties (such as Lot 4) are covered by contracts to sell which
it is bound to honor under PD 957.
A dacion en pago is governed by the law of sales.71 Contracts of sale come with warranties,
either express (if explicitly stipulated by the parties) or implied (under Article 1547 et seq.
of the Civil Code). In this case, however, the BANK does not even point to any breach of
warranty by DELTA in connection with the Dation in Payment. To be sure, the Dation in
Payment has no express warranties relating to existing contracts to sell over the assigned
properties. As to the implied warranty in case of eviction, it is waivable72 and cannot be
invoked if the buyer knew of the risks or danger of eviction and assumed its
consequences.73 As we have noted earlier, the BANK, in accepting the assigned properties
as full payment of DELTA’s "total obligation," has assumed the risk that some of the
assigned properties are covered by contracts to sell which must be honored under PD 957
WHEREFORE, premises considered, the appealed November 30, 2004 Decision of the
Court of Appeals, as well as its June 22, 2005 Resolution in CA-G.R. SP No. 81280 are
hereby AFFIRMED with the MODIFICATIONS that Delta Development and Management
Services, Inc. is NOT LIABLE TO PAY Luzon Development Bank the value of the subject lot;
and respondent Angeles Catherine Enriquez is ordered to PAY the balance of the purchase
price and the interests accruing thereon, as decreed by the Court of Appeals, to the Luzon
Development Bank, instead of Delta Development and Management Services, Inc., within
thirty (30) days from finality of this Decision. The Luzon Development Bank is ordered to
DELIVER a CLEAN TITLE to Angeles Catherine Enriquez upon the latter’s full payment of
the balance of the purchase price and the accrued interests.
390 scra 380 year 2002 De Jayme vs CA
Facts: spouses Graciano and Mamerta Jayme are the registered owners of Lot 2700,
situated in the Municipality of Mandaue (now Mandaue City), Cebu, consisting of 2,568
sq.m. They entered into a Contract of Lease5 with George Neri, president of Airland Motors
Corporation (now Cebu Asiancars Inc.), covering one-half of Lot 2700. The lease was for
twenty (20) years.
The terms and conditions of the lease contract6 stipulated that Cebu Asiancars Inc.
(hereafter, Asiancars) may use the leased premises as a collateral to secure payment of a
loan which Asiancars may obtain from any bank, provided that the proceeds of the loan
shall be used solely for the construction of a building which, upon the termination of the
lease or the voluntary surrender of the leased premises before the expiration of the
contract, shall automatically become the property of the Jayme spouses.
Asiancars obtained a loan of P6,000,000 from the Metropolitan Bank and Trust Company
(MBTC). The entire Lot 2700 was offered as one of several properties given as collateral for
the loan. As mortgagors, the spouses signed a Deed of Real Estate Mortgage.
To assure the Jayme spouses, Neri and the other officers of Asiancars, namely Benny
Liongben Lee, William Leong Koc Lee, Connie U. Neri, Edward James Lee, Roberto Uykim
and Charles P. Uykim, executed an undertaking. They promised, in their personal
capacities and/or in representation of Cebu Asiancars, Inc., "to compensate Mr. & Mrs.
Graciano Jayme for any and all or whatever damage they may sustain or suffer by virtue
and arising out of the mortgage to MBTC. Neri wrote a letter dated September 1,
198112 addressed to Mamerta Jayme acknowledging her "confidence and help" extended to
him, his family and Asiancars. He promised to pay their indebtedness to MBTC before the
loan was due.
Asiancars conveyed ownership of the building on the leased premises to MBTC, by way of
"dacion en pago."13 The building was valued at P980,000 and the amount was applied as
partial payment for the loan. There still remained a balance of P2,942,449.66, which
Asiancars failed to pay.
MBTC extrajudicially foreclosed the mortgage. A public auction was held on February 4,
1981. MBTC was the highest bidder for P1,067,344.35
As a result of the foreclosure, Graciano’s heirs filed a civil complaint,14 in January of 1982,
for Annulment of Contract with Damages with Prayer for Issuance of Preliminary
Injunction, against respondent Asiancars.
Petitioners claim that Neri and Asiancars did not tell them that the indebtedness secured
by the mortgage was for P6,000,000 and that the security was the whole of Lot 2700.
Petitioners allege that the deed presented to the Jayme spouses was in blank, without
explanation on the stipulations contained therein
Respondents deny that any fraud was employed, nor was there a scheme to make the
spouses sign as mortgagors instead of guarantors. They aver that the spouses were fully
advised and compensated for the use of their property as collateral with MBTC; that they
voluntarily signed the deed of mortgage upon the request of George Neri, whom they
previously trusted.
RTC- Real Estate Mortgage executed by the Jaymes in favor of Metrobank as valid and
binding;
2. Declaring the Undertaking executed by George Neri, Benny Leongben Lee already
deceased, William Leong Koc, Connie U. Neri, Edward James Lee, Roberto Uykim, and
Charles P. Uykim on November 7, 1977 to be valid and binding as well upon the
signatories thereof;
Court of Appeals, which affirmed the ruling of the RTC, with modifications stated in this
wise:
1. Declaring valid and binding the Real Estate Mortgage executed by plaintiffs in
favor of defendant MBTC;
2. Declaring valid the foreclosure of the mortgage and the foreclosure sale;
3. Declaring that the period to redeem Lot 2700 had expired on February 23, 1982
without plaintiffs redeeming it;
4. Ordering the Sheriff of Mandaue City to issue a definite Deed of Sale covering
Lot 2700 in favor of defendant MBTC;
5. Declaring valid and binding the dacion en pago executed by defendant
Asiancars in favor of defendant MBTC;
Issue: whether or not the REM should be annulled on the ground of vitiated consent; and
second, whether or not the dacion en pago by Asiancars in favor of MBTC is valid and
binding despite the stipulation in the lease contract that ownership of the building will vest
on the Jaymes at the termination of the lease.
Ruling: the spouses affixed their signature on the Deed of Real Estate Mortgage, in the
presence of two instrumental witnesses, and duly notarized. . As a notarized document, it
has in its favor the presumption of regularity, and to overcome this presumption, there
must be evidence that is clear, convincing and more than merely preponderant that there
was irregularity in its execution; otherwise, the document should be upheld
The Deed of Real Estate Mortgage entered into by the Jayme spouses partake of a Third
Party Mortgage under Art. 2085 (3) of the Civil Code which reads:
The following requisites are essential to the contracts of pledge and mortgage: xxx (3) That
the persons constituting the pledge or mortgage have the free disposal of their property,
and in the absence thereof, that they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property.
the law recognizes instances when persons not directly parties to a loan agreement may
give as security their own properties for the principal transaction. In this case, the spouses
should not be allowed to disclaim the validity of a transaction they voluntarily and
knowingly entered into for the simple reason that such transaction turned out prejudicial
to them later on.
Both the trial and appellate courts found that no fraud attended the execution of the deed
of mortgage. This is a factual finding that binds this Court. Further, the records clearly
show that the spouses Jayme agreed to use their property as collateral for Neri’s loan
because Neri had their full trust and confidence. Mamerta herself testified that she and her
husband were assured by Neri’s promise that he would take full responsibility for whatever
happens to the property of the spouses and that he would comply with his obligations to
the bank
With the assistance of a lawyer and consultation with their literate children, the spouses
though illiterate could not feign ignorance of the stipulations in the deed. Patently, theirs
was not a vitiated consent.
In this jurisdiction, when the property of a third person which has been expressly
mortgaged to guarantee an obligation to which the said person is a stranger, said property
is directly and jointly liable for the fulfillment thereof, in the same manner as the
mortgaged property of the debtor himself.22
In the case at bar, when Asiancars failed to pay its obligations with MBTC, the properties
given as security (one of them being the land owned by the Jaymes) became subject to
foreclosure. When several things are given to secure the same debt in its entirety, all of
them are liable for the debt, and the creditor does not have to divide his action by
distributing the debt among the various things pledged or mortgaged. Even when only a
part of the debt remains unpaid, all the things are liable for such balance
Thus, MBTC had every right to effect the extrajudicial foreclosure of the mortgaged
properties to satisfy its claim.
The appellate court found that the spouses lost their right to redeem their property. Under
Section 78 of the General Banking Act then in force,24 the mortgagor or debtor whose real
property has been foreclosed and sold at public auction, has the right to redeem the
property within one year from the sale of the real estate as a result of the foreclosure. The
reckoning date in the case of a registered land is from the date of registration of the
certificate of sale.25 If no redemption is timely made, the buyer in a foreclosure sale
becomes the absolute owner of the property purchased.26 In this case, the certificate of sale
was registered on February 23, 1981, giving petitioners until February 23, 1982 to redeem
the property. This they failed to do, hence, ownership of the property already vested in the
purchaser, private respondent MBTC
Much as we sympathize with petitioners’ plight, we are unable to find merit in their plea for
the annulment of the deed of sale covering Lot 2700 as a result of foreclosure of mortgage.
Petitioners failed to show the required quantum of evidence that they were fraudulently
made to sign as mortgagors.
Petitioners however, are not without recourse for the loss of their property. Although they
cannot go after respondent MBTC, they have in their favor the undertaking executed by
George Neri and other members of his family. The undertaking also bound respondent
Asiancars, as well as its officers who were signatories to the aforesaid Undertaking, to
reimburse petitioners for the damages they suffered by reason of the mortgage.
The alienation of the building by Asiancars in favor of MBTC for the partial satisfaction of
its indebtedness is, in our view, also valid. The ownership of the building had been
effectively in the name of the lessee-mortgagor (Asiancars), though with the provision that
said ownership be transferred to the Jaymes upon termination of the lease or the voluntary
surrender of the premises. The lease was constituted on January 8, 1973 and was to
expire 20 years thereafter, or on January 8, 1993. The alienation via dacion en pago was
made by Asiancars to MBTC on December 18, 1980, during the subsistence of the lease. At
this point, the mortgagor, Asiancars, could validly exercise rights of ownership, including
the right to alienate it, as it did to MBTC.
Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to
the creditor as an accepted equivalent of the performance of the obligation.28 It is a special
mode of payment where the debtor offers another thing to the creditor who accepts it as
equivalent of payment of an outstanding debt. The undertaking really partakes in one
sense of the nature of sale, that is the creditor is really buying the thing or property of the
debtor, payment for which is to be charged against the debtor’s debt. As such, the essential
elements of a contract of sale, namely, consent, object certain, and cause or consideration
must be present. In its modern concept, what actually takes place in dacion en pago is an
objective novation of the obligation where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of the contract of sale, while the
debt is considered as the purchase price. In any case, common consent is an essential
prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or
obligation
We also find that the Court of Appeals did not err in considering MBTC as a purchaser in
good faith. MBTC had no knowledge of the stipulation in the lease contract.
Finally, we are in agreement that bad faith attended Asiancars’ transfer of the building to
MBTC. Asiancars was well aware of its covenant with the Jaymes that the building’s
ownership was to be transferred to the Jaymes upon termination of the lease. Indeed,
petitioners suffered mental anxiety and nervous shock upon learning that the ownership of
the building standing on their property had already been transferred to MBTC. The
apparent disregard of petitioners’ right by Asiancars and other private respondents
provides enough basis for an award of moral as well as exemplary damages33 by the
appellate court.
WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED.
Technogas vs PNB
Facts: Tecnogas Philippines Manufacturing Corporation (Tecnogas) obtained from
respondent Philippine National Bank (PNB) an Omnibus Line of P35 million and a 5-year
Term Loan of P14 million. To secure the loan, Tecnogas executed a Real Estate
Mortgage5 (REM) over its parcel of land in Parañaque City.
REM authorized PNB to extrajudicially foreclose the mortgage as the duly constituted
attorney-in-fact of Tecnogas7 in case Tecnogas defaults on its obligations. It also provided
that the mortgage will stand as a security for any and all other obligations of Tecnogas to
PNB, for whatever kind or nature, and regardless of whether the obligations had been
contracted before, during or after the constitution of the mortgage.
when the loan matured, PNB sent collection letters9 to Tecnogas, but the latter only
proposed to pay its obligations by way of dacion en pago conveying TCT No. 122533.
PNB filed a petition for extrajudicial foreclosure of the REM in the RTC of Parañaque City.
A day before the auction sale, Tecnogas filed with the Parañaque City RTC a
complaint12 for annulment of extrajudicial foreclosure sale, with application for the
issuance of a temporary restraining order (TRO) and writ of preliminary injunction. The
RTC granted extension of the TRO for 17 day.
RTC granted Tecnogas’ application and issued a writ of preliminary injunction enjoining
the extrajudicial foreclosure sale of the mortgaged property.
the Court of Appeals issued the assailed decision and ruled that the trial court committed
grave abuse of discretion in enjoining the extrajudicial foreclosure sale. It held that
Tecnogas’ proposal to pay through dacion en pago did not constitute payment as it was not
accepted by PNB
Issue: (1) Did the Court of Appeals err in ruling that Tecnogas was not entitled to an
injunctive relief? (2) Did the foreclosure sale render the petition moot?
Tecnogas admits its liability and that its proposal to pay by way of dacion en pago was not
accepted by PNB. But Tecnogas avers that its proposal constitutes a valid tender of
payment.
PNB counters that the proposal to pay by way of dacion en pago did not extinguish
Tecnogas’ obligation; thus, the extrajudicial foreclosure sale was proper. I
Ruling: petition lacks merit.
A writ of preliminary injunction may be issued only upon clear showing by the applicant of
the existence of the following: (1) a right in esse or a clear and unmistakable right to be
protected; (2) a violation of that right; and (3) an urgent and paramount necessity for the
writ to prevent serious damage. In the absence of a clear legal right, the issuance of the
injunctive writ constitutes grave abuse of discretion.20
Dacion en pago is a special mode of payment whereby the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding obligation. The
undertaking is really one of sale, that is, the creditor is really buying the thing or property
of the debtor, payment for which is to be charged against the debtor’s debt. As such, the
essential elements of a contract of sale, namely, consent, object certain, and cause or
consideration must be present. It is only when the thing offered as an equivalent is
accepted by the creditor that novation takes place, thereby, totally extinguishing the
debt.21
On the first issue, the Court of Appeals did not err in ruling that Tecnogas has no clear
legal right to an injunctive relief because its proposal to pay by way of dacion en pago did
not extinguish its obligation. Undeniably, Tecnogas’ proposal to pay by way of dacion en
pago was not accepted by PNB. Thus, the unaccepted proposal neither novates the parties’
mortgage contract nor suspends its execution as there was no meeting of the minds
between the parties on whether the loan will be extinguished by way of dacion en
pago. Necessarily, upon Tecnogas’ default in its obligations, the foreclosure of the REM
becomes a matter of right on the part of PNB, for such is the purpose of requiring security
for the loans.
On the second issue, the holding of the extrajudicial foreclosure sale did not render this
case moot. A case becomes moot only when there is no more actual controversy between
the parties, or when no useful purpose can be served in passing upon the merits.24 In this
case, the decision of the Court of Appeals annulling the grant of preliminary injunction in
favor of Tecnogas has not yet become final on August 24, 2004. The preliminary
injunction, therefore, issued by the trial court remains valid until the decision of the Court
of Appeals annulling the same attains finality,
WHEREFORE, the instant petition is DENIED
SSS vs Atlantic Gulf
Facts: February 2004, Atlantic Gulf and Pacific Company of Manila, Inc. (AG & P) and
Semirara Coal Corporation (SEMIRARA) (collectively referred to as private respondents)
filed a complaint for specific performance and damages against SSS before the Regional
Trial Court
The complaint alleged that
in 2000, plaintiff informed the SSS in writing of its premiums and loan
amortization delinquencies covering the period from January 2000 to May 2000
amounting to P7.3 Million. AG&P proposed to pay its said arrears by end of 2000,
but requested for the condonation of all penalties;
defendant suggested two (2) options to AG&P, either to pay by installment or
through "dacion en pago";
5. AG&P chose to settle its obligation with the SSS under the second option, that is
through dacion en pago of its 5,999 sq. m. property situated in Baguio City covered by
TCT No. 3941 with an appraised value of about P80.0 Million. SSS proposes to carve-out
from the said property an area sufficient to cover plaintiffs’ delinquencies. AG&P, however,
is not amenable to subdivide its Baguio property.
AG&P then made another proposal to SSS. This time, offering as payment a
portion of its 58,153 square meter-lot, situated in F.S. Sebastian, Sto. Niño, San
Pascual, Batangas. In addition, SSS informed AG&P of its decision to include other
companies within the umbrella of DMCI group with arrearages with the SSS. In the
process of elimination of the companies belonging to the DMCI group with possible
outstanding obligation with the SSS, it was only SEMIRARA which was left with
outstanding delinquencies with the SSS. Thus, SEMIRARA’s inclusion in the
proposed settlement through dacion en pago
AG&P was, thereafter, directed by the defendant to submit certain documents,
such as Transfer Certificate of Title, Tax Declaration
Resolution No. 270, finally approved AG&P’s proposal to settle its and SEMIRARA’s
delinquencies through dacion en pago, which as of March 31, 2001 amounted
to P29,261,902.45.
From the time of the approval of AG&P’s proposal up to the present, AG&P is (sic)
religiously remitting the premium contributions and loan amortization of its
member-employees to the defendant;
11. To effect the property transfer, a Deed of Assignment has to be executed between the
plaintiffs and the defendant. Because of SSS failure to come up with the required Deed of
Assignment to effect said transfer, AG&P prepared the draft and submitted it to the Office
of the Vice-President – NCR thru SSS Baclaran Branch in July 2001. Unfortunately, the
defendant failed to take any action on said Deed of Assignment causing AG&P to re-submit
it to the same office of the Vice-President – NCR
more than a year after the approval of AG&P’s proposal, defendant sent the revised
copy of the Deed of Assignment to AG&P. However, the amount of the plaintiffs’
 obligation appearing in the approved Deed of Assignment has
ballooned from P29,261,902.45 to P40,846,610.64 allegedly because of the
additional interests and penalty charges assessed on plaintiff
AG&P demanded for the waiver and deletion of the additional interests on the
ground that delay in the approval of the deed and the subsequent delay in
conveyance of the property in defendant’s name was solely attributable to the
defendant
AG&P and SEMIRARA maintain their willingness to settle their alleged obligation
of P29,261,902.45 to SSS. Defendant, however, refused to accept the payment
through dacion en pago, unless plaintiffs also pay the additional interests and
penalties being charged;
SSS moved for the dismissal of the complaint for lack of jurisdiction and non-exhaustion of
administrative remedies.
the trial court granted SSS’s motion and dismissed private respondents’ complaint.
Court of Appeals reversed and set aside the trial court’s challenged order, granted private
respondents’ appeal and ordered the trial court to proceed with the civil case with
dispatch. From the averments in their complaint, the appellate court observed that private
respondents are seeking to implement the Deed of Assignment which they had drafted and
submitted to SSS
The appellate court thus held that the subject of the complaint is no longer the payment of
the premium and loan amortization delinquencies, as well as the penalties appurtenant
thereto, but the enforcement of the dacion en pago pursuant to SSS Resolution
Issue: w/n the court has jurisdiction to entertain a controversy arising from the non-
implementation of a dacion en pago agreed upon by the parties as a means of settlement of
private respondents’ liabilities.
Ruling: The pertinent provision of law detailing the jurisdiction of the Commission is
Section 5(a) of R.A. No. 1161, as amended by R.A. No. 8282, otherwise known as the Social
Security Act of 1997, to wit:
SEC. 5. Settlement of Disputes.– (a) Any dispute arising under this Act with respect
to coverage, benefits, contributions and penalties thereon or any other matter
related thereto, shall be cognizable by the Commission, and any case filed with
respect thereto shall be heard by the Commission, or any of its members, or by
hearing officers duly authorized by the Commission and decided within the
mandatory period of twenty (20) days after the submission of the evidence. The
filing, determination and settlement of disputes shall be governed by the rules and
regulations promulgated by the Commission.
The law clearly vests upon the Commission jurisdiction over "disputes arising under this
Act with respect to coverage, benefits, contributions and penalties thereon or any matter
related thereto..." Dispute is defined as "a conflict or controversy
there is no longer any dispute with respect to respondents’ accountability to the SSS.
Respondents had, in fact, admitted their delinquency and offered to settle them by way
of dacion en pago subsequently approved by the SSS
This statement unequivocally evinces its consent to the dacion en pago
Dacion en pago is the delivery and transmission of ownership of a thing by the
debtor to the creditor as an accepted equivalent of the performance of the
obligation. It is a special mode of payment where the debtor offers another thing to
the creditor who accepts it as equivalent of payment of an outstanding debt. The
undertaking really partakes in one sense of the nature of sale, that is the creditor
is really buying the thing or property of the debtor, payment for which is to be
charged against the debtor’s debt. As such, the essential elements of a contract of
sale, namely, consent, object certain, and cause or consideration must be present.
In its modern concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of the contract of sale,
while the debt is considered as the purchase price.
The controversy, instead, lies in the non-implementation of the approved and
agreed dacion en pago on the part of the SSS. As such, respondents filed a suit to obtain
its enforcement which is, doubtless, a suit for specific performance and one incapable of
pecuniary estimation beyond the competence of the Commission.
In fine, the Court finds the decision of the Court of Appeals in accord with law and
jurisprudence.
WHEREFORE, the petition is DENIED.
LO VS. KJS
G.R. No. 149420, October 8, 2003
FACTS:Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in
the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business under Sans
Enterprises, is a building contractor. Lo ordered scaffolding equipment from KJS worth
P540,425.80. He paid a down payment in the amount of P150,000.00. The balance was
made payable in ten monthly instalments.
KJS delivered the scaffoldings to Lo. Lo was able to pay the first two monthly instalments.
His business, however, encountered financial difficulties and he was unable to settle his
obligation to KJS despite oral and written demands made against him.
Lo and KJS executed a Deed of Assignment whereby Lo assigned to KJS his receivables in
the amount of P335,462.14 from Jomero Realty Corporation.
However, when KJS tried to collect the said credit from Jomero Realty Corporation, the
latter refused to honor the Deed of Assignment because it claimed that Lo was also
indebted to it.Subsequently, KJS sent a letter to Lo demanding payment of his obligation,
but he refused to pay claiming that his obligation had been extinguished when they
executed the Deed of Assignment.
Consequently, KJS filed an action for recovery of a sum of money against Lo before the
RTC. Lo argued that his obligation was extinguished with the execution of the Deed of
Assignment of credit. KJS, for its part, presented the testimony of its employee,
AlmedaBaaga, who testified that Jomero Realty refused to honor the assignment of credit
because it claimed that Lo had an outstanding indebtedness to it.
RTC dismissed the complaint on the ground that the assignment of credit extinguished the
obligation. CA reversed the decision. In finding that the Deed of Assignment did not
extinguish the obligation of the petitioner to the respondent, the CA held that (1) petitioner
failed to comply with his warranty under the Deed; (2) the object of the Deed did not exist
at the time of the transaction, rendering it void pursuant to Article 1409 of the Civil Code;
and (3) petitioner violated the terms of the Deed of Assignment when he failed to execute
and do all acts and deeds as shall be necessary to effectually enable the respondent to
recover the collectibles.
ISSUE: Whether or not the deed of assignment extinguished Lo’s obligations.
HELD:No.An assignment of credit is an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor, transfers his credit and accessory rights
to another, known as the assignee, who acquires the power to enforce it to the same extent
as the assignor could enforce it against the debtor.
Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers
another thing to the creditor who accepts it as equivalent of payment of an outstanding
debt. In order that there be a valid dation in payment, the following are the requisites:
(1) There must be the performance of the prestation in lieu of payment
(animosolvendi) which may consist in the delivery of a corporeal thing or a real
right or a credit against the third person;
(2) There must be some difference between the prestation due and that which is given
in substitution (aliud pro alio)
(3) There must be an agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a prestation different
from that due.
The undertaking really partakes in one sense of the nature of sale, that is, the creditor is
really buying the thing or property of the debtor, payment for which is to be charged
against the debtor’s debt. As such, the vendor in good faith shall be responsible, for the
existence and legality of the credit at the time of the sale but not for the solvency of the
debtor, in specified circumstances.
Hence, it may well be that the assignment of credit, which is in the nature of a sale of
personal property, produced the effects of a dation in payment which may extinguish the
obligation. However, as in any other contract of sale, the vendor or assignor is bound by
certain warranties. More specifically, the first paragraph of Article 1628 of the Civil Code
provides:
The vendor in good faith shall be responsible for the existence and legality of the credit at
the time of the sale, unless it should have been sold as doubtful; but not for the solvency of
the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to
the sale and of common knowledge.
From the above provision, petitioner, as vendor or assignor, is bound to warrant the
existence and legality of the credit at the time of the sale or assignment. When Jomero
Realty claimed that it was no longer indebted to Lo since the latter also had an unpaid
obligation to it, it essentially meant that its obligation to Lo has been extinguished by
compensation. In other words, KJS alleged the non-existence of the credit and asserted its
claim to Lo’s warranty under the assignment. Therefore, it behooved on Lo to make good its
warranty and paid the obligation.
Furthermore, we find that Lo breached his obligation under the Deed of Assignment.
Indeed, by warranting the existence of the credit, petitioner should be deemed to have
ensured the performance thereof in case the same is later found to be inexistent. He
should be held liable to pay to respondent the amount of his indebtedness.
Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay respondent
the sum of P335,462.14 with legal interest thereon.
Lo vs KJS
LO v KJS ECO-FRAMEWORK SYSTEM PHIL INC G.R. NO 149420 (2003)
FACTS: Respondent KJS Eco-Framework System is a corporation engaged in the sale of
steel scaffoldings, while petitioner Sonny Lo, doing business under the name of San’s
Enterprises, is a building contractor.
1. In February 1990, petitioner ordered scaffolding equipments from the respondent
amounting to P540, 425.80. He paid a down payment of P150,000 and the balance was to
be paid in 10 monthly installments
2. However, Lo was only able to pay the first 2 monthly installments due to financial
difficulties despite demands from the respondent
3. In October 1990, petitioner and respondent executed a deed of assignment whereby
petitioner assigned to respondent his receivables of P335,462.14 from Jomero Realty Corp
4. But when respondent tried to collect the said credit from Jomero Realty Corp, the
latter refused to honor the deed of assignment because it claimed that the petitioner was
also indebted to it. As such, KJS sent Lo a demand letter but the latter refused to pay,
claiming that his obligation had been extinguished when they executed the deed of
assignment
5. Subsequently, respondent filed an action for recovery of sum of money against
petitioner.
6. Petitioner argued that his obligation was extinguished with the execution of the deed
of assignment of credit. Respondent alleged that Jomero Realty Corp refused to honor the
deed of assignment because it claimed that the petitioner had outstanding indebtedness to
it
7. The trial court dismissed the complaint on the ground that the assignment of credit
extinguished the obligation
8. Upon appeal, CA reversed the trial court decision and held in favor of KJS. CA held
that
a. Petitioner failed to comply with his warranty under the deed
b. The object of the deed did not exist at the time of the transaction, rendering it void
under Art 1409 NCC
c. Petitioner violated the terms of the deed of assignment when he failed to execute and
do all acts necessary to effectually enable the respondent to recover the collectibles
ISSUE: WON the deed of assignment extinguished the petitioner’s obligation
HELD: No, the petitioner’s obligation was not extinguished with the execution of the deed
of assignment.
An assignment of credit is an agreement by virtue of which the owner of a credit, known as
the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and
without the consent of the debtor, transfers his credit and accessory rights to another,
known as the assignee, who acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor.
In dacion en pago, as a special mode of payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding debt. In order that
there be a valid dation in payment, the following are the requisites: (1) There must be the
performance of the prestation in lieu of payment (animosolvendi) which may consist in the
delivery of a corporeal thing or a real right or a credit against the third person; (2) There
must be some difference between the prestation due and that which is given in
substitution (aliud pro alio); (3) There must be an agreement between the creditor and
debtor that the obligation is immediately extinguished by reason of the performance of a
prestation different from that due. The undertaking really partakes in one sense of the
nature of sale, that is, the creditor is really buying the thing or property of the debtor,
payment for which is to be charged against the debtor’s debt. As such, the vendor in good
faith shall be responsible, for the existence and legality of the credit at the time of the sale
but not for the solvency of the debtor, in specified circumstances.
Hence, it may well be that the assignment of credit, which is in the nature of a sale of
personal property, produced the effects of a dation in payment which may extinguish the
obligation. However, as in any other contract of sale, the vendor or assignor is bound by
certain warranties. More specifically, the first paragraph of Article 1628 of the Civil Code
provides:
The vendor in good faith shall be responsible for the existence and legality of the credit at
the time of the sale, unless it should have been sold as doubtful; but not for the solvency of
the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to
the sale and of common knowledge.
From the above provision, petitioner, as vendor or assignor, is bound to warrant the
existence and legality of the credit at the time of the sale or assignment. When Jomero
claimed that it was no longer indebted to petitioner since the latter also had an unpaid
obligation to it, it essentially meant that its obligation to petitioner has been extinguished
by compensation. In other words, respondent alleged the non-existence of the credit and
asserted its claim to petitioner’s warranty under the assignment. Therefore, it necessary
for the petitioner to make good its warranty and pay the obligation.
Furthermore, the petitioner breached his obligation under the Deed of Assignment, to
execute and do all such further acts and deeds as shall be reasonably necessary to
effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in
accordance with the true intent and meaning of these presents.
Indeed, by warranting the existence of the credit, petitioner should be deemed to have
ensured the performance thereof in case the same is later found to be inexistent. He
should be held liable to pay to respondent the amount of his indebtedness.
Lo vs. KJS Eco-Formwork System Phil., Inc (2003)– “Dacion en pago case” Lo is
building contractor doing business under the name “San’s Enterprises”. On
February 1990, Lo ordered P540,425.80 worth of scaffolding equipments from KJS.
Lo paid P150,000 as downpayment and the balance was made payable in 10
monthly installments. KJS delivered the scaffoldings to the Lo, but Lo was only able
to pay the first 2 monthly installments as his business encountered financial
difficulties and he was unable to settle his obligation to respondent despite oral and
written demands made against him. On, October 1990 petitioner and respondent
executed a Deed of Assignment where Lo assigned to KJS his receivables in the
amount of P335,462.14 from Jomero Realty Corporation. However, when KJS tried
to collect the credit from Jomero Realty, the latter refused to honor the DOA because
it claimed that petitioner was also indebted to it. When KJS demanded from Lo the
payment of his obligation, Lo refused to pay claiming that his obligation have been
extinguished when they executed the DOA.
Was the obligation to pay extinguished by the DOA?
NO. The assignment of credit, which is in the nature of a sale of personal property,
produced the effects of a dation in payment which may extinguish the obligation.
However, as in any contract of sale, the vendor or assignor is bound by certain
warranties. The petitioner, as vendor/assignor, is bound to warrant the existence
and legality of the credit at the time of the sale or assignment. When Jomero claimed
that it was no longer indebted to Lo because of debt compensation, Lo have breached
his obligation under the DOA in warranting the existence of the credit.
NOTES
An assignment by virtue of which the owner of a credit, known as the assignor, by
legal cause, such as sale, dacion en pago, exchange or donation and without the
consent of the debtor, transfers his credit and accessory rights to another, known
as the assignee, who acquires the power to enforce it to the same as the assignor
could enforce it against the debtor.
Dacion en pago, as a special mode of payment, the debtor offers another thing to
the creditor who accepts it as equivalent payment of an outstanding debt. The
undertaking really partakes in one sense the nature of sale, that is, the creditor is
really buying the thing or property of the debtor as payment for which to be
charged against the debtor’s debt.
Requisites of a valid dation in payment there must be:
1. performance of the prestation in lieu of payment (animo solvendi) which may
consist in the delivery of a corporeal thing or a real right or a credit against
the third person
2. some difference between the prestation due and that which is given in
substitution (aliud pro alio)
3. anagreement between the creditor that the obligation is immediately
extinguished by reason of a prestation different from that due.
PNB vs. PINEDA
G.R. No. L-46658, May 13, 1991
FACTS: In 1963, Ignacio and Lourdes Arroyo (spouses Arroyo) obtained a loan of
P580,000.00 from PNB to purchase 60% of the subscribed capital stock, and thereby
acquire the controlling interest of private respondent Tayabas Cement Company, Inc.
(TCC).Spouses Arroyo executed a real estate mortgage over a parcel of land (La Vista
property) as security for the said loan.
Thereafter, TCC filed with PNB an application and agreement for the establishment of an 8
year deferred letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of
Tokyo, Japan, to cover the importation of a cement plant machinery and equipment.
Upon approval of said application and opening of an L/C by PNB in favor of Toyo Menka
Kaisha, Ltd. for the account of TCC, the Arroyo spouses executed documents (Surety
Agreement and Covenant) to secure the loan accommodation.
The imported cement plant machinery and equipment arrived from Japan and were
released to TCC under a trust receipt agreement. Toyo Menka Kaisha made the
corresponding drawings against the L/C as scheduled. TCC, however, failed to remit
and/or pay the amount covered by the drawings. Thus, PNB notified TCC of its intention to
repossess the imported machinery and equipment for failure of TCC to settle its obligations
under the L/C.
In the meantime, the personal accounts of the spouses Arroyo, which included another
loan of P160,000.00 secured by a real estate mortgage over Hacienda Bacon located in
Isabela, Negros Occidental, had likewise become due. The spouses Arroyo failed to satisfy
their obligations with PNB and the latter decided to foreclose the real estate mortgages.
At the auction sale of the La Vista Property, PNB was the highest bidder with a bid price of
P1,000,001.00. However, when said property was about to be awarded to PNB, the
representative of the mortgagor-spouses objected and demanded from the PNB the
difference between the bid price of P1,000,001.00 and the indebtedness of P499,060.25 of
the Arroyo spouses on their personal account. It was the contention of the spouses
Arroyo's representative that the foreclosure proceedings referred only to the personal
account of the mortgagor spouses without reference to the account of TCC.
To remedy the situation, PNB filed a supplemental petition requesting the Sheriff's Office to
proceed with the sale of the subject real properties to satisfy not only the amount of
P499,060.25 owed by the spouses Arroyos on their personal account but also the amount
of P35,019,901.49 owed by said spouses as sureties of TCC. Said petition was opposed by
the spouses Arroyo and the other bidderAraneta.
PNB filed a petition for mandamus to compel the sheriff to proceed with the foreclosure
sale of the mortgaged properties and the petition was granted. However, TCC filed a
complaint against PNBto restrain the foreclosure of the mortgages over the said properties
as well as a declaration that its obligation with PNB had been fully paid by reason of the
latter's repossession of the imported machinery and equipment.
ISSUE: Whether or not TCC's liability has been extinguished by the repossession of PNB of
the imported cement plant machinery and equipment and whether or not the repossession
amounts to dacion en pago.
HELD: No. It must be remembered that PNB took possession of the imported cement plant
machinery and equipment pursuant to the trust receipt agreement executed by PNB and
TCC giving the former the unqualified right to the possession and disposal of all property
shipped under the Letter of Credit until such time as all the liabilities and obligations
under said letter had been discharged.
PNB's possession of the subject machinery and equipment being precisely as a form of
security for the advances given to TCC under the Letter of Credit, said possession by itself
cannot be considered payment of the loan secured thereby. Payment would legally result
only after PNB had foreclosed on said securities, sold the same and applied the proceeds
thereof to TCC's loan obligation. Mere possession does not amount to foreclosure for
foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the
mortgagor on the property and includes the sale itself.
Neither can said repossession amount to dacion en pago. Dation in payment takes
place when property is alienated to the creditor in satisfaction of a debt in money
and the same is governed by sales. Dation in payment is the delivery and
transmission of ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation. As aforesaid, the repossession of the
machinery and equipment in question was merely to secure the payment of TCC's
loan obligation and not for the purpose of transferring ownership thereof to PNB in
satisfaction of said loan. Thus, no dacion en pago was ever accomplished.
Proceeding from this finding, PNB has the right to foreclose the mortgages executed by the
spouses Arroyo as sureties of TCC. A surety is considered in law as being the same party
as the debtor in relation to whatever is adjudged touching the obligation of the latter, and
their liabilities are interwoven as to be inseparable. As sureties, the Arroyo spouses are
primarily liable as original promissors and are bound immediately to pay the creditor the
amount outstanding.
AQUINTEY v. SPOUSES TIBONG Case Digest
AQUINTEY v. SPOUSES TIBONG
G.R. No. 166704,December 20, 2006
FACTS: On May 6, 1999, petitioner Aquintey filed before RTC Baguio, a complaint for sum
of money and damages against respondents. Agrifina alleged that Felicidad secured loans
from her on several occasions at monthly interest rates of 6% to 7%. Despite demands,
spouses Tibong failed to pay their outstanding loans of P773,000,00 exclusive of interests.
However, spouses Tiong alleged that they had executed deeds of assignment in favor of
Agrifina amounting to P546,459 and that their debtors had executed promissory notes in
favor of Agrifina. Spouses insisted that by virtue of these documents, Agrifina became the
new collector of their debts. Agrifina was able to collect the total amount of P301,000 from
Felicdad’s debtors. She tried to collect the balance of Felicidad and when the latter reneged
on her promise, Agrifina filed a complaint in the office of the barangay for the collection of
P773,000.00. There was no settlement. RTC favored Agrifina. Court of Appeals affirmed the
decision with modification ordering defendant to pay the balance of total indebtedness in
the amount of P51,341,00 plus 6% per month.
ISSUE: Whether or not the deeds of assignment in favor of petitioner has the effect of
payment of the original obligation that would partially extinguish the same
RULING: Substitution of the person of the debtor ay be affected by delegacion. Meaning,
the debtor offers, the creditor accepts a third person who consent of the substitution and
assumes the obligation. It is necessary that the old debtor be released fro the obligation
and the third person or new debtor takes his place in the relation . Without such release,
there is no novation. Court of Appeals correctly found that the respondent’s obligation to
pay the balance of their account with petitioner was extinguished pro tanto by the deeds of
credit. CA decision is affirmed with the modification that the principal amount of the
respondents is P33,841.
Case Background
- Spouses Felicidad and Rico Tibong (Respondents) secured several loans from
Agrifina Aquintey (Petitioner) at monthly interest rates of 6% to 7%.
- Despite demands, the respondents failed to pay their outstanding loan, amounting
to 773,000php
- Respondent issued a check to the petitioner for an amount of 50,000php that was
dishonoured. Respondent was ordered by the court to pay the amount and did so.
 - Petitioner presented copies of the promissory notes and acknowledgement receipts
executed by respondents covering the loaned amounts.
- Petitioner stated that she had lost the receipts signed by respondent for the Determine if the decision of the Supreme Court is in accordance to the principles of
following amounts: 100,000php, 34,000php, and 2,000. fairness, equity and justice.
- Respondents admitted that they had secured loans from petitioner and the
proceeds of the loan were then re-lent to other borrowers at higher interest rates.
- Respondents specifically denied the material averments in paragraph 2 and 2.1 of
the complaint. However, they did not state the total amount of their loans and
Areas for Consideration (codals, other sc decisions)
declared that they did not receive anything from petitioner without any receipt.
- Petitioner sought the assistance of Atty. A-ayo who advised her to require
respondent to execute deeds of assignment over respondent’s debtors. Rule 8, SEC. 10 Specific Denial - A defendant must specify each material allegation of fact
- Atty. A-ayo also suggested that respondent’s debtors execute promissory notes in the truth of which he does not admit and, whenever practicable, shall set forth the
petitioner’s favour, to “turn over” their loans from respondent. substance of the matters upon which he relies to support his denial. Where a defendant
- Petitioner agreed to the proposal and petitioner, respondent, and the respondent’s desires to deny only a part of an averment, he shall specify so much of it as is true and
debtors had a conference where Atty. A-ayo explained that petitioner could apply material and shall deny only the remainder. Where a defendant is without knowledge or
her collections as payments of the respondent’s account. information sufficient to form a belief as to the truth of a material averment made in the
- Respondent executed deeds of assignment of credits notarized by Atty. A-ayo, in complaint, he shall so state, and this shall have the effect of a denial.
which respondent transferred and assigned to petitioner.
- Petitioner tried to collect the balance on respondent’s account but respondent told SEC. 11 Allegations not specifically denied deemed admitted. – Material averment in the
her to wait until her debtors had money. complaint, other than those as to the amount of unliquidated damages, shall be deemed
- When respondent reneged on her promise, petitioner filed a complaint for the
admitted when not specifically denied. Allegations of usury in a complaint to recover
collection of 773,000php.
- The Court of Appeals found that 585,659php was covered by the deeds of usurious interest are deemed admitted if not denied under oath. (Rules of Civil Procedure)
assignment and promissory notes.
- Respondent’s other debtors were able to pay 103,500php to the petitioner.

The answer should be so definite and certain in its allegations that the pleader’s adversary
Statement of the Problem should not be left in doubt as to what is admitted, what is denied, and what is covered by
denials of knowledge as sufficient to form a brief. (Kirchmam vs. Eschman, 127 N.E. 328)

Whether the obligation of the respondents to pay the balance of their loans, including
interest, was partially extinguished of the deeds of assignment in favour of petitioner. Art. 1245 Dation in payment, whereby property is alienated to the creditor in satisfaction
of a debt in money, shall be governed by the law of sales. (Civil Code of the Philippines)

Objectives
Dation in payment is the delivery and the transmission of ownership of a thing by the
debtor to the creditor as an accepted equivalent of the performance of the obligation. –
Novation by change of the object. (2 Castan 525; 8 Manresa 324; Filinvest Credit
Determine the total amount of the loan. Corporation vs. Philippine Acetylene Co., 111 SCRA 421)

Determine if the respondent’s obligation is extinguished by novation or dation in payment

The theory of novation is that the new debtor contracts with the old debtor that he will pay
(dacion en pago)
the debt, and also to the same effect with the creditor, while the latter agrees to accept the
new debtor for the old. A novation is not made by showing that the substituted debtor
agreed to pay the debt; it must appear that he agreed with the creditor to do so. Moreover,
the agreement must be based on the consideration of the creditor's agreement to look to
the new debtor instead of the old. It is not essential that acceptance of the terms of the
novation and release of the debtor be shown by express agreement. Facts and
circumstances surrounding the transaction and the subsequent conduct of the parties
may show acceptance as clearly as an express agreement, albeit implied [City National
Bank of Huron, S.D. v. Fuller 52 F.2d 870.; Babst v. Court of Appeals, 403 Phil. 244, 259-
260 (2001)]
An assignment of credit is an agreement by virtue of which the owner of a credit, known as
the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and
without the consent of the debtor, transfers his credit and accessory rights to another,
known as the assignee, who acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor. (Manila Banking Corporation v. Teodoro, Jr.,
G.R. No. 53955, January 13, 1989, 169 SCRA 95, 102. See also Lo v. KJS Eco-Formwork
System Phil., Inc., 459 Phil. 532, 539 (2003); Project Builders, Inc. v. Court of Appeals, 411
Phil. 264, 273 (2001); Rodriguez v. Court of Appeals, G.R. No. 84220, March 25, 1992, 207
SCRA 553, 558; and Nyco Sales Corp. v. BA Finance Corp., G.R. No. 71694, August 16,
1991, 200 SCRA 637, 641.)
The requisites for dacion en pago are: (1) there must be a performance of the prestation in
lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a
real right or a credit against the third person; (2) there must be some difference between
the prestation due and that which is given in substitution (aliud pro alio); and (3) there
must be an agreement between the creditor and debtor that the obligation is immediately
extinguished by reason of the performance of a prestation different from that due. (Lo v.
KJS Eco-Formwork System Phil., Inc., 459 Phil. 532, 539)
In an assignment of credit, the consent of the debtor is not essential for its perfection; the
knowledge thereof or lack of it affecting only the efficaciousness or inefficaciousness of any
payment that might have been made. The assignment binds the debtor upon acquiring
knowledge of the assignment but he is entitled, even then, to raise against the assignee the
same defenses he could set up against the assignor. [National Investment and
Development Co. v. De Los Angeles, No. L-30150, August 31, 1971, 40 SCRA 487, 496
(1971)]
Even if the debtor had not been notified, but came to know of the assignment by whatever
means, the debtor is bound by it. If the document of assignment is public, it is evidence
even against a third person of the facts which gave rise to its execution and of the date of
the latter. (Tolentino, Civil Code of the Philippines, Vol. V, 1959 ed., pp. 168-1969)
Case law is that, an assignment will, ordinarily, be interpreted or construed in accordance
with the rules of construction governing contracts generally, the primary object being
always to ascertain and carry out the intention of the parties. This intention is to be
derived from a consideration of the whole instrument, all parts of which should be given
effect, and is to be sought in the words and language employed. (GA C.J.S. Assignments, p.
709)
Art. 1291 Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (Civil Code of the
Philippines)
Unlike other modes of extinction of obligations, novation is a juridical act of dual function
in that at the time it extinguishes an obligation it creates a new one in lieu of the old.
(Government vs. Bautista, (C.A.) 37 Off. Gaz., 1880; Pascual vs. Lacsamana (S.C.) 53 Off.
Gaz. 2467, April, 1957; 2 Castan 566)
No specific form is required for an implied novation. All that is required is incompatibility
between the original and the subsequent contracts. (Cojuanco vs. Gonzales, 49 Off. Gaz.
3866, Sept. 1953; De Lina vs. Malasarte, G.R. No. L-2374, Sept. 21, 1950; Millar vs. Court
of Appeals, et al., G.R. No. L-29981, April 30, 1971; RCPI vs. Secretary of Labor, 169 SCRA
38)
Art. 1293. Novation which consists in substituting a new debtor in place of the original
one, may be made even without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor gives him the rights
mentioned in articles 1236 and 1237. (Civil Code of the Philippines)

The two forms of this novation are the expromision and delegacion. In the expromision, the
initiative for the change does not emanate from the debtor and may be even without his
knowledge, since it consists in a third person assuming the obligation. It logically requires
the consent of this third person and the creditor. In delegacion, the debtor offers and the
creditor accepts a third person who consents to the substitution, so that the consent of
these three is necessary. (Tolentino, Civil Code of the Philippines, Vol. IV, 1991 ed., p. 390;
Manresa 436-437)
the amount that has been paid by the respondents’ debtors because she would benefit
from this arrangement at the expense of the respondents which is deemed unjust.
The recommendation from the group for both parties is to keep things in writing when
entering into an agreement. As in their case, Felicidad is claiming that she entered into a
money-lending agreement with Agrifina which the latter expressly denied. If a written
agreement with all the provisions of the partnership has been signed by both parties prior
to the commencement of the business then the intervention of the Supreme Court could
have been avoided.

Alternative Courses of Action (uphold & reversal, sc decision, basis of disagreements, Filinvest vs. Philippine Acetylene
“substance” not

GR No. L-50449
a. Uphold the decision of the Supreme Court
- The total amount of the loan is 773,000php as alleged by petitioner and deemed Date: January 30, 1982
admitted by the respondent.
- The obligation is extinguished upon the assignment of debt, however, it was
intended by both parties that the amounts due from respondents' debtors were
intended to "make good in part" the account of respondents Nature:
- The respondents therefore still have a balance of 33,841

b. Reverse the decision of the Supreme Court Consolidated petition for review of the decision of the Court of Appeals

Conclusion and Recommendation

Facts:

The group upholds the decision of the Supreme Court to oblige the respondents Felicidad
and Rico Tibong to pay the remaining balance of Php 33,841.It follows a crucial concept Philippine Acetylene Co. purchased from Alexander Lim a motor vehicle for P55K to be
that law should be based on fairness, justice and equity. The respondents are obligated to paid in installments. As security for the payment of said promissory note, the appellant
pay Agrifina the debt they acquired from her. However, since deed of assignments had been executed a chattel mortgage over the same motor vehicle in favor of said Alexander Lim.
assigned to the debtors of the respondents and the respondents also remitted payments to Then, Lim assigned to the Filinvest all his rights, title, and interests in the promissory note
Agrifina, total amount collected from them must be deducted from the total outstanding and chattel mortgage by virtue of a Deed of Assignment.
debt of the respondents. Therefore, the Supreme Court’s decision to deny the petition of
Agrifina to collect the orginal debt amounting of Php 773,000 from the respondent is fair
and equitable. As mentioned in the case, the petitioner cannot collect from the respondents
 Phil Acetylene defaulted in the payment of nine successive installments. When Filinvest
sent a demand letter, Phil Acetylene wrote back of its desire to return the mortgaged
property, which return shall be in full satisfaction of its indebtedness. Thus, the vehicle
was returned to the Filinvest. However,they failed to sell the motor vehicle, as there were
unpaid taxes on the said vehicle. Filinvest requested the appellant to update its account by
paying the installments in arrears and accruing interest. They also offered to deliver back
the motor vehicle to the appellant but the latter refused to accept it, so appellee instituted
an action for collection of a sum of money with damages.
Accordng toPhil Acetylene, the delivery of the motor vehicle to Filinvest extinguished its
money obligation as it amounted to a dation in payment. Assuming arguendo that the
return did not extinguish, it was justified in refusing payment since the appellee is not
entitled to recover the same due to the breach of warranty committed by the original
vendor-assignor Alexander Lim.
Issues
WON there was dation in payment that extinguished Phil Acetylene’s obligation?
Held & Rationale
No. The mere return of the mortgaged motor vehicle by the mortgagor does not constitute
dation in payment in the absence, express or implied of the true intention of the parties.
Dacion en pago is the transmission of the ownership of a thing by the debtor to the creditor
as an accepted equivalent of the performance of obligation. In dacion, the debtor offers
another thing to the creditor who accepts it as equivalent of payment of an outstanding
debt. The undertaking really partakes in one sense of the nature of sale, that is, the
creditor is really buying the thing or property of the debtor, payment for which is to be
charged against the debtor’s debt. As such, the essential elements of a contract of sale,
namely, consent, object certain, and cause or consideration must be present.
In this case, the evidence on the record fails to show that the Filinvest consented to the
mortgaged motor vehicle be construed as actual payment, more specifically dation in
payment or dacion en pago. The fact that the mortgaged motor vehicle was delivered to him
does not necessarily mean that ownership thereof, as juridically contemplated by dacion en
pago, was transferred from appellant to appellee. In the absence of clear consent of
appellee to the preferred special mode of payment, there can be no transfer of ownership of
the mortgaged motor vehicle from appellant to appellee. If at all, only transfer of possession
of the mortgaged motor vehicle took place, for it is quite possible that appellee, as
mortgagee, merely wanted to secure possession to forestall the loss, destruction,
fraudulent transfer of the vehicle to third persons, or its being rendered valueless if left in
the hands of the appellant.
Filinvest Credit Corporation v. Philippine Acetylene Co., Inc. L-50449 January 30, 1982
MARCH 16, 2014LEAVE A COMMENT
The mere return of the mortgaged motor vehicle by the mortgagor does not constitute dation
in payment in the absence, express or implied of the true intention of the parties. Dacion en
pago is the transmission of the ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of obligation.
Facts: Philippine Acetylene Co., Inc., purchased from one Alexander Lim, as evidenced by a
Deed of Sale marked as Exhibit G, a motor vehicle described as Chevorlet, 1969 model
with Serial No. 136699Z303652 for P55,247.80 with a down payment of P20,000.00 and
the balance of P35,247.80 payable, under the terms and conditions of the promissory note
thirty-four (34) monthly installments. As security for the payment of said promissory note,
the appellant executed a chattel mortgage over the same motor vehicle in favor of
Alexander Lim. Subsequently, on November 2, 1971. Alexander Lim assigned to the
Filinvest Finance Corporation all his rights, title, and interests in the promissory note and
chattel mortgage by virtue of a Deed of Assignment.
Thereafter, the Filinvest Finance Corporation, as a consequence of its merger with the
Credit and Development Corporation assigned to the new corporation, the herein plaintiff-
appellee Filinvest Credit Corporation, all its rights, title, and interests on the aforesaid
promissory note and chattel mortgage.
Upon failing to pay, Filinvest Credit Corporation sent a demand letter instructing the
mortgagor that “return the mortgaged property, which return shall be in full satisfaction of
its indebtedness pursuant to Article 1484 of the New Civil Code.” Lim subsequently
returned the vehicle.
Issue: Whether or not the return of the vehicle bars the foreclosure of the chattel mortgage
Held: No. Filinvest did not consented, or at least intended, that the mere delivery to, and
acceptance by him, of the mortgaged motor vehicle be construed as actual payment, more
specifically dation in payment or dacion en pago. The fact that the mortgaged motor vehicle
was delivered to Filinvest does not necessarily mean that ownership thereof, as juridically
contemplated by dacion en pago, was transferred from appellant to appellee.

The mere return of the mortgaged motor vehicle by the mortgagor does not constitute
dation in payment in the absence, express or implied of the true intention of the parties.
Dacion en pago is the transmission of the ownership of a thing by the debtor to the creditor
as an accepted equivalent of the performance of obligation.

In the absence of clear consent of appellee to the proferred special mode of payment, there
can be no transfer of ownership of the mortgaged motor vehicle from appellant to appellee.
If at all, only transfer of possession of the mortgaged motor vehicle took place, for it is quite
possible that appellee, as mortgagee, merely wanted to secure possession to forestall the
loss, destruction, fraudulent transfer of the vehicle to third persons, or its being rendered
valueless if left in the hands of the appellant.