FACTS:
Philippine Acetylene Co., Inc., defendant-appellant, purchased from one Alexander Lim, a motor vehicle the full payment thereof was under the terms and conditions of a promissory note.
As security for the payment, the appellant executed a chattel mortgage over the same motor vehicle in favor of Lim. Subsequently, Lim assigned to the Filinvest all his rights, title, and interests in the promissory note and chattel mortgage by virtue of a Deed of Assignment
Filinvest, as a consequence of its merger with the Credit and Development Corp., assigned to the new corporation, (herein plaintiff-appellee Filinvest Credit Corporation) all its rights, title, and interests on the aforesaid promissory note and chattel mortgage.
In effect, the payment of the unpaid balance owed by defendant-appellant to Lim was financed by plaintiff-appellee such that Lim became fully paid.
Appellant defaulted in the payment of nine successive installments. Appellee then sent a demand letter to pay the amount in full with interest and charges or to return the mortgaged property.
Appellant advised appellee of its decision to “return the mortgaged property, which return shall be in full satisfaction of its indebtedness pursuant to Article 1484 of the New Civil Code.”
Appellee 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.
In its answer, appellant, while admitting the material allegations of the appellee’s complaint, avers that appellee has no cause of action against it since its obligation towards the appellee was extinguished when in compliance with the appellee’s demand letter, it returned the mortgaged property to the appellee.
ISSUE:
Whether or not the return of the mortgaged motor vehicle to the appellee by virtue of its voluntary surrender by the appellant totally extinguished and/or cancelled its obligation to the appellee.
RULING:
The mere return of the mortgaged motor vehicle by the mortgagor, the herein appellant, to the mortgagee, the herein appellee, does not constitute dation in payment or dacion en pago in the absence, express or implied of the true intention of the parties.
Dacion en pago, according to Manresa, 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 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 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 innovation to have the effect of totally extinguishing the debt or obligation.