Unperfected deal

Dacion en pago is one of the modes of extinguishing an obligation. It partakes of the nature of a contract of sale whereby the property is alienated to the creditor in satisfaction of a debt in money. So it must have all the essential requisites of a contract of sale. This is illustrated in this case of the spouses Rey and Linda.

Rey and Linda obtained loans from a bank (DHB) amounting to P11 million and to secure their payment, the spouses mortgaged their two parcels of land located in Fairview, Quezon City containing areas of 569 and 537 square meters respectively. The loan was payable in installments for 12 months, but as of 2000, Rey and Linda failed to settle their outstanding obligation.

Hence they instead verbally offered to cede to DHB one of the two mortgaged lots by way of dacion en pago. To appraise the value of the lands DHB commissioned an appraiser whose fees were shouldered by it and the couple.

After the appraisal, no further action was taken by any of the parties until DHB wrote the couple on August 18, 2000 demanding settlement of their obligation then amounting P10,385,109.92 inclusive of interests and other charges.

Since Rey and Linda failed to heed the demand, DHB foreclosed the mortgage wherein the two parcels were sold for P10,776,242 to another universal bank (BOUB) as the highest bidder.

Thereafter, the couple negotiated for the redemption of the properties. In response to their proposal, BOUB to which DHB was merged wrote them on June 29, 2001 fixing a redemption price of P11.5 million plus 12 percent interest payable in staggered payments up to January 2, 2002.

Nothing was heard from Rey and Linda, hence BOUB advised them that in view of their failure to conform to the conditions for the redemption, it would proceed to consolidate titles immediately after the expiration of the redemption period on January 2, 2002.

Six days before January 2, 2002 however, Rey and Linda filed a complaint before the Regional Trial Court (RTC) praying for annulment of the foreclosure 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. The couple claimed that DHB verbally agreed to enter into a dacion en pago as in fact they delivered the titles to the properties and the bank had them appraised wherein they even shared in the appraisal expenses. Will their suit prosper?

No. 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 the object of the contract of sale while the debt is considered the purchase price. In any case, the essential requisites of common consent of the parties and object or cause of the obligation must concur and be established to have the effect of totally extinguishing the debt or obligation.

In this case, there is no concrete showing that after the appraisal of the properties, DHB approved the couple’s proposal to settle their obligation via dacion en pago. The delivery to it 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 the property is not delivered, there is nothing to prevent the mortgagor from again mortgaging it or even selling it to a third party.

Finally, the couple did not also deny proposing to redeem the mortgages as reflected in the bank’s letter to them on June 29, 2001. This fact dooms their claim of the existence of a perfected dacion en pago. (Dao Heng Bank Inc. etc vs. Spouse Laigo, G.R. 173856, November 20, 2008).

Note: Books containing compilation of my articles on Labor Law and Criminal Law (Vols. I and II) are now available. Call tel. 7249445.

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