Filinvest Credit Corp. v. Phil. Acetylene Co., Inc. G.R. No.

L-50449, January 30, 1982

SUMMARY: Phil. Acetylene bought from Alexander Lim a motor vehicle payable under the terms and conditions of a
promissory note at a monthly installment of 34 months. As security for the payment of said promissory note, Phil.
Acetylene executed a chattel mortgage in favor of Lim, who assigned to Filinvest Credit all his rights, title, and interests
in the promissory note and chattel mortgage.
Phil. Acetylene failed to pay nine successive installments; hence Filinvest informed Phil. Acetylene to choose between
making the full payment of the price and returning the motor vehicle. Phil. Acetylene chose the latter. However,
Filinvest cannot sell the property so it offered to deliver back the vehicle to Phil. Acetylene but the latter refused to
accept it. Thus, Filinvest filed an action for collection of money with damages in the CFI of Manila.
ISSUE: W/N the return of the mortgaged motor vehicle to Filinvest by virtue of voluntary surrender totally extinguished
and/or cancelled the obligation
RULING: No. No dacion en pago in the present case because Filinvest did not consent that the mere delivery of the
motor vehicle be construed as actual payment. What was surrendered by Phil. Acetylene was the possession of the
said motor vehicle, according to the document “Voluntary Surrender with SPA to Sell” authorizing Filinvest to sell the
vehicle in behalf of Phil. Acetylene who retains ownership thereof.

FACTS: interests in the promissory note and chattel mortgage

The Philippine Acetylene Co., Inc. purchased from one
Alexander Lim, as evidenced by a Deed of Sale, a motor
vehicle described as Chevrolet, 1969 model, for
₱55,247.80 with a downpayment of ₱20,000.00 and the
balance of ₱35,247.80 payable under the terms and
conditions of a promissory note at a monthly installment
of ₱1,036.70 for 34 months.
As security for the payment of said promissory note, Phil.
Acetylene executed a chattel mortgage over the same
motor vehicle in favor of Lim. Subsequently, Lim
assigned to Filinvest Finance Corp. all its rights, title, and
which subsequently assigned it to Filinvest Credit Corp.
Phil. Acetylene failed to comply with the terms and
conditions in the promissory note and chattel mortgage
when it failed to pay nine successive installments.
Filinvest through a demand letter informed Phil.
Acetylene to make the full payment plus interests and
charges or return the motor vehicle. Phil. Acetylene
chose the latter; as a result, it returned the vehicle
together with the document “Voluntary Surrender with
Special Power of Attorney To Sell” executed by Phil.
Acetylene and confirmed to by Filinvest’s vice president.
Filinvest informed Phil. Acetylene that it cannot sell the
property due to its unpaid taxes on the said vehicle.
Filinvest requested Phil. Acetylene to update its account
by paying the installments in arrears and accruing
interest. Filinvest, in a letter, offered to deliver back the
vehicle to Phil. Acetylene but the latter refused to accept
it. Hence, Filinvest filed an action for collection of a sum
of money with damages in the CFI of Manila.
Phil. Acetylene argued that Filinvest has no cause of
action against it since its obligation towards Filinvest was
extinguished when it returned the motor vehicle. It
construed the return to and acceptance by Filinvest of the
mortgaged motor vehicle as a mode of payment,
specifically, dacion en pago which virtually made Filinvest
the owner of such vehicle by the mere delivery thereof.
The CFI of Manila ruled in favor of Filinvest, ordering (1)
Phil. Acetylene to pay Filinvest the outstanding unpaid
obligation with the interest; (2) Filinvest to deliver to Phil.
Acetylene (and for the latter to accept) the motor vehicle.
On appeal, the CA determined that what the case
instituted was a pure question of law.
ISSUES:
1. W/N the return of the mortgaged motor vehicle to
Filinvest by virtue of voluntary surrender totally
extinguished and/or cancelled the obligation
2. W/N Filinvest, by accepting the delivery of the
mortgaged motor vehicle, is estopped from demanding
payment of the unpaid debt
3. W/N the warranty for the unpaid taxes on the
mortgaged motor vehicle may be properly raised and
imputed to or passes over to Filinvest
RULING:
1. No. Dacion en pago is the transmission of the
ownership of a thing by a debtor to a creditor as accepted
equivalent of the performance of an obligation. In dacion
en pago, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of
an outstanding debt. The undertaking partakes of a
sale – the creditor is buying the thing or property of the
debtor, and the payment for which is to be charged
against the debtor’s debt. As such, the essential
elements of a contract of sale (i.e., consent, object
certain, and cause or consideration) must be present.
What actually took 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. In this case, consent is an essential
prerequisite to extinguish the debt or obligation.
Here, there’s no dacion en pago because Filinvest did not
consent, or at least intend, that the mere delivery to, and
acceptance by it, of the mortgaged motor vehicle be
construed as actual payment, more specifically dacion en
pago. The fact that the said motor vehicle was
delivered to it does not necessarily mean that
ownership was transferred. In the absence of clear
consent of Filinvest to the delivery, there can be no
transfer of ownership of the motor vehicle from Phil. or defenses that may be interpreted by the debtor at the
Acetylene to Filinvest. time of the assignment, such counterclaims, offsets or
defenses shall not prejudice the FILINVEST FINANCE
Finally, the “Voluntary Surrender with SPA to Sell”
CORPORATION AND I (Alexander Lim) further warrant
executed by Phil. Acetylene reveals that the possession
and hold the corporation free and harmless from any
of the motor vehicle was voluntarily surrendered by Phil.
such claims, offsets, or defenses that may be availed of.”
Acetylene to Filinvest authorizing the latter to look for a
buyer and sell the vehicle in behalf of the former who
retains ownership thereof, and to apply the proceeds of
the sale to the mortgage debt, with the undertaking of
Phil. Acetylene to pay the difference between the selling
price and the mortgage debt. In essence, Filinvest was
constituted as a mere agent to sell the motor vehicle.
2. No. Filinvest never accepted the mortgaged motor
vehicle in full satisfaction of the debt, Under the law, the
delivery of possession of the mortgaged property to
Filinvest can only operate to extinguish Phil. Acetylene’s
liability if Filinvest had actually caused the foreclosure
sake of the mortgaged property when it recovered
possession thereof. It is the fact of foreclosure and actual
sale of the mortgaged property that bar the recovery by
the vendor of any balance of the purchaser’s outstanding
debt. If the vendor desisted, on his own initiative, from
consummating the auction sale, such desistance was a
timely disavowal of the remedy of foreclosure, and the
vendor can still sue for specific performance.
3. No. the Deed of Sale between Alexander Lim and Phil.
Acetylene and the Deed of Assignment between Lim and
Filinvest are very clear on this point: if it appears
subsequently that “there are such counterclaims, offsets