DACION EN PAGO

Phil Lawin bus co vs CA

FACTS: Advance capital corp extended a loan to Lawin, who executed a promissory note for the
loan. As security, Lawin executed a Deed of Chattel Mortgage over 9 units of buses in favor of
Advance. A portion was paid out of the first loan, so Lawin was able to avail of a second loan
and Lawin executed a second promissory note. For failure to pay the two loans, Lawin was
granted a loan restructuring, but Lawin still failed to pay despite this. So the mortgaged buses
were foreclosed by Advance, who was the sole bidder. Despite demands from Advance, Lawin
still failed to pay. Advance filed a suit for sum of money against Lawin, who countered that the
loan was already settled because the proceeds from the foreclosure of the mortgaged buses will
be credited against the loan amount as full payment thereof.

ISSUE:Whether there was dacion en pago between the parties upon the surrender or transfer of
the mortgaged buses to the respondent

RULING: NO. there was no. dacion en pago between the parties.
According to jurisprudence, 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 the obligation is
considered the object of the contract of sale, while the debt is considered as the purchase price.
Common consent is an essential prerequisite, be it sale or novation, to have the effect of totally
extinguishing the debt or obligation.

In this case, respondent executed receipts that there was an agreement that delivery of the buses
would extinguish Lawin's obligation. However, said receipts do not reflect the intention of the
parties that ownership of the buses would be complete and absolute. The agreement was that the
proceeds from the foreclosure would be applied in payment of Lawin’s indebtedness to Advance.
The agreement then was in the nature of an agency where Lawin deemed Advance as their agent
in the foreclosure and the proceeds from which are applied to Lawin's debt. This agreement
does not have the element of transfer of ownership over the buses to Advance, like a sale.
Meaning, their agreement was not in the nature of dacion en pago wherein Advance bought the
buses (as the object of the contract of sale) with the debt as the purchase price.

As a conclusion, where machinery and equipment were repossessed to secure the payment of a
loan obligation and not for the purpose of transferring ownership thereof to the creditor in
satisfaction of said loan, no dacion pago is accomplished (as held in Philippine National Bank
vs. Pineda).