LDB v ENRIQUEZ

FACTS:

Delta Development and Management Services (Delta) entered into a loan with Luzon Development Bank
(Bank), secured by a Real Estate Mortgage. The REM was amended to include a bigger sum loaned from
the bank. The proceeds of the loan were applied to Delta project of developing a subdivision. It
subsequently entered into a contract to sell with Angeles Enriquez (Enriquez) over one of the subdivision
lots. Enriquez was able to pay around half of the value of the property. Subsequently, Delta was unable
to pay for the loan it took with the bank, but instead of letting the bank foreclose on the mortgaged
properties, it entered into a dacionen pago (dation in payment) where it turned over property to the
bank.

The property subject to the contract to sell with Enriquez was included in the dation. Enriquez protested
the transaction through the regional office of the HLURB. She is asking for a refund of the purchase price
pointing out that, the agreed upon amount exceeded the limit prescribed by PD 957, or The Subdivision
and Condominium Buyer Protective Decree, and that the mortgage Delta entered into was invalid per
PD 957. The HLURB ruled in favor of Enriquez, but did not approve a refund. Instead, it reduced the
balance due for the property. Delta appealed the ruling, and was able to get a better ruling from the
commissioner.

The Office of the President affirmed the ruling. However, when Enriquez appealed to the Court of
Appeals, the CA invalidated the dation, saying that Delta lost ownership over the property of Enriquez
and could not have validly conveyed the same. Delta and the Bank come before the Supreme Court to
question the ruling. The Bank is also asking for the liability of Delta if it loses one of the properties to
Enriquez.

ISSUE:

Was the dacion en pago valid?

Is Delta liable to the Bank should Enriquez gain ownership of the property?

RULING:

The mortgage entered into by Delta and the Bank is void for violation of PD 957. However, this does not,
in any way, invalidate the dacion en pago. The CA erred when it ruled that Delta lost ownership over the
property subject of the contract to sell. The very nature of a contract to sell is that the ownership vests
upon full payment of the purchase price. Hence there was no impediment in the dacion. Delta cannot be
held liable should Enriquez gain ownership over the land. The effect of the dacion is that the Bank
becomes a party in the contract to sell with Enriquez, replacing Delta. Enriquez now owes the Bank the
balance of the purchase price of the property. It is the intention of the dacion to extinguish the
obligation of Delta in exchange for properties. There are no other conditions. Also, as a financial
institution, the Bank should have exercised greater diligence. It cannot claim to be a transferee in good
faith. However, Enriquez is liable for the amount agreed upon. The agreement was done in good faith,
and Enriquez agreed to the contract price. It cannot be challenged anymore.

Contracts; Sales; Dacion en Pago; 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.—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.” 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 obligation.

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
waivable and cannot be invoked if the buyer knew of the risks or danger of eviction and assumed its
consequences. 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.