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Luzon Development Bank vs. Angeles Catherine Angeles 168646 and G.R. No.

168666, January 12, 2011

G.R. No.

Facts: Delta, a corporation engaged in the business of developing and selling real estate properties, obtained an P8 million loan from Luzon Development Bank. To secure the loan, Delta mortgaged several of its properties to the said bank, including Lot 4 in its subdivision Delta Homes I in Cavite. Meanwhile, Delta executed a Contract to Sell with Angeles Catherine Enriquez over the house and lot in Lot 4, agreeing that upon full payment, Delta shall execute a final deed of sale in favor of Enriquez. Delta defaulted on its loan obligation with the Bank. The Bank, instead of foreclosing the mortgage, agreed to a dation in payment. Unknown to Enriquez, among the properties assigned to the Bank was the house and lot of Lot 4, the subject of her Contract to Sell with Delta. The Bank claimed ownership over Lot 4 by virtue of the dation in payment, but Delta insisted that it could not do so because Delta had earlier relinquished its ownership over the property in favor of Enriquez via the Contract to Sell, which must be honored. The Bank argued that the Contract to Sell did not involve a conveyance of Deltas ownership over Lot 4 to Enriquez, given that the contract expressly provided that Enriquez would only gain ownership upon full payment of the purchase price, which she had not yet done. The Bank posited that Delta retained ownership over the lot and could validly convey it to the Bank through dation in payment. Issue: Whether or not the dation in payment extinguished the loan obligation, such that Delta has no more obligations to the Bank. Held: The Supreme Court held that the dation in payment extinguished the loan obligation, freeing Delta from its obligations to the Bank. 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. The dation in payment executed by Delta and the Bank indicated a clear intention by the parties that the assigned properties would serve as full payment for Deltas entire obligation. Without any reservation or condition, the dation in payment entered into by the parties stated that the assigned properties served as full payment of Deltas total obligation to the Bank. The Bank accepted the properties as equivalent of the loaned amount and as full satisfaction of Deltas debt. The Bank cannot complain if, as it turned out, some of those assigned properties (such as Lot 4) were covered by existing contracts to sell. The Bank, in accepting the assigned properties as full payment of Deltas total obligation, assumed the risk that some of the assigned properties are covered by contracts to sell, which must be honored.