GR 130972; (January, 2002) (Digest)
G.R. No. 130972 ; January 23, 2002
PHILIPPINE LAWIN BUS, CO., MASTER TOURS & TRAVEL CORP., MARCIANO TAN, ISIDRO TAN, ESTEBAN TAN and HENRY TAN, petitioners, vs. COURT OF APPEALS and ADVANCE CAPITAL CORPORATION, respondents.
FACTS
Petitioner Philippine Lawin Bus Company obtained loans from respondent Advance Capital Corporation, evidenced by promissory notes and secured by a chattel mortgage on several buses and joint undertakings by the corporate and individual petitioners. After Lawin defaulted, Advance Capital foreclosed on the mortgaged buses, purchasing them at auction for P2,000,000, which was credited to Lawin’s account. Advance Capital then filed a suit to recover the remaining balance.
The petitioners’ main defense was that an alternative arrangement for full settlement had been reached, either through a sale of the buses or a rehabilitation scheme where Advance Capital would operate them, applying the earnings to the loan. They argued this constituted a dacion en pago (deed of sale in payment), extinguishing the obligation. The trial court agreed, dismissing the complaint and declaring the debt extinguished and the foreclosure sale void.
ISSUE
Whether the surrender of the mortgaged buses to the creditor constituted a dacion en pago that extinguished the petitioners’ loan obligation.
RULING
No. The Supreme Court affirmed the Court of Appeals’ reversal of the trial court but modified the monetary awards. The legal logic is that dacion en pago is a special form of payment where property is alienated to the creditor in satisfaction of a debt. For it to exist, there must be a clear agreement between the parties that the property is being accepted as an equivalent of the monetary obligation. The Court found no such meeting of the minds.
The mere act of foreclosure and the creditor’s subsequent acquisition of the property at the public auction do not, by themselves, constitute dacion en pago. Foreclosure is a separate legal remedy for enforcing the chattel mortgage, not a consensual substitution of obligation. The petitioners failed to present conclusive evidence of a perfected agreement where Advance Capital consented to accept the buses as full and complete payment. The alleged “arrangements” were merely proposals or negotiations that did not crystallize into a binding contract. Consequently, the foreclosure sale was valid, and the credit from the auction price was correctly applied, but the outstanding balance remained a collectible obligation. The awards for damages and attorney’s fees were reduced for being excessive.