FACTS:
On May 13, 1887, Juan N. Pasaporte was indebted to Petronila Espino in the sum of P2,705. To guarantee this debt, Pasaporte executed two contracts: Exhibit A (a special mortgage) on certain parcels of land for P745 with interest, and Exhibit B (a venta con pacto de retro or sale with right of repurchase) on other properties for P1,960.

On July 20, 1894, Pasaporte and Espino had a settlement, finding Pasaporte still indebted for P2,000. On the same day, Pasaporte executed Exhibit 1, acknowledging the P2,000 debt and promising to pay in installments over four years. This contract explicitly stipulated in Clause 2 that if the debt was not paid by the deadline, previous payments would be considered damages, “and the mortgage existing upon the properties mentioned in the two instruments shall be executed in accordance with the stipulations therein made, and he will return, without any objection, all that has been enumerated.”

On August 15, 1898, the indebtedness not having been fully paid, Pasaporte executed Exhibit 2, a contract by which he “conveys and delivers” specific lands, a mill, and other personal properties to Espino. The contract further stipulated that certain personal property (ten carabaos, one bull, and three carts) would be delivered by Pasaporte later, once the animals recovered and carts were repaired.

Sometime after this, Petronila Espino died, and Domingo Marin became the administrator of her estate. Juan N. Pasaporte subsequently filed a complaint seeking to recover the properties, alleging the transactions were not absolute sales but rather security arrangements. Domingo Marin, as administrator, contended that the delivery of property on August 15, 1898, was in absolute payment of the debt, thus extinguishing the obligation and making Espino the absolute owner. Marin also counterclaimed for the value of the personal property that Pasaporte failed to deliver.

The Court of First Instance ruled in favor of Marin, holding that the delivery of the property on August 15, 1898, was intended as an absolute payment of the indebtedness. The lower court also found that Pasaporte had failed to deliver the carts and a bull, valued at P95, and ordered him to pay this amount. Juan N. Pasaporte appealed the decision.

ISSUE:
Whether the delivery of properties by Juan N. Pasaporte to Petronila Espino under the August 15, 1898 contract (Exhibit 2), construed with the preceding agreements, constituted an absolute payment of the debt (dation in payment), thereby extinguishing the debt and transferring ownership to Espino, or merely a continuation of the prior security arrangements.

RULING:
The Supreme Court AFFIRMED the decision of the lower court.

The Court held that, when Exhibits A and B (original mortgage and pacto de retro), and Exhibits 1 and 2 (the subsequent contracts) were considered together, it was the clear intention of Juan N. Pasaporte at the time he delivered the property to Petronila Espino under the August 15, 1898 contract, that said property should be in absolute payment of his indebtedness. The Court noted that Clause 2 of the July 20, 1894 contract (Exhibit 1) explicitly stated that upon default, “the mortgage existing upon the properties mentioned in the two instruments shall be executed… and he will return, without any objection, all that has been enumerated.” This provision clearly indicated a conversion from a mere security arrangement to a dation in payment (delivery of property in satisfaction of debt) upon Pasaporte’s failure to pay.

Therefore, the delivery of the properties on August 15, 1898, effectively transferred absolute ownership to Petronila Espino (and her estate). Consequently, Juan N. Pasaporte was liable for his failure to deliver the remaining personal property (the carts and a bull) as promised, and the lower court’s judgment for P95 was upheld.