G.R. No. 178537 ; February 11, 2008
SPS. RAFAEL P. ESTANISLAO AND ZENAIDA ESTANISLAO, petitioners, vs. EAST WEST BANKING CORPORATION, respondent.

FACTS

Petitioners obtained a loan from respondent bank, secured by two separate chattel mortgages covering different sets of heavy equipment. Upon default, the bank filed a replevin suit for the equipment under the first mortgage. During court-suspended negotiations for settlement, the parties drafted a Deed of Assignment wherein petitioners would assign three specific units of equipment to the bank “in full payment” of their total indebtedness. Petitioners signed the deed and subsequently delivered all three units, which the bank accepted without protest. The bank’s representative, however, never signed the document.
Subsequently, the bank filed an amended complaint seeking to recover two additional units covered by the second chattel mortgage, claiming the omission was an inadvertent error and that the petitioners’ debt remained unpaid. Petitioners contended that the execution and consummation of the Deed of Assignment, followed by the delivery and acceptance of the equipment, constituted a dation in payment that extinguished their entire obligation. The Regional Trial Court dismissed the amended complaint, ruling the obligation was satisfied, but the Court of Appeals reversed, ordering petitioners to pay the outstanding balance.

ISSUE

Whether the Deed of Assignment, coupled with the delivery and acceptance of the chattels, constituted a perfected dation in payment that extinguished petitioners’ entire loan obligation, thereby barring the bank’s amended complaint for replevin.

RULING

Yes. The Supreme Court reinstated the trial court’s decision, holding that the obligation was extinguished by dation in payment. The Court clarified that a contract is perfected by mere consent, and from that moment, the parties are bound to fulfill what has been expressly stipulated. The Deed of Assignment clearly stipulated that the assignment was “in full payment” of the petitioners’ aggregate debt. Although the bank’s representative did not sign the deed, the bank’s voluntary acceptance of the delivery of all three assigned pieces of equipment, without any qualification or protest, constituted a clear concurrence to the terms and perfected the agreement. This acceptance amounted to a consummated dation in payment (Article 1245, Civil Code), where the property was transmitted to the creditor as an accepted equivalent of the obligation.
Consequently, the principal loan obligation was extinguished. A chattel mortgage is merely an accessory contract; its validity depends on the existence of a valid principal obligation. Since the principal obligation was satisfied, the second chattel mortgage securing it ceased to have effect. Therefore, the bank’s amended complaint for replevin, which was based on that extinguished accessory contract, had no legal basis and was correctly dismissed by the trial court.