Filinvest Credit Corp. vs. Phil. Acetylene Co., Inc.

No. L-50449
Plaintiff-appellee: FILINVEST CREDIT CORPORATION
Defendant-appellant: PHILIPPINE ACETELYNE, CO., INC.
Ponente: De Castro, J.

January 30, 1962

DATION IN PAYMENT
Facts:
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October 30, 1971: defendant purchased from one Alexander Lim (with corresponding deed of
sale) a motor vehicle (Chevrolet, 1969 model) for P55,247.80 with down payment of P20,000.00
and the balance of P35,247.80 to be paid as follows (promissory note):
o At a monthly installment of P1,036.70 for 34 mos, due and payable on the first day of
each month from December 1971 to September 1974.
o 12% interest per annum on each unpaid installment + attorneys fees equivalent to 25%
of the total of the outstanding unpaid amount.
o As a security for payment, defendant executed a chattel mortgage over the same motor
vehicle in favor of Alexander Lim.
November 2, 1971: Alexander Lim assigned to Filinvest Finance Corporation all his rights, title
and interests in the said promissory note by virtue of a Deed of Assignment. Consequently,
through a merger, said corporation assigned to plaintiff (new corporation resulting from merge)
all the rights to the promissory note and chattel mortgage.
Defendant defaulted in the payment of 9 successive installments. Plaintiff then sent a demand
letter saying that defendant should either remit the aforesaid amount in full in addition to
stipulated interest and charges or return the mortgaged property Defendant chose to return the
mortgaged property, with corresponding document Voluntary Surrender with Special Power of
Attorney to Sell.
April 4: 1973: Plaintiff wrote to defendant saying that they cannot sell the property since there
were unpaid taxes on the said vehicle amounting to P70,122.00. The former then requested that
the latter update its account by paying the installments in arrears + accruing interest on or before
April 9, 1973. Plaintiff offered to return the vehicle to defendant, but defendant refused. Plaintiff
then instituted an action for collection of a sum of money with damages in the CFI of Manila on
September 14, 1973.
In its answer, defendant avers that plaintiff has no cause of action since its obligation towards the
plaintiff was extinguished when it returned the vehicle to the latter, in compliance with the
demand letter. Assuming arguendo that said return did not extinguish the obligation, defendant
was still justified in refusing because Alexander Lim purportedly committed a breach of warranty.
CFI of Manila decision: 1. Defendant pay plaintiff the outstanding unpaid obligation with the
interest; 2. Plaintiff to deliver to defendant (and for the latter to accept) the motor vehicle. In
short, CFI ruled in favor of plaintiff.
On appeal, CA determined that what the case instituted was a pure question of law, so transferred
to SC.

Issues/Held:

WoN the return of the mortgaged vehicle to the plaintiff extinguished the obligationNO
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Defendant: construed the return and acceptance by plaintiff of the mortgaged vehicle as dation or
dacion en pago which, according to defendant, made the plaintiff the owner of vehicle.
SC: The mere return of the mortgaged vehicle to the plaintiff does not constitute dation in
payment in the absence of the expressed or implied true intention of the parties.
o Manresa: Dation = the transmission of the ownership of a thing by debtor to creditor as
an accepted equivalent of the performance of an obligation.
o In dation, the creditor is really buying the thing or property of debtor, payment for which
is to be charged against the debtors debt (debt = purchase price).
o As such, the essential elements of sale (consent, object certain and cause or
consideration) must be present.
Evidence failed to show that plaintiff consented or intended that the mere delivery of the property
would be construed as actual payment or dation in payment.
o For example, the plaintiff might have just wanted to secure the possession of the
mortgage. In the absence of clear consent of appellee, mere delivery and acceptance of
such cannot be considered as dation.
A close look at the document Voluntary Surrender with Special Power of Attorney to Sell reveals
that the plaintiff, in essence, was only a mere agent in selling the vehicle, and that the owner was
still the defendant. The mortgaged motor vehicle was delivered not as the property of plaintiff, for
if it were, the latter would have had the full power of disposition over it, not just an authority to
sell. Nowhere in the document was it established that the mere surrender of the vehicle
extinguished the obligation of the defendant.
Argument of estoppel then wont prosper; plaintiff never accepted the mortgage in full
satisfaction of the obligation. This means that plaintiff is warranted in demanding payment of the
unpaid obligation.

WoN the liability for the unpaid taxes is shifted to the plaintiff (because it stepped into the shoes of
Alexander Lim, whom the defendant accused of breach of contract)NO
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There is a provision in the Deed of Assignment between Alexander Lim and plaintiff which states
that if there are such counterclaims, offsets or defenses that may be interposed by the debtor at
the time of assignment, such (counterclaims, offsets or defenses) shall not prejudice the
FILINVEST FINANCE CORPORATION and I (Alexander Lim) further warrant and hold the said
corporation free and harmless from any such claimsthat may be availed of. Plaintiff is as free
as a butterfly.
Also, the SC noted that unpaid taxes are burden on the property. Since technically defendant is
still the owner of the vehicle, it falls upon it to pay for suchnot without remedy under the law,
but certainly not against plaintiff.

Judgment Affirmed