DIGEST: Dacion en Pago (dation in payment)

Legal Principle: Dacion en Pago

Dacion en pago is a special mode of payment whereby the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding obligation. The undertaking is really one of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. It is only when the thing offered as an equivalent is accepted by the creditor that novation takes place, thereby, totally extinguishing the debt.

Annulment of an Extrajudicial Foreclosure of Mortgage

SPOUSES FLORANTE E. JONSAY AND LUZVIMINDA L. JONSAY AND MOMARCO IMPORT CO., INC.,
vs.
SOLIDBANK CORPORATION (NOW METROPOLITAN BANK AND TRUST COMPANY)

G.R. No. 206459

Third Division

April 6, 2016

Reyes, J.

Facts:

     Momarco, controlled and owned by the Sps. Jonsay, obtained loans from Solidbank amounting to P 60 million from 1995 to 1997. The loans were secured by a mortgage over 3 parcels of land in Laguna.

   Despite repeated demands, Momarco failed to pay its debt. So on March 1999, Solidbank proceeded to extrajudicially foreclose the mortgage. Momarco tried to offer payment thru dacion en pago before the foreclosure but Solidbank refused. Momarco now prays for damages claiming that the foreclosure was exercised in bad faith.

Issue:

     Whether Solidbanks refusal to accept payment thru dacion en pago constitutes bad faith.

Ruling:

     No. The SC held that the refusal of Solidbank does not constitute bad faith.

     The SC held that the Sps. Jonsay and Momarco shall be liable in the amount of P67,551,216.78 as computed with their stipulated interest rate to Solidbank. But the Solidbank (now MBTC) ordered to pay the the petitioners the amount of P14,100,271.05, representing the excess of its auction bid over the total loan obligation due from the petitioners, plus interest.

     According to the SC, on the question of the petitioners' failed proposal to extinguish their loan obligations by way of dacion en pago, no bad faith can be imputed to Solidbank for refusing the offered settlement as to render itself liable for moral and exemplary damages after opting to extrajudicially foreclose on the mortgage. In Tecnogas Philippines Manufacturing Corporation v. Philippine National Bank, the Court held:

Dacion en pago is a special mode of payment whereby the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding obligation. The undertaking is really one of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. It is only when the thing offered as an equivalent is accepted by the creditor that novation takes place, thereby, totally extinguishing the debt.

     On the first issue, the Court of Appeals did not err in ruling that Tecnogas has no clear legal right to an injunctive relief because its proposal to pay by way of dacion en pago did not extinguish its obligation. Undeniably, Tecnogas' proposal to pay by way of dacion en pago was not accepted by PNB. Thus, the unaccepted proposal neither novates the parties' mortgage contract nor suspends its execution as there was no meeting of the minds between the parties on whether the loan will be extinguished by way of dacion en pago. Necessarily, upon Tecnogas' default in its obligations, the foreclosure of the REM becomes a matter of right on the part of PNB, for such is the purpose of requiring security for the loans.