Philippine Lawin Bus Co. v. Court of Appeals
REITERATIONFacts
The Antecedents: Advance Capital Corporation (ACC) extended a loan of P8,000,000.00 to Philippine Lawin Bus Company (LAWIN), evidenced by a Credit Agreement and Promissory Note No. 003. LAWIN executed a Deed of Chattel Mortgage over nine buses and provided joint and several undertakings from Master Tours and Travel Corporation and the Tan siblings (Marciano, Isidro, Esteban, and Henry) to guarantee payment. LAWIN paid P1,800,000.00 of the loan. Subsequently, LAWIN obtained an additional loan of P2,000,000.00 under Promissory Note No. 00028, which was renewed on December 3, 1990, as Promissory Note No. 00037, due on February 1, 1991. LAWIN failed to pay. On May 15, 1991, LAWIN was granted a loan restructuring for two months, maturing on July 31, 1991. Despite this, LAWIN failed to pay. ACC foreclosed the mortgaged buses, and as the sole bidder, the amount of P2,000,000.00 was credited to LAWIN's account. On May 27, 1992, ACC sent demand letters for the outstanding obligation, which totaled P16,484,992.42 as of July 31, 1992. ACC filed a suit for sum of money. Procedural History: The defendants asserted that there was an arrangement for the full settlement of the loan through the sale of the buses or by ACC shouldering the rehabilitation costs, with earnings applied to the loan. They claimed the foreclosure sale violated this arrangement and prayed for its nullification. The Regional Trial Court (RTC) dismissed the complaint, declared the foreclosure sale null and void, and extinguished the defendants' obligation. ACC appealed to the Court of Appeals (CA). The CA reversed the RTC decision, ordering the defendants to pay ACC the principal obligation, loss of goodwill, attorney's fees, and litigation expenses. The Petition: Petitioners seek review of the CA decision, raising the issue of whether there was dacion en pago upon the surrender of the mortgaged buses.
Issue(s)
Whether there was dacion en pago between the parties upon the surrender or transfer of the mortgaged buses to the respondent. Whether the Court of Appeals erred in reversing the decision of the trial court.
Ruling
The Court denies the petition and affirms the decision of the Court of Appeals with modification. The dispositive portion of the CA decision is modified to order the defendants-appellees to pay, jointly and severally, plaintiff-appellant Advance Capital Corp. the principal obligation under the two promissory notes plus 12% per annum interest from the finality of the decision until fully paid, and P50,000.00 as attorney's fees and costs of suit. All other monetary awards are deleted.
Ratio Decidendi
On the issue of dacion en pago: The Court held that there was no dacion en pago because there was no meeting of the minds between the parties on the transfer of ownership of the buses in satisfaction of the debt. The petitioners' claim was based on the testimony of Marciano Tan that he proposed to extinguish the obligation by surrendering the buses. However, the receipts executed by ACC's representative did not reflect an intention for complete and absolute transfer of ownership. Instead, the receipts indicated that the buses were delivered to ACC for the purpose of selling them, with the proceeds to be applied to the petitioners' indebtedness. This arrangement established ACC as an agent for the sale of the vehicles, not as a buyer acquiring ownership in satisfaction of the debt. Such an agreement negates the transfer of absolute ownership required in a sale or dacion en pago. The Court reiterated the principle that in dacion en pago, property is alienated to the creditor in satisfaction of a debt in money, and it requires consent, a certain object, and a cause or consideration, akin to a contract of sale. The Court cited Filinvest Credit Corporation v. Philippine Acetylene Co., Inc., emphasizing that common consent is essential for dacion en pago to extinguish the debt. The Court further relied on Philippine National Bank v. Pineda, where it was held that repossession of machinery and equipment to secure payment of a loan, rather than for the purpose of transferring ownership, did not constitute dacion en pago. Therefore, the delivery of the buses to ACC was merely for the purpose of sale, and not in extinguishment of the debt through dacion en pago. The provided text does not contain any ratio decidendi related to whether the Court of Appeals erred in reversing the decision of the trial court. Therefore, no ratio can be provided for this issue.
Main Doctrine
For dacion en pago to be valid, there must be a meeting of the minds between the parties on the transfer of ownership of the property in satisfaction of the debt. If the property is delivered to the creditor merely for the purpose of sale, with the proceeds to be applied to the debt, it does not constitute dacion en pago but rather an agency to sell.