Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.

173856 November 20, 2008

%. Redemption price shall be P11.5MM plus %(B interest based on diminishing balance payable in staggered payments up to =anuary (# (88( as follo&s@ a. P3MM C immediately upon receipt of this approval b. !alance payable in staggered payments (plus interest) up to =anuary (# (88( (. Release >alues for Partial Redemption@ a. T6T ,o. *((1. (along 6ommon&ealth) P..188 MMD b. T6T ,o. ,C%;+()* (along Regalado) P;.888 MMD D e7cluding %(B interest 3. 'ther 6onditions@ a. Payments shall be covered by post dated chec"s b. T6T ,o. *((1. shall be the first property to be released upon payment of the first P..1MM plus interest c. -rrangement to be covered by an -greement $f you are agreeable to the foregoing terms and conditions# please affi7 your signature sho&ing your conformity thereto at the space provided belo&. (/mphasis and underscoring in the originalE italics supplied) ,othing &as heard from respondents# hence# petitioner by its Manager# Property Management ? 6redit Services Department# advised her by letter of December (+# (88%3 that in vie& of their failure to conform to the conditions set by it for the redemption of the properties# it &ould proceed to consolidate the titles immediately after the e7piration of the redemption period on =anuary (# (88(. Si7 days before the e7piration of the redemption period or on December (.# (88%# respondents filed a complaint before the Regional Trial 6ourt (RT6) of 4ue5on 6ity# for -nnulment# $n:unction &ith Prayer for Temporary Restraining 'rder (TR')# praying for the annulment of the foreclosure of the properties sub:ect of the real estate mortgages and for them to be allo&ed 0to deliver by &ay of Fdacion en pago9 one of the mortgaged properties as full payment of GtheirH mortgaged obligation0 and to# in the meantime# issue a TR' directing the defendantCherein petitioner to desist from consolidating o&nership over their properties. !y respondents9 claim# Dao eng verbally agreed to enter into a dacion en pago. $n its 'pposition to respondents9 -pplication for a TR'#; petitioner claimed that there &as no meeting of the minds bet&een the parties on the settlement of respondents9 loan via dacion en pago.

D O !ENG " N#, INC., $o% " NCO DE ORO UNIVERS & " N#, petitioner vs. SPS. &I&I '$( RE)N &DO & IGO, respondent. DECISION C RPIO MOR &ES, J.* The Spouses Lilia and Reynaldo Laigo (respondents) obtained loans from Dao eng !an"# $nc. (Dao eng) in the total amount of P%% Million# to secure the payment of &hich they forged on 'ctober ()# %**+# ,ovember %)# %**+ and -pril %)# %**. three Real /state Mortgages covering t&o parcels of land registered in the name of respondent 0Lilia D. Laigo# . . . married to Reynaldo Laigo#0 one containing 1+* s2uare meters and the other containing 13. s2uare meters. The mortgages &ere duly registered in the Registry of Deeds of 4ue5on 6ity. The loans &ere payable &ithin %( months from the e7ecution of the promissory notes covering the loans. -s of (888# respondents failed to settle their outstanding obligation# dra&ing them to verbally offer to cede to Dao eng one of the t&o mortgaged lots by &ay of dacion en pago. To appraise the value of the mortgaged lands# Dao eng in fact commissioned an appraiser &hose fees &ere shouldered by it and respondents. There appears to have been no further action ta"en by the parties after the appraisal of the properties. Dao eng &as later to demand the settlement of respondents9 obligation by letter of -ugust %)# (888%&herein it indicated that they had an outstanding obligation of P%8#3)1#%8*.*( inclusive of interests and other charges. Respondents failed to heed the demand# ho&ever. Dao eng thereupon filed in September (888 an application to foreclose the real estate mortgages e7ecuted by respondents. The properties sub:ect of the mortgage &ere sold for P%8#..+#(;( at a public auction conducted on December (8# (888 to !anco de 'ro <niversal !an" (hereafter petitioner) &hich &as the highest bidder. $t appears that respondents negotiated for the redemption of the mortgages for by a =une (*# (88% letter(to them# petitioner# to &hich Dao eng had been merged# through its >ice President on Property Management ? 6redit Services Department# advised respondent Lilia Laigo as follo&s@ This is to formally advise you of the ban"9s response to your proposal pertaining to the redemption of the t&o (() foreclosed lots located in Aairvie&# 4ue5on 6ity as has been relayed to you last =une %3# (88% as follo&s@

- hearing on the application for a TR' &as conducted by !ranch (%1 of the RT6 of 4ue5on 6ity follo&ing &hich it denied the same. Petitioner thereupon filed a Motion to Dismiss the complaint on the ground that the claim on &hich respondents9 action is founded is unenforceable under the Statute of Arauds and the complaint states no cause of action. Respondents opposed the motion# contending that their delivery of the titles to the mortgaged properties constituted partial performance of their obligation under the dacion en pago to ta"e it out from the coverage of the Statute of Arauds. The trial court granted petitioner9s Motion to Dismiss in this &ise@ GPHlaintiffs9 claim must be based on a document or &riting evidencing the alleged dacion en pago# other&ise# the same cannot be enforced in an action in court. The 6ourt is not persuaded by plaintiffs9 contention that their case is an e7ception to the operation of the rule on statute of frauds because of their partial performance of the obligation in the dacion en pago consisting of the delivery of the titles of the properties to the defendants. -s correctly pointed out by the defendants#the +,+-e. %ere $o+ (e-,vere( +o +/em 01r.1'$+ +o +/e dacion en pago b1+ b2 re'.o$ o3 +/e e4e51+,o$ o3 +/e mor+6'6e -o'$ '6reeme$+. $f indeed a dacion en pago agreement &as entered into bet&een the parties# it is inconceivable that a &ritten document &ould not be drafted considering the magnitude of the amount involved.1 (/mphasis and underscoring supplied) Respondents assailed the dismissal of their complaint via Petition for Revie& before this 6ourt &hich referred it to the 6ourt of -ppeals for disposition. Reversing the trial court9s dismissal of the complaint# the appellate court# by Decision of =anuary (+# (88+#+ reinstated respondents9 complaint.. $n ordering the reinstatement of respondents9 complaint# the appellate court held that the complaint states a cause of action# respondents having alleged that there &as partial performance of the agreement to settle their obligation via dacion en pago &hen they agreed to have the properties appraised to thus place their agreement &ithin the e7ceptions provided under -rticle %;83) of the 6ivil 6ode on Statute of Arauds. Thus the appellate court ratiocinated@ Particularly# in see"ing e7ception to the application of the Statute of Arauds# petitionersGCherein respondentsH averred partial performance of the supposed verbal dacion en pago. $n paragraph 1 of their complaint# they stated@ 0-s part of the agreement# defendant Dao eng !an" had the mortgaged property appraised to determine &hich of the t&o shall be delivered as full payment of the mortgage obligationE -lso as part of the deal# plaintiffs for their part paid P1#888.88 for the appraisal e7pense. -s reported by the appraiser commissioned by Defendant Dao eng# the appraised value of the mortgaged properties &ere as follo&s@ 7 7 70 aving done so# petitioners are at least entitled to a reasonable opportunity to prove their case in the course of a full trial# to &hich the respondents may e2ually present their evidence in refutation of the formers9 case. (<nderscoring supplied) Petitioner9s Motion for Reconsideration having been denied by the appellate court by Resolution of =uly %*# (88+# the present petition &as filed faulting the appellate court in ruling@ $.

. . . T -T T / 6'MPL-$,T -LL/I/D - S<AA$6$/,T 6-<S/ 'A -6T$', D/SP$T/ T / -LL/I-T$',S# -S J/LL -S -DM$SS$',S AR'M T / R/SP',D/,TS# T -T T /R/ J-S ,' P/RA/6T/D DACION EN PAGO 6',TR-6TE $$. . . . T -T T / -LL/I/D DACION EN PAGO $S ,'T <,/,A'R6/-!L/ <,D/R T / ST-T<T/ 'A AR-<DS# D/SP$T/ T / -!S/,6/ 'A - JR$TT/, ? !$,D$,I 6',TR-6TE $$$. . . . T -T T / 6'MPL-$,T S<AA$6$/,TLK ST-T/D - 6-<S/ 'A -6T$',. * Ienerally# the presence of a cause of action is determined from the facts alleged in the complaint. $n their complaint# respondents alleged@ 7777 ;. Sometime in the middle of the year (888# defendant Dao eng !an" as the creditor ban" agreed to the full settlement of plaintiffs9 mortgage obligation of P* Million through the assignment of one of the t&o (() mortgaged propertiesE G1H -s part of the agreement# defendant Dao eng !an" had the mortgaged properties appraised to determine &hich of the t&o (() mortgaged properties shall be delivered as full payment of the mortgage obligationE -lso as part of the deal# plaintiffs for their part paid P1#888.88 for the appraisal e7penseE -s reported by the appraiser commissioned by defendant Dao eng# the appraised value of the mortgaged properties &ere as follo&s@ (a) Property ,o. % C T.6.T. ,o. *((1.@ P%(#1%)#888.88 L(- !l" %( Don Mariano Marcos -ve.# Aairvie&# 46 (b) Property ,o. ( C T.6.T. ,o. %;+()*@ P)#811#888.88 L3+ !l" ). Regalado -ve. 6or. $pil St.# ,eopolitan# 46 G+H Sometime in December# year (888# the protest of plaintiffs not&ithstanding and in blatantbreach of the agreed 0Dacion en pago0 as the mode of full payment of plaintiffs9 mortgage obligation# defendant Dao eng !an" proceeded to foreclose the mortgaged properties aboveCdescribed and sold said properties &hich &ere aggregately valued at more than P(8 Million for only P%8#..+#(;(.88# an unconscionably very lo& priceE (<nderscoring supplied) /ven if a complaint states a cause of action# ho&ever# a motion to dismiss for insufficiency of cause of action may be granted if the evidence discloses facts sufficient to defeat the claim and enables the court to go beyond the disclosures in the complaint. $n such instances# the court can

dismiss a complaint on this ground# even &ithout a hearing# by ta"ing into account the discussions in said motion to dismiss and the disposition thereto.%8 $n its 'pposition to respondents9 application for the issuance of a TR'# %% petitioner# responding to respondents9 allegation that it agreed to the settlement of their obligation via the assignment of one of the t&o mortgaged properties# alleged that there &as no meeting of the minds thereon@ ;. Plaintiffs9 claim that defendant Dao eng !an"GsH foreclosure sale of the mortgaged properties &as improper because there &as an agreement to dacion one of the t&o (() mortgaged properties as full settlement of the loan obligation and that defendant Dao eng !an" and !anco de 'ro &ere already negotiating and colluding for the latter9s ac2uisition of the mortgaged GpropertiesH for the unsconscionably lo& price of P%8#..+.(;(.88 are clearly 7IT!OUT " SIS. 4uite to the contrary# there &as no meeting of the minds bet&een defendant Dao eng !an" and the plaintiffs to dacion any of the mortgaged properties as full settlement of the loan. -lthough there &as a PR'P'S-Land ,/I'T$-T$',S to settle the loan by &ay of dacion# nothing came out of said proposal# much less did the negotiations mature into the e7ecution of a dacion en pago instrument. Defendant Dao eng !an" found the offer to settle by &ay of dacion not acceptable and thus# it opted to foreclose on the mortgage. The la& clearly provides that 0the debtor of a thing cannot compel the creditor to receive a different one# although the latter may be of the same value# or more valuable than that &hich is due0 (-rticle %(;;# ,e& 6ivil 6ode). 0The oblige is entitled to demand fulfillment of the obligation or performance as stipulated0 (Palmares v. 6ourt of -ppeals# ()) S6R- ;(( at p. ;;; G%**)H). 0The po&er to decide &hether or not to foreclose on the mortgage is the sole prerogative of the mortgagee0 (Rural !an" of San Mateo# $nc. vs. $ntermediate -ppellate 6ourt# %;+ S6R- (81# at (%3 G%*)+H) Defendant Dao eng !an" merely opted to e7ercise such prerogative. %( (/mphasis in the originalE capitali5ation and underscoring supplied) Dacion en pago as a mode of e7tinguishing an e7isting obligation parta"es of the nature of sale &hereby property is alienated to the creditor in satisfaction of a debt in money.%3 $t is an ob:ective novation of the obligation# hence# common consent of the parties is re2uired in order to e7tinguish the obligation. . . . $n dacion en pago# as a special mode of payment# the debtor offers another thing to the creditor &ho accepts it as e2uivalent of payment of an outstanding debt. The underta"ing really parta"es in one sense of the nature of sale# that is# the creditor is really buying the thing or property of the debtor# payment for &hich is to be charged against the debtor9s debt. -s such the elements of a contract of sale# namely# consent# ob:ect certain# and cause or consideration must be present. $n its modern concept# &hat actually ta"es place in dacion en pago is an ob:ective novation of the obligation &here the thing offered as an accepted e2uivalent of the performance of an obligation is considered as the ob:ect of the contract of sale# &hile the debt is considered the purchase price. $n any case# 5ommo$ 5o$.e$+ is an essential prere2uisite# be it sale or novation# to have the effect of totally e7tinguishing the debt or obligation.0%;(/mphasis# italics and underscoring suppliedE citation omitted) !eing li"ened to that of a contract of sale# dacion en pago is governed by the la& on sales.%1 The partial e7ecution of a contract of sale ta"es the transaction out of the provisions of the Statute of Arauds so long as the essential re2uisites of consent of the contracting parties# ob8e5+ and 5'1.e of the obligationconcur and are clearly established to be present.%+ Respondents claim that petitioner9s commissioning of an appraiser to appraise the value of the mortgaged properties# his services for &hich they and petitioner paid# and their delivery to

petitioner of the titles to the properties constitute partial performance of their agreement to ta"e the case out of the provisions on the Statute of Arauds. There is no concrete sho&ing# ho&ever# that after the appraisal of the properties# petitioner approved respondents9 proposal to settle their obligation via dacion en pago. The delivery to petitioner of the titles to the properties is a usual condition sine qua non to the e7ecution of the mortgage# both for security and registration purposes. Aor if the title to a property is not delivered to the mortgagee# &hat &ill prevent the mortgagor from again encumbering it also by mortgage or even by sale to a third party. Ainally# that respondents did not deny proposing to redeem the mortgages#%. as reflected in petitioner9s =une (*# (88% letter to them# dooms their claim of the e7istence of a perfected dacion en pago. 7!ERE9ORE, the 6ourt of -ppeals Decision of =anuary (+# (88+ is REVERSED '$( SET SIDE. The Resolution of =uly (# (88( of the Regional Trial 6ourt of 4ue5on 6ity# !ranch (%1 dismissing respondents9 complaint is REINST TED. SO ORDERED. CONC!IT C RPIO MOR &ES -ssociate =ustice

J/ 6',6<R@

LEONARDO A. QUISUMBING Associate Justice Chairperson DANTE O. TINGA Associate Justice ARTURO D. BRION Associate Justice PRESBITERO J. VELASCO, JR. Associate Justice

TTEST TION $ attest that the conclusions in the above Decision had been reached in consultation before the case &as assigned to the &riter of the opinion of the 6ourt9s Division. &EON RDO . :UISUM"ING -ssociate =ustice Chairperson

%%

Supra note ;. Records# pp. %1C%+. 6ivil 6ode# -rticle %(;1.

%(

CERTI9IC TION
%3

Pursuant to Section %3# -rticle >$$$ of the 6onstitution# and the Division 6hairperson9s -ttestation# it is hereby certified that the conclusions in the above Decision &ere reached in consultation before the case &as assigned to the &riter of the opinion of the 6ourt9s Division. RE)N TO S. PUNO 6hief =ustice

%;

Ailinvest 6redit -ssociation v. Philippine -cetylene 6o.# %*. Phil. 3*;# ;8(C;83 (%*)().
%1

Supra note %3 at -rticle %(;1.

%+

Vda. de Jo oc v. Court o! Appeals# I.R. ,o. *().%# -ugust (# %**%# (88 S6R- .;# ..C.). 9oo+$o+e.
% %.

Supra note (

Records# p. (*. $d. at 3). $d. at 3*C;8. $d. at %3C%). $d. at %(8.

Penned by =ustice Monina -revaloCLenarosa# &ith the concurrence of =ustices -ndres !. Reyes# =r. and Rosmari D. 6arandang. 6- rollo# pp. %%3C%(;.
.

$d. at %(;. -rticle %;83. The follo&ing contracts are unenforceable unless they are ratified@ 7 7 7 (() Those that do not comply &ith the Statute of Arauds as set forth in this number. $n the follo&ing cases an agreement hereafter made shall be unenforceable by action# unless the same# or some note or memorandum thereof be in &riting# and subscribed by the party charged# or by his agentE evidence# therefore# of the agreement cannot be received &ithout the &riting# or a secondary evidence of its contents@ 7 7 7 (e) -n agreement for the leasing for a longer period than one year# or for the sale of real property or of an interest thereinE 7 7 7

Rollo# p. 3(.

%8

Aloren5 D. Regalado# Remedial La& 6ompendium# >ol. % ((881)# citing Tan v. Director of Aorestry# et al.# LC(;1;)# 'ct. (.# %*)3# (%8 Phil. (;;.