Digest Author: Maranan, Roland
 Six days before the expiration of the redemption period, respondents filed a
DAO HENG BANK V. SPOUSES LAIGO (2008)
G.R. No. 173856
Petitioner/s: DAO HENG BANK, INC., now BANCO DE ORO UNIVERSAL
BANK
Respondent/s: SPS. LILIA and REYNALDO LAIGO
DOCTRINE: Dacion en pago as a mode of extinguishing an existing obligation partakes
of the nature of sale whereby property is alienated to the creditor in satisfaction of a debt
in money. It is an objective novation of the obligation, hence, common consent of the
parties is required in order to extinguish the obligation.
FACTS:
 The Spouses Lilia and Reynaldo Laigo (respondents) obtained loans from Dao
Heng Bank, Inc. (Dao Heng) in the total amount of P11 Million
 To secure the payment, three Real Estate Mortgages covering two parcels of
land were executed.
 The loans were payable within 12 months from the execution of the promissory
notes covering the loans.
 As of 2000, respondents failed to settle their outstanding obligation
 They VERBALLY offer to surrender to Dao Heng one of the two mortgaged
lots by way of dacion en pago.
 To appraise the value of the mortgaged lands, Dao Heng in fact commissioned
an appraiser whose fees were shouldered by it and respondents (aggregately
valued at more than P20 Million)
 No further action taken by the parties after the appraisal of the properties.
 Dao Heng later demanded the settlement of respondents' obligation by letter
wherein it indicated that they had an outstanding obligation of P10,385,109.92
 Respondents failed to heed the demand
 Dao Heng filed an application to foreclose the real estate mortgages executed by
respondents. The properties subject of the mortgage were sold for P10,776,242
at a public auction to Banco de Oro Universal Bank (hereafter petitioner)
which was the highest bidder.
 Respondents negotiated for the redemption of the two (2) foreclosed lots.
Petitioner responded through a letter stating that the Redemption price shall be
at P11.5MM plus interest.
 Nothing was heard from respondents, hence, petitioner, proceeded to
consolidate the titles immediately after the expiration of the redemption period.
complaint before the Regional Trial Court (RTC), for Annulment, Injunction
with Prayer for Temporary Restraining Order (TRO), praying for the annulment
of the foreclosure of the properties subject of the real estate mortgages and for
them to be allowed "to deliver by way of ‘dacion en pago' one of the mortgaged
properties as full payment of their mortgaged obligation" and to, in the
meantime, issue a TRO directing the defendant-herein petitioner to desist from
consolidating ownership over their properties.
PETITONER’S CONTENTIONS:
 Petitioner, responding to respondents' allegation that it agreed to the settlement
of their obligation via the assignment of one of the two mortgaged properties,
alleged that there was no meeting of the minds.
RESPONDENT’S CONTENTIONS:
 Plaintiffs' claim that defendant Dao Heng Bank[s] foreclosure sale of the
mortgaged properties was improper because there was an agreement to dacion
one of the two (2) mortgaged properties as full settlement of the loan obligation
and that defendant Dao Heng Bank and Banco de Oro were already negotiating
and colluding for the latter's acquisition of the mortgaged [properties] for the
unsconscionably low price of P10,776.242.00.
 Respondents claim that petitioner's commissioning of an appraiser to appraise
the value of the mortgaged properties, his services for which they and petitioner
paid, and their delivery to petitioner of the titles to the properties constitute
partial performance of their agreement to take the case out of the provisions on
the Statute of Frauds.
ISSUE: Whether the obligation of the spouses has been extinguished through
dacion en pago? – NO
RULING:
There was no meeting of the minds between defendant Dao Heng Bank and the plaintiffs
to dacion any of the mortgaged properties as full settlement of the loan. Although there
was a PROPOSAL and NEGOTIATIONS to settle the loan by way of dacion, nothing
came out of said proposal, much less did the negotiations mature into the execution of
a dacion en pago instrument.
Defendant Dao Heng Bank found the offer to settle by way of dacion not acceptable and
thus, it opted to foreclose on the mortgage.
The law clearly provides that "the 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
which is due" (Article 1244, New Civil Code). "The obligee is entitled to demand
fulfillment of the obligation or performance as stipulated" (Palmares v. Court of
Appeals, 288 SCRA 422 at p. 444 [1998]). "The power to decide whether or not to
foreclose on the mortgage is the sole prerogative of the mortgagee" (Rural Bank of San
Mateo, Inc. vs. Intermediate Appellate Court,146 SCRA 205, at 213 [1986])
Defendant Dao Heng Bank merely opted to exercise such prerogative.
Dacion en pago as a mode of extinguishing an existing obligation partakes of the nature of
sale whereby property is alienated to the creditor in satisfaction of a debt in money. It is
an objective novation of the obligation, hence, common consent of the parties is required
in order to extinguish the obligation.
. . . In dacion en pago, as a special mode of payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking
really partakes in one sense of the nature 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 elements of a contract of sale, namely, consent, object certain, and
cause or consideration must be present. In its modern concept, what actually takes place
in dacion en pago is an objective novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation is considered as the object of
the contract of sale, while the debt is considered the purchase price. In any
case, common consent is an essential prerequisite, be it sale or novation, to have the effect
of totally extinguishing the debt or obligation."
Being likened to that of a contract of sale, dacion en pago is governed by the law on sales.
The partial execution of a contract of sale takes the transaction out of the
provisions of the Statute of Frauds so long as the essential requisites of consent of
the contracting parties, object and cause of the obligation concur and are clearly
established to be present.
There is no concrete showing, however, that after the appraisal of the properties,
petitioner approved respondents' 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
execution of the mortgage, both for security and registration purposes. For if the title to
a property is not delivered to the mortgagee, what will prevent the mortgagor from again
encumbering it also by mortgage or even by sale to a third party.
FILINVEST CREDIT CORP. v. PHIL. ACETYLENE, CO., INC.(1982)
GR. L-50449
Plaintiff-appellee: FILINVEST CREDIT CORPORATION
Defendant-appellant: PHILIPPINE ACETYLENE, CO., INC
DOCTRINE: Mere delivery of mortgaged motor vehicle by mortgagor does not
mean transfer of ownership to mortgagee without his consent under the principle
of dacion en pago; What is transferred is merely possession of the property.
FACTS:
 Philippine Acetylene Co., Inc., defendant-appellant, purchased from one
Alexander Lim, as evidenced by a Deed of Sale a motor vehicle Chevorlet, for
P55,247.80 with a down payment of P20,000.00 and the balance of P35,247.80
payable, under the terms and conditions of the promissory note at a monthly
installment of P1,036.70 for thirty-four (34) months/
 As security for the payment of said promissory note, the appellant executed a
chattel mortgage over the same motor vehicle in favor of said Alexander Lim.
 Subsequently, Alexander Lim assigned to the Filinvest Finance Corporation all
his rights, title, and interests in the promissory note and chattel mortgage by
virtue of a Deed of Assignment.
 Thereafter, the Filinvest Finance Corporation assigned to the new corporation,
the herein plaintiff-appellee Filinvest Credit Corporation, all its rights, title, and
interests on the aforesaid promissory note and chattel mortgage which, in effect,
the payment of the unpaid balance owed by defendant-appellant to Alexander
Lim was financed by plaintiff-appellee such that Lim became fully paid.
 Appellant failed to comply with the terms and conditions set forth in the
promissory note and chattel mortgage since it had defaulted in the payment of
nine successive installments.
 Appellee then sent a demand letter whereby its counsel demanded "that you
(appellant) remit the aforesaid amount in full in addition to stipulated interest
and charges or return the mortgaged property to my client at its office
 Appellant wrote back advising appellee of its decision to "return the mortgaged
property, which return shall be in full satisfaction of its indebtedness
 Accordingly, the mortgaged vehicle was returned to the appellee together with
the document "Voluntary Surrender with Special Power of Attorney To
Sell" executed by appellant.
 Appellee wrote a letter to appellant informing the latter that appellee cannot sell
the motor vehicle as there were unpaid taxes on the said vehicle in the sum of
P70,122.00. On the last portion of the said letter, appellee requested the appellant
 to update its account by paying the installments in arrears and accruing interest
in the amount of P4,232.21.
 Appellee offered to deliver back the motor vehicle to the appellant but the latter
refused to accept it.
 Appellee instituted an action for collection of a sum of money with damages.
APPELLANT’S CONTENTIONS:
 Appellant maintains that when it opted to return, as in fact it did return, the
mortgaged motor vehicle to the appellee, said return necessarily had the effect
of extinguishing appellant's obligation for the unpaid price to the appellee,
construing the return to and acceptance by the appellee of the mortgaged motor
vehicle as a mode of payment, specifically, dation in payment or dacion en pago
which according to appellant, virtually made appellee the owner of the
mortgaged motor vehicle by the mere delivery thereof.
ISSUES: (a) Whether or not the return of the mortgaged motor vehicle to the appellee
by virtue of its voluntary surrender by the appellant totally extinguished and/or cancelled
its obligation to the appellee - NO
(b) Whether or not the warranty for the unpaid taxes on the mortgaged motor vehicle
may be properly raised and imputed to or passed over to the appellee - NO
(a) The mere return of the mortgaged motor vehicle by the mortgagor, the herein
appellant, to the mortgagee, the herein appellee, does not constitute dation in payment
or dacion en pago in the absence, express or implied of the true intention of the parties.
Dacion en pago, according to Manresa, is the transmission of the ownership of a thing by
the debtor to the creditor as an accepted equivalent of the performance of
obligation. In dacion en pago, as a special mode of payment, the debtor offers another thing
to the creditor who accepts it as equivalent of payment of an outstanding debt. The
undertaking really partakes in one sense of the nature 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. In its modern concept, what
actually takes place in dacion en pago is an objective novation of the obligation where the
thing offered as an accepted equivalent of the performance of an obligation is considered
as the object of the contract of sale, while the debt is considered as the purchase price. In
any case, common consent is an essential prerequisite, be it sale or innovation to have
the effect of totally extinguishing the debt or obligation.
The evidence on the record fails to show that the mortgagee, the herein appellee,
consented, or at least intended, that the mere delivery to, and acceptance by him, of the
mortgaged motor vehicle be construed as actual payment, more specifically dation in
payment or dacion en pago. The fact that the mortgaged motor vehicle was delivered to him
does not necessarily mean that ownership thereof, as juridically contemplated by dacion
en pago, was transferred from appellant to appellee. In the absence of clear consent of
appellee to the proferred special mode of payment, there can be no transfer of ownership
of the mortgaged motor vehicle from appellant to appellee. If at all, only transfer of
possession of the mortgaged motor vehicle took place, for it is quite possible that
appellee, as mortgagee, merely wanted to secure possession to forestall the loss,
destruction, fraudulent transfer of the vehicle to third persons, or its being rendered
valueless if left in the hands of the appellant.
A more solid basis of the true intention of the parties is furnished by the document
executed by appellant captioned "Voluntary Surrender with Special Power of
Attorney To Sell”, An examination of the language of the document reveals that the
possession of the mortgaged motor vehicle was voluntarily surrendered by the appellant
to the appellee authorizing the latter to look for a buyer and sell the vehicle in behalf of
the appellant who retains ownership thereof, and to apply the proceeds of the sale to the
mortgage indebtedness, with the undertaking of the appellant to pay the difference, if
any, between the selling price and the mortgage obligation. With the stipulated conditions
as stated, the appellee, in essence was constituted as a mere agent to sell the motor vehicle
which was delivered to the appellee, not as its property, for if it were, he would have full
power of disposition of the property, not only to sell it as is the limited authority given
him in the special power of attorney. Had appellee intended to completely release
appellant of its mortgage obligation, there would be no necessity of executing the
document captioned "Voluntary Surrender with Special Power of Attorney To Sell”.
Appellant would also argue that by accepting the delivery of the mortgaged motor vehicle,
appellee is estopped from demanding payment of the unpaid obligation. Estoppel would
not be since, as clearly set forth above, appellee never accepted the mortgaged motor
vehicle in full satisfaction of the mortgaged debt.
Under the law, the delivery of possession of the mortgaged property to the mortgagee,
the herein appellee, can only operate to extinguish appellant's liability if the appellee had
actually caused the foreclosure sale of the mortgaged property when it recovered
possession thereof. It is worth noting that it is the fact of foreclosure and actual sale of
the mortgaged chattel that bar the recovery by the vendor of any balance of the
purchaser's outstanding obligation not satisfied by the sale. As held by this Court, if the
vendor desisted, on his own initiative, from consummating the auction sale, such
desistance was a timely disavowal of the remedy of foreclosure, and the vendor can still
sue for specific performance. This is exactly what happened in the instant case.
(b) There is no dispute that there is an unpaid taxes of P70,122.00 due on the mortgaged
motor vehicle which, according to appellant, liability for the breach of warranty under
the Deed of Sale is shifted to the appellee who merely stepped into the shoes of the
assignor Alexander Lim by virtue of the Deed of Assignment in favor of appellee. The
Deed of Sale between Alexander Lim and appellant and the Deed of Assignment between
Alexander Lim and appellee are very clear on this point. There is a specific provision in
the Deed of Sale that the seller Alexander Lim warrants the sale of the motor vehicle to
the buyer, the herein appellant, to be free from liens and encumbrances. When appellee
accepted the assignment of credit from the seller Alexander Lim, there is a specific
agreement that Lim continued to be bound by the warranties he had given to the buyer,
the herein appellant, and that if it appears subsequently that "there are such
counterclaims, offsets or defenses that may be interposed by the debtor at the time of
the 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 claims, offsets, or defenses
that may be availed of."
It must be noted that the unpaid taxes on the motor vehicle is a burden on the property.
Since as earlier shown, the ownership of the mortgaged property never left the
mortgagor, the herein appellant, the burden of the unpaid taxes should be home by him,
who, in any case, may not be said to be without remedy under the law, but definitely not
against appellee to whom were transferred only rights, title and interest, as such is the
essence of assignment of credit.
PEN VS. JULIAN(2016)
G.R. No. 160408
Petitioner: SPOUSES ROBERTO and ADELAIDA PEN
Respondent: SPOUSES SANTOS and LINDA JULIAN
DOCTRINE: The elements for pactum commissorium to exist are as follows, to wit: (a) that
there should be a pledge or mortgage wherein property is pledged or mortgaged by way
of security for the payment of the principal obligation; and (b) that there should be a
stipulation for an automatic appropriation by the creditor of the thing pledged or
mortgaged in the event of non-payment of the principal obligation within the stipulated
period
FACTS:
 The appellees (the Julians) obtained a P60,000.00 loan from appellant Adelaida
Pen.
 They were again extended loans in the amounts of P50,000.00 and P10,000.00.
The initial interests were deducted by appellant Adelaida.
 Two (2) promissory notes were executed by the appellees in favor of appellant
Adelaida to evidence the foregoing loans.
 As security, the appellees executed a Real Estate Mortgage over their property
registered under the name of appellee Santos Julian, Jr.
PETITIONER’S CONTENTIONS:
 When the loans became due and demandable, appellees failed to pay despite
several demands. As such, appellant Adelaida decided to institute foreclosure
proceedings. However, she was prevailed upon by appellee Linda not to
foreclose the property because of the cost of litigation and since it would cause
her embarrassment as the proceedings will be announced in public places at the
City Hall, where she has many friends. Instead, appellee Linda offered their
mortgaged property as payment in kind. After the ocular inspection, the parties
agreed to have the property valued at P70,000.00. Thereafter, appellee executed
a two (2) page Deed of Sale duly signed by her on the left margin and over her
printed name.
 Appellants allege that appellee Linda offered to repurchase the property to which
the former agreed at the repurchase price of P436,l 15.00 payable in cash. The
appellees failed to repurchase on the agreed date.
 Appellees again offered to repurchase the property for the same amount, but
they still failed to repurchase.
 Another offer was made to repurchase the property for the same amount.
Appellee Linda offered to pay P100,000.00.
 Upon the agreement of the parties, the amount of P100,000.00 was deducted
from the balance of the appellees' indebtedness
 Their unpaid balance amounted to P319,065.00. Appellants allege that instead of
paying the said balance, the appellees instituted the civil complaint and filed an
adverse claim and lis pendens which were annotated at the back of the title to
the property.
RESPONDENT’S CONTENTION:
 At the time the mortgage was executed, they were likewise required by the
appellant Adelaida to sign a one (1) page document purportedly an "Absolute
Deed of Sale". Said document did not contain any consideration, and was
"undated, unfilled and unnotarized".
 They allege that their total payments amounted to P115,400.00 and that their last
payment was in the amount of P100,000.00.
  Appellee Linda Julian offered to pay appellant Adelaida the amount of
P150,000.00. The latter refused to accept the offer and demanded that she be
paid the amount of P250,000.00.
 Unable to meet the demand, appellee Linda desisted from the offer and
requested that she be shown the land title which she conveyed to the appellee
Adelaida, but the latter refused.
 Upon verification with the Registry of Deeds of, she was informed that the title
to the mortgaged property had already been registered in the name of appellee
Adelaida.
 Appellee filed an Affidavit of Adverse Claim.1avvphi1
 Appellees, formally demanded the reconveyance of the title and/or the property
to them, but the appellants refused. In the process of obtaining other documents;
 The appellees also discovered that the appellants have obtained several
Declarations of Real Property, and a Deed of Sale.
 Said document indicates a consideration of P70,000.00 for the lot.
 Appellees filed a suit for the Cancellation of Sale, Cancellation of Title issued to
the appellants; Recovery of Possession; Damages with Prayer for Preliminary
Injunction.
 The complaint alleged that appellant Adelaida, through obvious bad faith,
maliciously typed, unilaterally filled up, and caused to be notarized the Deed of
Sale earlier signed by appellee Julian, and used this spurious deed of sale as the
vehicle for her fraudulent transfer unto herself the parcel of land.
ISSUE/S:
Whether or not the CA erred in ruling against the validity of the deed of sale? NO
RULING:
The deed of sale between the parties was a pactum commissorium.
Article 2088 of the Civil Code prohibits the creditor from appropriating the things given
by way of pledge or mortgage, or from disposing of them; any stipulation to the contrary is
null and void. The elements for pactum commissorium to exist are as follows, to wit: (a) that
there should be a pledge or mortgage wherein property is pledged or mortgaged by way
of security for the payment of the principal obligation; and (b) that there should be a
stipulation for an automatic appropriation by the creditor of the thing pledged or
mortgaged in the event of non-payment of the principal obligation within the stipulated
period. The first element was present considering that the property of the respondents
was mortgaged by Linda in favor of Adelaida as security for the farmer's indebtedness.
As to the second, the authorization for Adelaida to appropriate the property subject of
the mortgage upon Linda's default was implied from Linda's having signed the blank
deed of sale simultaneously with her signing of the real estate mortgage. The haste with
which the transfer of property was made upon the default by Linda on her obligation,
and the eventual transfer of the property in a manner not in the form of a valid dacion en
pago ultimately confirmed the nature of the transaction as a pactum commissorium.
It is notable that in reaching its conclusion that Linda's deed of sale had been executed
simultaneously with the real estate mortgage, the CA first compared the unfilled deed of
sale presented by Linda with the notarized deed of sale adduced by Adelaida. The CA
justly deduced that the completion and execution of the deed of sale had been
conditioned on the non-payment of the debt by Linda, and reasonably pronounced that
such circumstances rendered the transaction pactum commissorium.
The petitioners have theorized that their transaction with the respondents was a
valid dacion en pago by highlighting that it was Linda who had offered to sell her property
upon her default. Their theory cannot stand scrutiny. Dacion en pago is in the nature of a
sale because property is alienated in favor of the creditor in satisfaction of a debt in
money. For a valid dacion en pago to transpire, however, the attendance of the following
elements must be established, namely: (a) the existence of a money obligation; (b) the
alienation to the creditor of a property by the debtor with the consent of the former; and
(c) the satisfaction of the money obligation of the debtor.To have a valid dacion en
pago, therefore, the alienation of the property must fully extinguish the debt. Yet, the debt
of the respondents subsisted despite the transfer of the property in favor of Adelaida.
The petitioners insist that the parties agreed that the deed of sale would not yet contain
the date and the consideration because they had still to agree on the price. Their insistence
is not supported by the established circumstances. It appears that two days after the loan
fell due, Linda offered to sell the mortgaged property, hence, the parties made the ocular
inspection of the premises By that time, Adelaida had already become aware that the
appraiser had valued the property at P70,000.00. If that was so, there was no plausible
reason for still leaving the consideration on the deed of sale blank if the deed was drafted
by Adelaida, especially considering that they could have conveniently communicated with
each other in the meanwhile on this significant aspect of their transaction. It was also
improbable for Adelaida to still hand the unfilled deed of sale to Linda as her copy if,
after all, the deed of sale would be eventually notarized.
According to Article 1318 of the Civil Code, the requisites for any contract to be valid are,
namely: (a) the consent of the contracting parties; (b) the object; and (c) the consideration.
There is a perfection of a contract when there is a meeting of the minds of the parties on
each of these requisites. The following passage has fittingly discussed the process of
perfection in Moreno, Jr. v. Private Management Office:
To reach that moment of perfection, the parties must agree on the same thing in the same
sense, so that their minds meet as to all the terms. They must have a distinct intention
common to both and without doubt or difference; until all understand alike, there can be
no assent, and therefore no contract. The minds of parties must meet at every point;
nothing can be left open for further arrangement. So long as there is any uncertainty or
indefiniteness, or future negotiations or considerations to be had between the parties,
there is not a completed contract, and in fact, there is no contract at all.
In a sale, the contract is perfected at the moment when the seller obligates herself to
deliver and to transfer ownership of a thing or right to the buyer for a price certain, as to
which the latter agrees. The absence of the consideration from Linda's copy of the deed
of sale was credible proof of the lack of an essential requisite for the sale. In other words,
the meeting of the minds of the parties so vital in the perfection of the contract of sale
did not transpire. And, even assuming that Linda's leaving the consideration blank
implied the authority of Adelaida to fill in that essential detail in the deed of sale upon
Linda's default on the loan, the conclusion of the CA that the deed of sale was a pactum
commisorium still holds, for, as earlier mentioned, all the elements of pactum
commisorium were present.
ONG V. ROBAN LENDING CORPORATION
G.R. No. 172592
Petitioner/s: SPOUSES WILFREDO N. ONG and EDNA SHEILA PAGUIO-
ONG
Respondent: ROBAN LENDING CORPORATION
DOCTRINE: In a true dacion en pago, the assignment of the property extinguishes the
monetary debt.
FACTS:
 Petitioner-spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong obtained
several loans from Roban Lending Corporation (respondent) in the total amount
of ₱4,000,000.00.
 These loans were secured by a real estate mortgage on petitioners’ parcels of land
 Petitioners and respondent executed an Amendment to Amended Real Estate
Mortgage, consolidating their loans.
 On even date, the parties executed a Dacion in Payment Agreement, wherein
petitioners assigned the properties to respondent in settlement of their total
obligation, and a Memorandum of Agreement.
 Petitioners filed a Complaint, before the Regional Trial Court (RTC) for
declaration of mortgage contract as abandoned, annulment of deeds, illegal
exaction, unjust enrichment, accounting, and damages, alleging that the
Memorandum of Agreement and the Dacion in Payment executed are void for
being pactum commissorium.
 They also allege the interest rates to be unconscionable and that they’ve made
partial payments and because of the illegal exactions, the balance seemed to have
not moved at all. They say an accounting is in order
ISSUE: Whether it failed in refusing to hold that the Memorandum of Agreement (Moa)
and the Dacion En Pago Agreement (Dpa) were designed to circumvent the law
against Pactum Commissorium - YES
RULING:
Both parties admit the execution and contents of the Memorandum of Agreement and
Dacion in Payment. They differ, however, on whether both contracts constitute pactum
commissorium or dacion en pago.
This Court finds that the Memorandum of Agreement and Dacion in Payment
constitute pactum commissorium, which is prohibited under Article 2088 of the Civil Code
which provides:
The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is null and void."
The elements of pactum commissorium, which enables the mortgagee to acquire ownership
of the mortgaged property without the need of any foreclosure proceedings, are: (1) there
should be a property mortgaged by way of security for the payment of the principal
obligation, and (2) there should be a stipulation for automatic appropriation by the
creditor of the thing mortgaged in case of non-payment of the principal obligation within
the stipulated period.
In the case at bar, the Memorandum of Agreement and the Dacion in Payment contain
no provisions for foreclosure proceedings nor redemption. Under the Memorandum of
Agreement, the failure by the petitioners to pay their debt within the one-year period
gives respondent the right to enforce the Dacion in Payment transferring to it ownership
of the properties. Respondent, in effect, automatically acquires ownership of the
properties upon petitioners’ failure to pay their debt within the stipulated period.
Respondent argues that the law recognizes dacion en pago as a special form of payment
whereby the debtor alienates property to the creditor in satisfaction of a monetary
obligation. This does not persuade. In a true dacion en pago, the assignment of the property
extinguishes the monetary debt. In the case at bar, the alienation of the properties was by
way of security, and not by way of satisfying the debt. The Dacion in Payment did not
extinguish petitioners’ obligation to respondent. On the contrary, under the
Memorandum of Agreement executed on the same day as the Dacion in Payment,
petitioners had to execute a promissory note for ₱5,916,117.50 which they were to pay
within one year.