FILINVEST CREDIT CORPORATION vs. PHILIPPINE ACETYLENE, CO.

, INC

DOCTRINE: The obligation to pay taxes cannot be compensated by any other claim a taxpayer may have against the
government.
CASE SUMMARY: Francia received P4,116 from the national government due to the expropriation of his land. He
claims that his unpaid real estate taxes, which amounted to P2,400, can be offset by the payment he received from
the government. There is no legal compensation in this case because: 1. There can be no compensation for payment
of taxes with any other claim of the taxpayer against the government and 2. The requisites of legal compensation
(NCC 1279) are lacking.

FACTS:
Philippine Acetylene Alexander Lim
Filinvest Credit Corp = Petitioner

 Philippine Acetylene Co. purchased from Alexander Lim, a Chevrolet 1969 car for P55K to be paid in
installments.
o As security for payment of said promissory note, the Philippine Acetylene Co. executed a chattel mortgage
over the same motor vehicle in favor of said Alexander Lim.
 Lim assigned to the Filinvest all his rights, title, and interests in promissory note and chattel mortgage by virtue
of a Deed of Assignment.

 Phil Acetylene defaulted in the payment of 9 successive installments.

 Filinvest sent a demand letter to pay or return the mortgaged property.
 Phil Acetylene replied of its desire to return the mortgaged property (car), which shall be in full satisfaction of its
indebtedness. The vehicle and doc “Voluntary Surrender with Special Power of Attorney To Sell” were returned
to Filinvest.
 However, Filinvest failed to sell the Chevrolet due to the unpaid taxes on the said vehicle. Filinvest requested the
appellant to update its account by paying the installments in arrears and accruing interest.
 Filinvest offered to deliver back the motor vehicle to Phil Acetylene.
 But Phil Acetyline refused to accept this.

 Later Filinvest instituted an action for collection of a sum of money with damages.
 Phil Acetylene argued: that the delivery of the motor vehicle to Filinvest extinguished its money obligation as a
dation in payment. If the return was indeed not extinguished, then Phil Acetylene had cause to refuse payment
since Filinvest was not entitled to recover the same due to the breach of warranty committed by the original
vendor-assignor Alexander Lim.

ISSUE: WON there is dation in the payment which extinguished Phil Acetylene Co’s obligation. --NO

RULING:
Phil Acetyline averred: The delivery of the motor vehicle to Filinvest extinguished its money obligation as a dation
in payment.
Filinvest averred: Obligation was not extinguished.
Court ruled (with Filinvest):
Dacion en pago is the transmission of the ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of obligation.
The mere return of the mortgaged motor vehicle by the mortgagor does not constitute dation in payment in the
absence, express or implied of the true intention of the parties.

In this case, Filinvest did not consent that mere delivery of the Chevrolet would be construed as actual payment.
o Without clear consent to the special mode of payment by both parties, then the objective novation of the
obligation through a dacion en pago cannot occur.
o A dacion en pago contract of sale must then have the same essential prerequisites of other sales or innovations
that also extinguish an obligation, this includes consent, object certain, and cause.
o 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.
o There was more basis of the true intention of the parties in the “Voluntary Surrender with Special Power of
Attorney To Sell.” It only authorized Filinvest 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 Philippine Acetylene to pay the difference, if any, between the selling price and the mortgage
obligation. Filinvest in essence was constituted as a mere agent to sell the motor vehicle which was delivered not
as its property. If it were, he would have full power of disposition of the property, not only to sell it.
o It must be noted that the unpaid taxes on the motor vehicle is a burden on the property. Since the ownership of
the mortgaged property never left the mortgagor Phil Acetylene, 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.

DISPOSITION:
Wherefore the earlier judgment which directed Phil Acetylene to pay Filinvest the sum of P22,227.81 which is the
outstanding unpaid obligation of the defendant under the assigned credit, with 12 %interest from the date of the
firing of the complaint in this suit until the same is fully paid; the sum equivalent to l5% of P22,227.81 as and for
attorney's fees; and plaintiff to deliver to, and defendant to accept, the motor vehicle, subject of the chattel may
have been changed by the result of ordinary wear and tear of the vehicle
is hereby affirmed in toto with costs against defendant-appellant.

NOTES: