SALES CASES (31 to 33) 31. DE JAYME VS. CA Case Digest VDA. DE JAYME VS.

CA 390 SCRA 380 2002 October 4 FACTS: On January 8, 1973, the spouses Graciano and Mamerta Jayme entered into a Contract of Lease with George Neri, president of Airland Motors Corporation (now Cebu Asiancars Inc.), covering one-half of Lot 2700 owned and registered to the former. The lease was for twenty (20) years. The terms and conditions of the lease contract stipulated that Cebu Asiancars Inc. may use the leased premises as a collateral to secure payment of a loan which Asiancars may obtain from any bank, provided that the proceeds of the loan shall be used solely for the construction of a building which, upon the termination of the lease or the voluntary surrender of the leased premises before the expiration of the contract, shall automatically become the property of the Jayme spouses (the lessors). In October 1977, Asiancars obtained a loan of P6,000,000 from the Metropolitan Bank and Trust Company. The entire Lot 2700 was offered as one of several properties given as collateral for the loan. As mortgagors, the spouses signed a Deed of Real Estate Mortgage dated November 21, 1977 in favor of MBTC. It stated that the deed was to secure the payment of a loan obtained by Asiancars from the bank. Meeting financial difficulties and incurring an outstanding balance on the loan, Asiancars conveyed ownership of the building on the leased premises to MBTC, by way of "dacion en pago." The building was valued at P980,000 and the amount was applied as partial payment for the loan. There still remained a balance of P2,942,449.66, which Asiancars failed to pay. Eventually, MBTC extrajudicially foreclosed the mortgage. A public auction was held on February 4, 1981. MBTC was the highest bidder for P1,067,344.35. A certificate of sale was issued and was registered with the Register of Deeds on February 23, 1981. Meanwhile, Graciano Jayme died, survived by his widow Mamerta and their children. As a result of the foreclosure, Gracianos heirs filed a civil complaint, in January of 1982, for Annulment of Contract with Damages with Prayer for Issuance of Preliminary Injunction, against respondent Asiancars, its officers and incorporators and MBTC. Later, in 1999, Mamerta Jayme also passed away. The trial court ruled that the REM is valid and binding upon the Jaymes. The CA affirmed with modifications. Both the trial and appellate courts found that no fraud attended the execution of the deed of mortgage. The Motion for Reconsideration was denied.

ISSUE: Whether or not the dacion en pago by Asiancars in favor of MBTC is valid and binding despite the stipulation in the lease contract that ownership of the building will vest on the Jaymes at the termination of the lease. RULING: YES. The alienation of the building by Asiancars in favor of MBTC for the partial satisfaction of its indebtedness is valid. The ownership of the building had been effectively in the name of the lessee-mortgagor (Asiancars), though with the provision that said ownership be transferred to the Jaymes upon termination of the lease or the voluntary surrender of the premises. The lease was constituted on January 8, 1973 and was to expire 20 years thereafter, or on January 8, 1993. The alienation via dacion en pago was made by Asiancars to MBTC on December 18, 1980, during the subsistence of the lease. At this point, the mortgagor, Asiancars, could validly exercise rights of ownership, including the right to alienate it, as it did to MBTC. Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a special mode of payment where 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 debtors 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 novation, to have the effect of totally extinguishing the debt or obligation. Private respondent MBTC is ordered to pay petitioners rentals in the total amount of P602,083.33, with six (6) percent interest per annum until fully paid. 32. SONNY LO vs KJS ECO-FORMWORK SYSTEM PHIL Case Digest SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL., INC., respondent 2003 October 8 G.R. No. 149420 413 SCRA 182 FACTS: Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style Sans Enterprises, is a building contractor. On February

22, 1990, petitioner ordered scaffolding equipments from respondent worth P540,425.80. He paid a downpayment in the amount of P150,000.00. The balance was made payable in ten monthly installments. Respondent delivered the scaffoldings to petitioner. Petitioner was able to pay the first two monthly installments. His business, however, encountered financial difficulties and he was unable to settle his obligation to respondent despite oral and written demands made against him. On October 11, 1990, petitioner and respondent executed a Deed of Assignment, whereby petitioner assigned to respondent his receivables in the amount of P335,462.14 from Jomero Realty Corporation. However, when respondent tried to collect the said credit from Jomero Realty Corporation, the latter refused to honor the Deed of Assignment because it claimed that petitioner was also indebted to it. On November 26, 1990, respondent sent a letter to petitioner demanding payment of his obligation, but petitioner refused to pay claiming that his obligation had been extinguished when they executed the Deed of Assignment. Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of money against the petitioner before the Regional Trial Court of Makati, Branch 147, which was docketed as Civil Case No. 91-074. During the trial, petitioner argued that his obligation was extinguished with the execution of the Deed of Assignment of credit. Respondent, for its part, presented the testimony of its employee, Almeda Baaga, who testified that Jomero Realty refused to honor the assignment of credit because it claimed that petitioner had an outstanding indebtedness to it. On August 25, 1994, the trial court rendered a decision dismissing the complaint on the ground that the assignment of credit extinguished the obligation. Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the appellate court rendered a decision reversing the appealed Decision and enters judgment ordering defendant-appellee Sonny Lo to pay the plaintiff-appellant KJS ECO-FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four Hundred Sixty-Two and 14/100 (P335,462.14) with legal interest of 6% per annum from January 10, 1991 (filing of the Complaint) until fully paid and attorneys fees equivalent to 10% of the amount due and costs of the suit. In finding that the Deed of Assignment did not extinguish the obligation of the petitioner to the respondent, the Court of Appeals held that (1) petitioner failed to comply with his warranty under the Deed; (2) the object of the Deed did not exist at the time of the transaction, rendering it void pursuant to Article 1409 of the Civil Code; and (3) petitioner violated the terms of the Deed of Assignment when he failed to execute and do all acts and deeds as shall be necessary to effectually enable the respondent to recover the collectibles.

Petitioner filed a motion for reconsideration of the said decision, which was denied by the Court of Appeals. Hence, this petition for review. ISSUE: Whether or not the Court Of Appeals erred in holding that the deed of assignment did not extinguish petitioners obligation on the wrong notion that petitioner failed to comply with his warranty thereunder. RULING: The petition is without merit. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor. Corollary thereto, 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. In order that there be a valid dation in payment, the following are the requisites: (1) There must be the performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be some difference between the prestation due and that which is given in substitution (aliud pro alio); (3) There must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due. 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 debtors debt. As such, the vendor in good faith shall be responsible, for the existence and legality of the credit at the time of the sale but not for the solvency of the debtor, in specified circumstances. Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal property, produced the effects of a dation in payment which may extinguish the obligation. However, as in any other contract of sale, the vendor or assignor is bound by certain warranties. More specifically, the first paragraph of Article 1628 of the Civil Code provides: The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge. From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence and legality of the credit at

the time of the sale or assignment. When Jomero claimed that it was no longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially meant that its obligation to petitioner has been extinguished by compensation. In other words, respondent alleged the nonexistence of the credit and asserted its claim to petitioners warranty under the assignment. Therefore, it behooved on petitioner to make good its warranty and paid the obligation. Furthermore, the Court found that petitioner breached his obligation under the Deed of Assignment, to wit: And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these presents. The decision of the Court of Appeals was affirmed with modification that upon finality of the Decision, the rate of legal interest shall be 12% per annum, inasmuch as the obligation shall thereafter become equivalent to a forbearance of credit. The award of attorneys fees is DELETED for lack of evidentiary basis. 33. Filinvest Credit Corp. v Court of Appeals 178 SCRA 188, G.R. No. 82508 September 29, 1989 FACTS: Herein private respondents spouses Jose Sy Bang and Iluminada Tan were engaged in the sale of gravel produced from crushed rocks and used for construction purposes. They intended to buy rock crusher from Rizal Consolidated Corporation which carried a cash price tag of P550,000.00. They applied for financial assistance from herein petitioner Filinvest Credit Corporation, who agreed to extend financial aid on the certain conditions. A contract of lease of machinery (with option to purchase) was entered into by the parties whereby the private respondents agreed to lease from the petitioner the rock crusher for two years starting from July 5, 1981, payable as follows: P10,000.00 first 3 months, P23,000.00 next 6 months, P24,800.00 next 15 months. It was likewise stipulated that at the end of the two-year period, the machine would be owned by the private respondents. Thus the private respondent issued in favor of the petitioner a check for P150,550.00, as initial rental (or guaranty deposit), and 24 postdated checks corresponding to the 24 monthly rentals. In addition, to guarantee their compliance with the lease contract, the private respondent executed a real estate

mortgage over two parcels of land in favor of the petitioner. The rock crusher was delivered to the spouses. However, 3 months later, the souses stopped payment when petitioner had not acted on the complaints of the spouses about the machine. As a consequence, petitioner extrajudicially foreclosed the real estate mortgage. The spouses filed a complaint before the RTC. The RTC rendered a decision in favor of private respondent. The petitioner elevated the case to CA which affirmed the decision in toto. Hence, this petition. ISSUES: 1. Whether or not the nature of the contract is one of a contract of sale.\ 2. Whether or not the remedies of the seller provided for in Article 1484 are cumulative. HELD: 1. Yes. The intent of the parties to the subject contract is for the so-called rentals to be the installment payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract, would become the property of the private respondents. This form of agreement has been criticized as a lease only in name. Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another, have frequently restored to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed amount results, by the terms of bargain, in the transfer of title to the lessee. 2. No, it is alternative. The seller of movable in installments, in case the buyer fails to pay 2 or more installments, may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was constituted thereon. It is now settled that the said remedies are alternative and not cumulative, and therefore, the exercise of one bars the exercise of the others. Indubitably, the device contract of lease with option to buy is at times resorted to as a means to circumvent Article 1484, particularly paragraph (3) thereof. Through the set-up, the vendor, by retaining ownership over the property in the guise of being the lessor, retains, likewise the right to repossess the same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments. There arises therefore no need to constitute a chattel mortgage over the movable sold. More

important, the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the installments-cum-rentals already paid.