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A.C. No. 6955, July 27, 2006
In October 2002, Mar Yuson who was a taxi driver and
had 8 children, received a sum of money by way of
inheritance. He and his wife intended to use the money
for several purposes.
When they were able to purchase a secondhand taxi,
and Atty. Vitan helped him with legal matters regarding
the purchase. Unfortunately, Yusons other plans were
put on hold when Atty. Vitan borrowed P100, 000 from
them in December 2002. To guarantee payment, Atty.
Vitan executed in favor of Yuson several postdated
checks to over the loaned amount, but however, these
turned out to be worthless.
Yuson maintained that he had repeatedly tried to recover
the debt, but was unsuccessful every time. When no
payment was still made pursuant to the administrative
case against Atty. Vitan, Yuson demanded a collateral to
secure the loan. Thus, in his favor, Atty. Vitan executed a
document denominated as a Deed of Absolute Sale,
covering Atty. Vitans parcel of land located in Sta. Maria,
Bulacan. According to Yuson, their intention was to
transfer the title of the property to him temporarily, so
that he could either sell or mortgage the said land.
Further, if it was mortgaged, Atty. Vitan would redeem it
as partial or full payment of the loan. Allegedly, the
parties executed another Deed of Absolute Sale in favor
of Atty. Vitan wherein Yuson was vendor. The purpose
for this was not explained by either party.
Yuson was able to mortgage the property for P30,000
but contrary to their earlier agreement, Atty. Vita did not
redeem it from the mortgage, sent a letter instead,
promising Yuson to pay on or before July 12, 2004.
In the IBP-NCLA, Atty. Vitan averred that he had settled
his obligation through a Deed of Absolute Sale over his
residential property. The purpose of such was for Yuson
to use, mortgage, or sell the property and return to him
the excess of the proceeds after obtaining his money.
Additionally, he called the second document as a
Counter Deed of Sale, executed to be sort of a
collateral/security for the account of his liaison officer
Estur, whom he alleged that she was the one who
incurred said debts.
ISSUE: W/N Atty. Vitans obligation was extinguished
by virtue of the first Deed of Absolute Sale
Atty. Vitan contends that his obligation was already
extinguished, because he had allegedly sold his Bulacan
property to complainant. Basically, he is asserting that

what had transpired was a dation in payment. Governed

by the law on sales, it is a transaction that takes place
when a piece of property is alienated to the creditor in
satisfaction of a debt in money. It involves delivery and
transmission of ownership of a thing -- by the debtor to
the creditor -- as an accepted equivalent of the
performance of the obligation.
However, the records reveal that he did not really intend
to sell and relinquish ownership over his property in Sta.
Maria, Bulacan, notwithstanding the execution of a Deed
of Absolute Sale in favor of Yuson. The second Deed of
Absolute Sale, which reconveyed the property to
respondent, is proof that he had no such intention. This
second Deed, which he referred to as his "safety net,"
betrays his intention to counteract the effects of the first
Ergo, Atty. Vitan was taking back with his right hand what
he had given with his left. The second Deed of Absolute
Sale returned the parties right back where they started,
as if there were no sale in favor of complainant to begin
with. In effect, on the basis of the second Deed of Sale,
respondent took back and asserted his ownership over
the property despite having allegedly sold it. Thus, he
fails to convince us that there was a bona fide dation in
payment or sale that took place between the parties; that
is, that there was an extinguishment of obligation.
It appears that the true intention of the parties was to
use the Bulacan property to facilitate payment. They only
made it appear that the title had been transferred to
complainant to authorize him to sell or mortgage the
property.Atty. Vitan himself admitted in his letter dated
July 30, 2004, that their intention was to convert the
property into cash, so that payment could be obtained by
complainant and the excess returned to respondent. The
records, however, do not show that the proceeds derived
were sufficient to discharge the obligation of the lawyer
fully; thus, he is still liable to the extent of the deficiency.


G.R. No. L-50449, January 30, 1982
On October 30, 1971, the Philippine Acetylene Co., Inc.,
purchased from Alexander Lim, as evidenced by a Deed
of Sale, a Chevrolet 1969 model motor vehicle payable
under the terms and conditions of the promissory note
provided by PhilAcetylene. As security for the payment,
PhilAcetylene executed a chattel mortgage over the
same vehicle in favor of Lim. Subsequently, Lim
assigned to Filinvest Finance all his rights, title, and
interests in the promissory note and the chattel
mortgage which subsequently assigned it to Filinvest
PhilAcetylene failed to comply with the terms in the
promissory note and chattel mortgage. With the choice
of paying the full amount plus interest and charges or
returning the mortgaged property, PhilAcetylene
informed Filinvest Credit that it was returning the
mortgaged property in full satisfaction of its
indebtedness pursuant to Art. 1484 of the New Civil
Code. When it was returned to Filinvest, it had with it a
document denominated as Voluntary Surrender with
Special Power of Attorney to Sell.
Filinvest could not however sell the vehicle since there
were unpaid taxes on said vehicle. Upon Filinvests offer
to return the vehicle to PhilAcetylene, the latter refused
to accept it.
PhilAectylene contends that Filinvest has no cause of
action since its obligation was extinguished when it
returned the mortgaged property to Filinvest and
assuming however that the return of the property did not
extinguish its obligation, it was nonetheless justified in
refusing payment since Filinvest is not entitled to recover
the same due to the breach of warranty committed by
the original vendor-assignor Alexander Lim. Additionally,
it argues that by virtue of the return, it extinguished their
obligation through dation in payment.
ISSUE: W/N the return of the mortgaged motor
vehicle to Filinvest by virtue of its voluntary
extinguished and/or cancelled its obligation to
The mere return of the mortgaged motor vehicle by the
mortgagor, PhilAcetylene, to the mortgagee, Filinvest,
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.
The evidence on the record fails to show that the
mortgagee, 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 PhilAcetylene to Filinvest.
In the absence of clear consent of Filinvest, there can be
no transfer of ownership of the mortgaged motor vehicle
from appellant to appellee. Only transfer of possession
of the mortgaged motor vehicle took place, for it is quite
possible that Filinvest 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 PhilAcetylene.
The true intention of the parties is furnished by the
document executed by appellant captioned "Voluntary
Surrender with Special Power of Attorney To Sell". The
document reveals that the possession of the mortgaged
motor vehicle was voluntarily surrendered by
PhilAcetylene to Filinvest authorizing the latter to look for
a buyer and sell the vehicle in behalf of PhilAcetylene
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,
Filinvest in essence was constituted as a mere agent to
sell the motor vehicle which was delivered to it, 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 Filinvest intended to completely release
PhilAcetylene of its mortgage obligation, there would be
no necessity of executing the document. Nowhere in the
said document where it states, that the mere surrender
of the mortgaged motor vehicle to the appellee
extinguished appellants obligation for the unpaid price.
On PhilAcetylenes argument that by accepting the
delivery of the mortgaged motor vehicle, Filinvest is
estopped from demanding payment of the unpaid
obligation, the same is without merit. As clearly set forth
above, Filinvest 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, can only operate
to extinguish PhilAcetylene liability if Filinvest had
actually caused the foreclosure sale of the mortgaged
property when it recovered possession thereof.


G.R. No. 82508, September 29, 1989
Spouses Jose and Iluminada Sy Bang were engaged in
the sale of gravel produced from crushed rocks and
used for construction purposes. They engaged the
serviced of Mr. Ruben Mercurio of Gemini Motor Sales,
to look for a rock crusher. Mr. Mercurio then referred
them to Rizal Consolidated who had said machinery for
They applied for financial assistance with Filinvest Credit
regarding their purchase of the machine. Fiinvest
agreed to extend to the Spouses Sy Bang financial aid
on the following conditions: that the machinery be
purchased in the Filinvest's name; that it be leased (with
option to purchase upon the termination of the lease
period) to the Spouses Sy Bang; and that Spouses Sy
Bang execute a real estate mortgage as security for the
amount advanced by Filinvest. Accordingly, on May
18,1981, a contract of lease of machinery (with option to
purchase) was entered into by the parties whereby the
spouses agreed to lease from Filinvest 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 spouses.
The spouses then issued a check for P150,550 as initial
rental, and 24 postdated checks corresponding to 24
monthly rentals in favor of Filinvest. They likewise
executed a real estate mortgage over two parcels of land
to guarantee their compliance with the lease contract.
The rock crusher was then 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 extra-judicially foreclosed the real estate
mortgage. To thwart the impending auction, the spouses
filed a complaint for rescission of the contract of lease
and annulment of the real estate mortgage.
1. W/N the nature of the contract is one of a
contract of sale.
2. W/N the remedies of the seller provided for in
Article 1484 are cumulative.
1. YES.
It is apparent here that 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
resorted 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 socalled 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.
They are 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


G.R. No. 115966, March 20, 2003
Almira Et al are the wife and children of the late Julio
Garcia who inherited from his mother, Maria Alibudbud, a
portion of a Lot 1642 in Sta. Rosa, Laguna. Lot 1642
was co-owned and registered in the names of Vicente de
Guzman, Enrique Hemedes and Francsisco Alibudbud.
On July 5, 1984, the heirs of Julio Garcia and Federico
Briones entered into a Kasunduan ng Pagbibilhan over
the 21,460 sq. m portion for the sum of P150,000--P65,000 was paid at the execution of the contract and
the P85,000 was made payable within 6 months from the
date of the execution of the instrument. At the time of the
execution of the document, Briones was informed that
the title over the property is with their cousin Conchalina
who owns the bigger portion of the land. This
notwithstanding, respondent willingly entered into the
Kasunduan provided that the full payment of the
purchase price will be made upon delivery to him of the
Briones took possession of the subject property and
made various payments amounting to P58,500.00 but
because of the failure of the heirs of Garcia to deliver to
him a separate title to the property, he refused to make
further payments. This prompted the heirs to file a case
for rescission of the Kasunduan and the return of the
possession of the subject land.
The heirs alleged that they approached Briones several
times to deliver the required title but the latter refused
saying that he did not have the money to pay the
balance of the purchase price.
The RTC decreed the rescission prayed for and the
return of the possession of the subject property. The CA
however reversed the lower courts decision.
1. W/N payment of the balance of the purchase
price is conditioned upon delivery of a
separate title in the name of Julio Garcia;
2. W/N the heirs are entitled to rescind the
Kasunduan for failure of Briones to complete
1. YES.
The tenor of the correspondence between the heirs and
Briones shows that the parties intended that a separate
title to the property in the name of Julio Garcia shall be
delivered to Briones as a condition for the latters

payment of the balance of the purchase price. As such,

Briones signified his willingness to pay but reminded the
heirs of their obligation to deliver title to the property.
If the parties intended that the heirs deliver TCT No. RT1076 instead of a separate title in the name of Julio
Garcia to Briones, then there would have been no need
for the heirs to ask for partial sums on the ground that
this would be used to pay for the processing fee of the
title to the property. The heirs only had to present the
existing title to Briones and demand the balance of the
purchase price, but this they did not do. There is likewise
no basis to conclude that insufficiency of funds rather
than failure of the heirs to deliver a separate title in the
name of Julio Garcia prevented Briones from completing
payment of the purchase price.
That the parties agreed on delivery of a separate title in
the name of Julio Garcia as a condition for respondents
payment of the balance of the purchase price is
bolstered by the fact that there was already an approved
subdivision plan of the 21,460 square-meter lot years
before petitioners filed an action in court for rescission.
Unfortunately, the heirs were not able to secure a
separate title in the name of Julio Garcia.
2. NO
In order to determine if rescission is proper, the Court
needed to ascertain whether the Kasunduan was a
Contract to Sell or a Contract of Sale. In a contract to
sell, ownership is, by agreement, reserved to the vendor
and is not to pass until full payment of the purchase
price; whereas, in contract of sale, title to the property
passes to the vendee upon delivery of the thing sold.
Non-payment by the vendee in a contract of sale entitles
the vendor to demand specific performance or rescission
of the contract, with damages, under Article 1191 of the
Civil Code.
A careful reading of the Kasunduan reveals that it is a
contract of sale. There was a perfected contract of sale
in this case. The parties agreed on the sale of a
determinate object which is the subject property in this
case in the name of Julio Garcia, and also the price
certain therefor, without any reservation of title on the
part of the heirs. Ownership was effectively conveyed by
petitioners to respondent, who was given possession of
the property. The delivery of a separate title in the name
of Julio Garcia was a condition imposed on respondents
obligation to pay the balance of the purchase price. It
was not a condition imposed on the perfection of the
contract of sale.
As to the rescission prayed for, the Court rules in the
negative. The power to rescind is only given to the
injured party. The injured party is the party who has
faithfully fulfilled his obligation or is ready and willing to
perform with his obligation. In the case at bar, petitioners
were not ready, willing and able to comply with their

obligation to deliver a separate title in the name of Julio

Garcia to respondent. Therefore, they are not in a
position to ask for rescission of the Kasunduan.
Moreover, respondents obligation to pay the balance of
the purchase price was made subject to delivery by
petitioners of a separate title in the name of Julio Garcia
within six (6) months from the time of the execution of
the Kasunduan, a condition with which petitioners failed
to comply. Failure to comply with a condition imposed on

the performance of an obligation gives the other party

the option either to refuse to proceed with the sale or to
waive that condition under Article 1545 of the Civil Code.
Hence, it is the respondent who has the option either to
refuse to proceed with the sale or to waive the
performance of the condition imposed on his obligation
to pay the balance of the purchase price.