DE JAYME VS C.

A
Petitioners: MAMERTA VDA. DE JAYME, and her children and/or heirs of the late GRACIANO JAYME,
WILFREDO, MARCIAL, MANUEL, ANTONIO, all surnamed JAYME; the heirs of DOMINADOR JAYME,
namely: SUPREMA (surviving spouse) and his children, namely: ARMANDO, NICANOR, ZENAIDA,
CATHERINE, ROSALINE, DORIS, VICKY and MARILYN, all surnamed JAYME; and the heirs of the late
NILIE JAYME SANCHEZ, namely, INOCENCIO SANCHEZ (surviving spouse) and her children:
ELSA, CONCEPCION, CLEOFE, ALEJANDRO, EFREN and MACRINA, all surnamed SANCHEZ; and
FLORA JAYME RAVANES, assisted by her husband, CESAR RAVANES
Respondents: COURT OF APPEALS, SIXTEENTH DIVISION, CEBU ASIANCARS INC., GEORGE NERI,
CONNIE NERI, WILLIAM LEONG KOC LEE, EDUARD JAMES LEE, ROBERTO UY KIM, AND CHARLES
UY KIM; METROPOLITAN BANK AND TRUST COMPANY, RENE NATIVIDAD
Date of Promulgation: October 4, 2002
Ponente: QUISUMBING, J

Facts:
 Spouses Graciano and Mamerta Jayme are the registered owners of Lot 2700, situated in the
Municipality of Mandaue Cebu, consisting of 2,568 sq.m. and covered by TCT.
 They entered into a Contract of Lease with George Neri, president of Airland Motors
Corporation (now Cebu Asiancars Inc.), covering one-half of Lot 2700. The lease was for
twenty years.
 The terms and conditions of the lease contract stipulated that Cebu Asiancars Inc. (hereafter,
Asiancars) 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).
 A Special Power of Attorney was executed in favor of respondent George Neri, who used the
lot to secure a loan of P300,000 from the General Bank and Trust Company. The loan was
fully paid on August 1977.
 Thereafter, Asiancars obtained a loan of P6,000,000 from the Metropolitan Bank and Trust
Company (MBTC). 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 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
 MBTC extrajudicially foreclosed the mortgage. A public auction was held. MBTC was the
highest bidder. A certificate of sale was issued and was registered with the Register of Deeds.
 Graciano Jayme died, survived by his widow Mamerta and their children. As a result of the
foreclosure, Gracianos heirs filed a civil complaint for Annulment of Contract with Damages
against respondent Asiancars, its officers and incorporators and MBTC.
 Petitioners claim that Neri and Asiancars did not tell them that the indebtedness secured by
the mortgage was for P6,000,000 and that the security was the whole of Lot 2700.
 Petitioners alleged that the deed presented to the Jayme spouses was in blank, without
explanation on the stipulations contained therein, except that its conditions were identical to
those of the stipulations when they mortgaged half the lots area previously with General
Bank.
  Petitioners also alleged that the Jayme spouses were illiterate and only knew how to sign
their names. That because they did not know how to read nor write, and had given their full
trust and confidence to George Neri, the spouses were deceived into signing the Deed of Real
Estate Mortgage. Their intention as well as consent was only to be bound as guarantors.
 Respondents denied that any fraud was employed, nor was there a scheme to make the
spouses sign as mortgagors instead of guarantors. They averred that the spouses were fully
advised and compensated for the use of their property as collateral with MBTC; that they
voluntarily signed the deed of mortgage upon the request of George Neri, whom they
previously trusted and who fulfilled his promise to pay the loan to General Bank and who
obtained the release of the same property by faithfully paying his indebtedness with General
Bank.
 RTC: Real Estate Mortgage executed by the Jaymes in favor of Metrobank was valid and
binding.
 CA: affirmed the decision of RTC.

Issues:
1. Whether or not the Real Estate Mortgage should be annulled on the ground of vitiated
consent.
2. Whether or not the dacion en pagoby 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.

Held:
1. No. The Real Estate Mortgage should not be annulled. The facts show that the spouses
affixed their signature on the Deed of Real Estate Mortgage, in the presence of two
instrumental witnesses. As a notarized document, it has in its favor the presumption of
regularity, and to overcome this presumption, there must be evidence that is clear, convincing
and more than merely preponderant that there was irregularity in its execution; otherwise,
the document should be upheld. The fact that the loans were solely for the benefit of (the
debtor) would not invalidate the mortgage with respect to petitioners property. In
consenting thereto even granting that petitioner may not be assuming personal liability for
the debt, her property shall nevertheless secure and respond for the performance of the
principal obligation. The records also showed that the spouses Jayme agreed to use their
property as collateral for Neris loan because Neri had their full trust and confidence.
2. 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.
MBTC was a purchaser in good faith. MBTC had no knowledge of the stipulation in
the lease contract. Although the same lease was registered and duly annotated on the
certificate of title of Lot 2700, MBTC was charged with constructive knowledge only of the
fact of lease of the land and not of the specific provision stipulating transfer of ownership of
the building to the Jaymes upon termination of the lease. There was no annotation on the title
of any encumbrance. While the alienation was in violation of the stipulation in the lease
contract between the Jaymes and Asiancars, MBTCs own rights could not be prejudiced by
Asiancars actions unbeknownst to MBTC.

DAO HENG BANK VS. SPOUSES LAIGO

Petitioner: Dao Heng Bank Inc (now Banco De Oro Universal Bank)
Respondents: Spouses Lilia and Reynaldo Laigo
Date of Promulgation: November 20, 2008
Ponente: Carpio Morales J.

Facts:
 The Spouses Lilia and Reynaldo Laigo obtained loans from Dao Heng Bank, Inc. in the total
amount of P11 Million, to secure the payment of which they forged on three Real Estate
Mortgages covering two parcels of land registered in their names.
 The loans were payable within 12 months from the execution of the promissory notes
covering the loans.
 Respondents failed to settle their outstanding obligation, drawing them to verbally offer to
cede 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.
 However, no further action was taken by the parties after the appraisal of the properties.
 Dao Heng was later to demand the settlement of respondents obligation by letter.
 Dao Heng thereupon 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.
 Six days before the expiration of the redemption period, respondents filed a complaint 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. By respondents claim, Dao Heng verbally agreed
to enter into a dacion en pago.
 Petitioner claimed that there was no meeting of the minds between the parties on the
settlement of respondents loan via dacion en pago.
 Petitioner filed a Motion to Dismiss the complaint on the ground that the claim on which
respondents action is founded is unenforceable under the Statute of Frauds 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 take it out from the coverage of the Statute of Frauds.
 RTC: Granted the motion to dismiss filed by the petitioner. It ruled that the respondent’s
claim must be based on a document or writing evidencing the alleged dacion en pago,
otherwise, the same cannot be enforced in an action in court. Titles were not delivered to
the respondents pursuant to the dacion en pago but by reason of the execution of the
mortgage loan agreement. If indeed a dacion en pago agreement was entered into between
the parties, it is inconceivable that a written document would not be drafted considering the
magnitude of the amount involved
 CA: ruled that the complaint states a cause of action, respondents having alleged that there
was partial performance of the agreement to settle their obligation via dacion en pago when
they agreed to have the properties appraised to thus place their agreement within the
exceptions provided under Article 1403 of the Civil Code on Statute of Frauds.
Issue:
Whether or not there was no meeting of the minds between the parties on the settlement of
respondents loan via dacion en pago.

Held:
Yes. There was no meeting of the minds between the parties on the settlement of
respondents loan via dacion en pago 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 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 power to decide whether or not to foreclose on the mortgage is the sole prerogative of
the mortgagee.
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 debtors 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.
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.

LUZON DEVELOPMENT BANK VS. ENRIQUEZ

Petitioner: Luzon Development Bank

Respondent: Angeles Catherine Enriquez
Date of Promulgation: January 12, 2011
Ponente: Del Castillo J.

Facts:
 The BANK is a domestic financial corporation that extends loans to subdivision
developers/owners.
 DELTA is a domestic corporation engaged in the business of developing and selling real estate
properties. It is owned by Ricardo De Leon who is also the registered owbwer of Lot 4.
 De Leon and his spouse obtained a P4 million loan from the BANK for the express purpose of
developing Delta Homes I.
 To secure the loan, the spouses De Leon executed in favor of the BANK a real estate mortgage
(REM) on several of their properties.
 Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine
Enriquez over the house and lot in Lot 4 for the purchase price of P614,950.00. Enriquez
made a downpayment of P114,950.00.
 The Contract to Sell provided that “for failure to pay three (3) successive monthly installment
payments, DELTA may consider this Contract to Sell null and void ab initio without further
proceedings or court action and all payments shall be forfeited in favor of DELTA as
liquidated damages and expenses for documentations”
 When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM,
agreed to a dation in payment or a dacion en pago.
 The Deed of Assignment in Payment of Debt was executed and unknown to Enriquez, among
the properties assigned to the BANK was the house and lot of Lot 4 which is the subject of her
Contract to Sell with DELTA.
 The records do not bear out and the parties are silent on whether the BANK was able to
transfer title to its name. It appears, however, that the dacion en pago was not annotated on
the TCT of Lot 4.
 Enriquez filed a complaint against DELTA and the BANK before the Region IV Office of the
HLURB alleging that DELTA violated the terms of its License to Sell by failing to get a clearance
for the mortgage from the HLURB.
 HLURB Arbiter Atty. Raymundo A. Foronda upheld the validity of the purchase price, but
ordered DELTA to accept payment of the balance of P108,013.36 from Enriquez, and (upon
such payment) to deliver to Enriquez the title to the house and lot free from liens and
encumbrances.
 HLURB Board of Commissioners’ Ruling: upheld the validity of the contract to sell between
DELTA and Enriquez despite the alleged violation of the price ceilings in BP 220. The Board
held that DELTA and Enriquez were presumed to have had a meeting of the minds on the
object of the sale and the purchase price. Absent any circumstance vitiating Enriquezconsent,
she was presumed to have willingly and voluntarily agreed to the higher purchase price;
hence, she was bound by the terms of the contract.
 Ruling of the Office of the President: affirmed the decision of HLURB
  The BANK appealed the OPs Decision to the CA.The BANK reiterated that DELTA can no
longer deliver Lot 4 to Enriquez because DELTA had sold the same to the BANK by virtue of
the dacion en pago.
 CA: The CA ruled against the validity of the dacion en pago executed in favor of the BANK on
the ground that DELTA had earlier relinquished its ownership over Lot 4 in favor of Enriquez
via the Contract to Sell. Since the dacion en pago is invalid with respect to Lot 4, the appellate
court held that DELTA remained indebted to the BANK to the extent of Lot 4s value.
 DELTA pointed out that the Contract to Sell contained a condition that ownership shall only
be transferred to Enriquez upon the latters full payment of the purchase price to
DELTA. Since Enriquez has yet to comply with this suspensive condition, ownership is
retained by DELTA. As the owner of Lot 4, DELTA had every right to enter into a dation in
payment to extinguish its loan obligation to the BANK. The BANKs acceptance of the
assignment, without any reservation or exception, resulted in the extinguishment of the entire
loan obligation.
 BANK argued that since Enriquez has not yet made such full payment, DELTA retained
ownership over Lot 4 and could validly convey the same to the BANK via dacion en pago.
Should the dacion en pago over Lot 4 be invalidated and the property ordered to be delivered
to Enriquez, the BANK contended that DELTA should pay the corresponding value of Lot 4 to
the BANK. It maintained that the loan obligation extinguished by the dacion en pago only
extends to the value of the properties delivered; if Lot 4 cannot be delivered to the BANK,
then the loan obligation of DELTA remains to the extent of Lot 4s value.
 Enriquez did not file comments or memoranda in both cases; instead, she manifested that she
will just await the outcome of the case.

Issues:
1. Whether or not the mortage contract is void.
2. Whether or not the Contract to Sell executed by DELTA in favor of Enriquez transferred
ownership over Lot 4 to Enriquez.
3. Whether or not the dacion en pago extinguished the loan obligation, such that DELTA has no
more obligations to the BANK.

Held:
1. Yes. The mortgage contract is void. DELTA violated Section 18 of PD 957 in mortgaging the
properties in Delta Homes I (including Lot 4) to the BANK without prior clearance from the
HLURB. Because of the nullity of the mortgage, neither DELTA nor the BANK could assert any
right arising therefrom. The BANKs loan of P8 million to DELTA has effectively become
unsecured due to the nullity of the mortgage. The said loan, however, was eventually settled
by the two contracting parties via a dation in payment.
2. No. Contract to Sell executed by DELTA in favor of Enriquez did not transfer ownership over
Lot 4 to Enriquez. A contract to sell is one where the prospective seller reserves the
transfer of title to the prospective buyer until the happening of an event, such as full
payment of the purchase price. What the seller obliges himself to do is to sell the
subject property only when the entire amount of the purchase price has already been
delivered to him. In other words, the full payment of the purchase price partakes of a
suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising
and thus, ownership is retained by the prospective seller without further remedies by the
prospective buyer. It does not, by itself, transfer ownership to the buyer. There is nothing in
the provisions of the contract entered into by DELTA and Enriquez that would exempt
it from the general definition of a contract to sell. The terms thereof provide for the
reservation of DELTAs ownership until full payment of the purchase price; such that DELTA
 even reserved the right to unilaterally void the contract should Enriquez fail to pay
three successive monthly amortizations.
Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez, said
ownership remained with DELTA. DELTA could then validly transfer such ownership
(as it did) to another person (the BANK). However, the transferee BANK is bound by
the Contract to Sell and has to respect Enriquezs rights thereunder. This is because the
Contract to Sell, involving a subdivision lot, is covered and protected by PD 957. One of the
protections afforded by PD 957 to buyers such as Enriquez is the right to have her contract
to sell registered with the Register of Deeds in order to make it binding on third
parties.
While DELTA, in the instant case, failed to register Enriquezs Contract to Sell
with the Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK
from its obligation to respect Enriquezs Contract to Sell. Despite the non-registration, the
BANK cannot be considered an innocent purchaser for value of Lot 4 when it accepted
the latter (together with other assigned properties) as payment for DELTAs obligation.
The BANK was well aware that the assigned properties, including Lot 4, were
subdivision lots and therefore within the purview of PD 957. It knew that the loaned amounts
were to be used for the development of DELTAs subdivision project, for this was indicated in
the corresponding promissory notes. The technical description of Lot 4 indicates its location,
which can easily be determined as included within the subdivision development. Under these
circumstances, the BANK knew or should have known of the possibility and risk that the
assigned properties were already covered by existing contracts to sell in favor of subdivision
lot buyers.
Further, as an entity engaged in the banking business, the BANK is required to
observe more care and prudence when dealing with registered properties. The Court cannot
accept that the BANK was unaware of the Contract to Sell existing in favor of Enriquez.
3. Yes. The Dacion en Pago executed by DELTA and the BANK indicates a clear intention
by the parties that the assigned properties would serve as full payment for DELTAs
entire obligation. Like in all contracts, the intention of the parties to the dation in
payment is paramount and controlling. The contractual intention determines whether the
property subject of the dation will be considered as the full equivalent of the debt and will
therefore serve as full satisfaction for the debt. The dation in payment extinguishes the
obligation to the extent of the value of the thing delivered, either as agreed upon by the
parties or as may be proved, unless the parties by agreement, express or implied, or by their
silence, consider the thing as equivalent to the obligation, in which case the obligation is totally
extinguished.
The BANK accepted said properties as equivalent of the loaned amount and as full
satisfaction of DELTAs debt. The BANK cannot complain if, as it turned out, some of those
assigned properties (such as Lot 4) are covered by existing contracts to sell. As noted earlier,
the BANK knew that the assigned properties were subdivision lots and covered by PD 957. It
was aware of the nature of DELTAs business, of the location of the assigned properties within
DELTAs subdivision development, and the possibility that some of the properties may be
subjects of existing contracts to sell which enjoy protection under PD 957.
Contracts of sale come with warranties, either express (if explicitly stipulated by the
parties) or implied (under Article 1547 et seq. of the Civil Code). In this case, however, the
BANK does not even point to any breach of warranty by DELTA in connection with the Dation
in Payment. To be sure, the Dation in Payment has no express warranties relating to existing
contracts to sell over the assigned properties. As to the implied warranty in case of eviction,
it is waivable and cannot be invoked if the buyer knew of the risks or danger of eviction and
assumed its consequences. As we have noted earlier, the BANK, in accepting the assigned
properties as full payment of DELTAs total obligation, has assumed the risk that some of the
assigned properties are covered by contracts to sell which must be honored under PD 957.
Delta Development and Management Services, Inc. is NOT LIABLE TO PAY Luzon
Development Bank the value of the subject lot; and respondent Angeles Catherine Enriquez
is ordered to PAY the balance of the purchase price and the interests accruing thereon.
Development Bank is ordered to DELIVER a CLEAN TITLE to Angeles Catherine Enriquez
upon the latters full payment of the balance of the purchase price and the accrued interests.