Published 6 November 2020, The Daily Tribune

The pandemic has had many effects, not the least of which is the shutting down of businesses and the resulting loss of livelihood of many of our countrymen, including OFWs. This had led to thousands of properties, particularly condominium units and vehicles, being floated in the market as “pasalo” or open for sale on an assume-balance basis. The marketing is simple: the buyer gets to turn the hands of time by purchasing the property valued at the time of purchase, usually by reimbursing the seller the down payment and other amortizations already paid. The seller, on the other hand, benefits from recovering his “investment” and avoiding the hassle and embarrassment of a foreclosure.

In other words, many perceive this set-up to be a win-win. But is the hype really all there is to it, or are there legal risks every seller and buyer must consider?

Essentially, the “pasalo” way of purchase is assuming the loan/mortgage of the seller  at the price agreed upon between him and the bank or developer. Hence, the prospective “pasalo” buyer gets to purchase the property at its original price, effectively hedging against inflation and annual price increases. But it will only work if the pasalo buyer has enough cash to pay the seller for down and amortization payments already made. Aside from money, the transacting parties must check if the legal documents of the seller with the bank or developer allow such assume balance transaction.

It is not unusual for the Loan Agreement  and/or promissory note with real estate mortgage between the original buyer and the bank to contain a restriction that the loan shall not be assigned to a third party without the express consent of the bank; hence, before jumping into the bandwagon, it is best to first scrutinize the Loan Agreement and to obtain the bank’s prior written consent to the assignment to a third party (the “pasalo” buyer).

The same applies for the sale of vehicles mid-term. Any restriction in the promissory note with chattel mortgage must be considered, and the written consent of the bank to any assume-balance setup should be obtained. Otherwise, the original buyer may be deemed in breach of the obligation typically stated in the Chattel Mortgage that the borrower (here, seller) shall not remove the mortgaged property (the vehicle) from his possession or the stated address without the prior written consent of the mortgagee (bank).

Note as well that under Article 319 of the Revised Penal Code, under the title “Chattel Mortgage”, it is punishable for any mortgagor to sell or pledge personal property already pledged, or any part thereof, under the terms of the Chattel Mortgage Law, without the consent of the mortgagee written on the back of the mortgage and noted on the record thereof in the office of the register of deeds of the province where such property is located.

In the case of Bank of the Philippine Islands vs. Domingo (March 25, 2015, G.R. No. 169407), the spouses Domingo purchased a car by obtaining a loan from BPI’s predecessor bank, FEBTC. They obtained the written consent of BPI to sell the car to spouses Domingo’s creditor, Carmelita, who assumed the balance of payments for the said car.

Spouses Domingo defaulted when they failed to pay monthly installments that had fallen due, a case was filed against them for Replevin and Damages (or in the alternative, for the collection of sum of money, interest and other charges, and attorney’s fees). When the case reached the Supreme Court, the issue that confronted the high court was whether or not there had been a novation of the loan obligation with chattel mortgage of the spouses Domingo to BPI so that the spouses Domingo were released from said obligation and Carmelita was substituted as debtor.

The Supreme Court ruled that, as a general rule, since novation implies a waiver of the right the creditor had before the novation, such waiver must be express.  This consent must be given expressly for the reason that, since novation extinguishes the personality of the first debtor who is to be substituted by a new one, it implies on the part of the creditor a waiver of the right that he had before the novation.

The burden of establishing a novation is on the party who asserts its existence. However, there was no proof of the clear and unmistakable consent of BPI to the substitution of debtors. While it appeared that BPI had a copy of the Deed of Sale and Assumption of Mortgage, that it returned the spouses Domingo’s checks and accepted Carmelita’s payments; and, it did not demand any payment from the spouses Domingo immediately, still the absence of objection on the part of BPI (or FEBTC) cannot be presumed as consent and is not a substitute for prior written consent of the bank.

This case strongly indicates that without the prior written consent of the mortgagee, the pasalo transaction runs the risk of being for naught. Hence, it is well to remember to read the fine print and comply with the terms of the contract. It is, after all, the law as to the parties.

For comments and questions, please send an email to