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(3) Promise to assign or sell. – (4) Authority to take possession of property upon
= neither is the prohibition applicable to a promise to foreclosure.-
assign or sell said property in payment of the obligation if, = a stipulation authorizing the mortgagee, for the purpose
upon its maturity, it is not paid because the title thereto therein specified, to take possession of the mortgaged
remains with the debtor. premises upon foreclosure of a mortgage is not repugnant
= the promise is merely a personal obligation of the to either Art. 2088 or Art. 2137.
mortgagor and does not in any way bind the property. = On the contrary, such a stipulation is in consonance with
(a) The mortgagor can validly sell the property to a third or analogous to the provisions of Arts. 2132, et seq.
person and if there should be any action accruing to regarding antichresis and the provisions of the Rules of
the mortgagee, it would be a personal action for Court (Rule 59) regarding the appointment of a receiver as
damages against the mortgagor. a convenient and feasible means of preserving and
(b) If the vendee contributed to the breach of the contract administering the property in litigation.
by the mortgagor, the former, together with the latter,
may also be held liable for damages; or Illustrative cases:
= if the vendee was guilty of fraud which would be a (1) Mortgagor appoints mortgagee in deed of assignment as
ground for rescission of the sale in his favor, the attorney-in-fact with authority to dispose of mortgage
properties in case of default of mortgagor and to apply the purchase price, advances and interest shall have been fully
proceeds in the payment of loan. paid.”
Facts: = it is obvious from the above-quoted paragraphs that DBP had
C, a grantee of a Fishpond Lease Agreement from the Gov’t, appropriated and taken ownership of Cuba’s leasehold rights
obtained from DBP three separate loans, each of which was merely on the strength of the deed of assignment.
covered by a promissory note. Simultaneous with the execution =DBP cannot take refuge in Condition No. 12 of the deed of
of the notes was the execution of “Assignment of Leasehold assignment to justify its act of appropriating the leasehold rights.
Rights” by C, as borrower of the mortgaged properties by way of As stated earlier condition No. 12 did not provide that Cuba’s
security in the payment of the loans. default would operate to vest in DBP ownership of the rights.
Condition No. 12 provides for the appointment of DBP as =Besides, an assignment to guarantee an obligation as in the
attorney-in-fact with authority, among other things, to sell or present case, is virtually a mortgage and not an absolute
otherwise dispose of the said real rights in case of default of C conveyance of title which confers ownership on the assignee.”
and to apply the proceeds to the payment of the loan.
Issue: (1) The lender is given the option to buy at a certain price the
(1) Whether the condition in question constitute pactum property given as collateral in the event the borrower fails
commissorium. to pay.
(2) Whether the act of DBP in appropriating to itself C’s leasehold Facts:
rights without foreclosure proceedings was contrary to Art. 2088 C (respondent) entered into a loan agreement with B (petitioner)
and, therefore, invalid. and her late husband, with the following terms and conditions:
Held: a. The spouses would borrow P100K from C, for a period
(1) Elements of pactum commissorium are not present.- of two years counted from Mar. 1, 1987;
= Condition No, 12 did not provide that the ownership over the b. Interest rate is 18% per annum;
leasehold rights would automatically pass to DBP upon Cuba’s c. To guaranty payment: put up as collateral 70sqm portion
failure to pay the loan on time. of a parcel of land, inclusive of the apartment therein;
= This provision is standard condition in mortgage contracts and d. In the event the borrowers fail to pay, C has the option to
is in conformity with Art. 2087 of the CC, which authorizes the buy or purchase the mortgaged property for a total
mortgagee to foreclose the mortgage and alienate the mortgage consideration of P200K inclusive of the principal and
property for the payment of the principal obligation. interest.
(2) DBP exceeded the authority vested by condition.- When the loan was about to mature on Mar. 1, 1989, C
= However, DBP exceeded the authority vested by condition No. proposed to buy at the pre-set price of P200K the collateral
12 for the Deed of Assignment. As admitted by it during the pre- given to guarantee the payment of the loan, but B refused to
trial, it had, without foreclosure proceedings, whether judicial or sell. On Mar. 1, 1989, B tendered payment of the loan to C
extrajudicial.... appropriated the leasehold rights of Cuba over which the latter refused to accept, insisting B’s signing a
the fishpond in question. prepared deed of absolute sale. C consigned the amount of
= its contention that it limited itself to mere administration by P47.5K with the trial court with which C filed a complaint for the
posing caretakers is further belied by the deed of conditional specific performance. In arriving at the amount deposited, C
sale it executed favor of Cuba. The deed stated: considered the principal loan of P100K and 18% interest per
“Whereas, the Vendor (DBP) by virtue of a deed of assignment annum thereon, which amounted to P52.5K, leaving a balance
executed in its favor by the herein vendees (Sps. Cuba) the of P47.5K from the amount of P200K. On the other hand B filed
former acquired all the rights and interest of the latter over the a petition for consignation and deposited the amount of P153K
above-described property; with the trial court.
“The title to the real estate property and all its improvements Issue:
thereon shall remain in the name of the vendor until after the
Whether the stipulation in the loan contract was valid and automatic appropriation by C of the property in case of non-
enforceable. payment of the loan within the stipulated period.
Held:
1. The stipulation embraced in concept of pactum Risk of loss of property pledged or mortgaged
commissorium.
= B did not fail to pay the loan. When C refused to accept As the pledgee or mortgagee does not become the owner of
payment, B consigned the amount with the trial court. the property and the ownership thereof remains with the
= a scrutiny of the stipulation of the parties reveals a subtle debtor, therefore, under the maxim, res perit domino suo, the
intention of the creditor to acquire the property given as debtor-owner bears the loss of the property.
security for the loan. This is embraced in the concept of = The principal obligation is not extinguished by the loss of the
pactum commisssorium, which is proscribed by law. pledged or mortgaged property.
= the elements of pactum commissorium are as follows: (1)
there should be a property mortgaged by way of security for
the payment of the principal obligation; and (2) there should
be a stipulation for automatic appropriation by the creditor of
the thing mortgaged in case of nonpayment of the principal
obligation within the stipulated period.
2. Intent to appropriate property given as collateral appears to
be evident
= a significant task in contract interpretation is the
ascertainment of the intention of the parties and looking into
the words used by the parties to project that intention.
= In this case, the intent to appropriate the property given as
collateral in favor of the creditor appears to be evident, for
the debtor is obliged to dispose of the collateral at the pre-
agreed consideration amounting to practically the same
amount as the loan.
= In effect, the creditor acquires the collateral in the event of
non-payment of the loan. This is within the concept of
pactum commissorium. Such stipulation is void.
3. Duty of court to protect necessitious borrowers. –
= all persons in need of money are liable to enter into
contractual relationships whatever the condition if only to
alleviate their financial burden albeit temporarily.
= hence, courts are duty bound to exercise caution in the
interpretation and resolution of contracts lest the lenders
devour the borrowers like vultures do with their prey.
Note:
Here, the agreement between the parties was not a sale
with right to repurchase (pacto de retro sale), but a loan with
interest of 18% per annum for a period of 2 years and if B
fails to pay, C was given the option to purchase the property
given as collateral for P200K. There was no stipulation for