A. Francisco Realty and Development Corp. v.

CA
ART. 2088. The creditor cannot appropriate the things given by

way of pledge or mortgage, or dispose of them. Any stipulation

to the contrary is null and void.

The two elements for pactum commissorium to exist: (1)

that there should be a pledge or mortgage wherein a
property is pledged or mortgaged by way of security for the
payment of the principal obligation and (2) that there
should be a stipulation for an automatic appropriation by the
creditor of the thing pledged or mortgaged in the event of
nonpayment of the principal obligation within the stipulated
period.

Stipulations in the promissory notes providing that, upon

failure of the maker to pay interest, ownership of the
property mortgaged would be automatically transferred to
the mortgagee and the deed of sale in its favor would be
registered, are in substance a pactum commissorium
Facts:

favor of petitioner, because of subsequent default, the

deed of sale was registered.
Another loan was obtained by the sps from the petitioner
for 2.5 million with the corresponding stipulation that
had the sps, voluntarily vacate and willfully allow
petitioner to occupy and appropriate the subject property
of the mortgage w/o the need for demand or notification,
should the 1st and/or 2nd loan remain unpaid after 27 April
1992. Due to the refusal of the sps to vacate their property,
an action was instituted by the petitioner for possession
thereof.
Sps. contend that the undated deed of sale was meant to
secure the loan and such should not have been construed as
an intention to sell the property.
RTC decided in favor of the petitioner, holding that the right of
the petitioner is legal and valid, however the CA reversed the
said decision, saying the RTC had no jurisdiction over the
case, because such was an action for unlawful detainer w/c is
cognizable by the MTC, and that should the lower courts
jurisdiction be presumed, the loan agreement in question is
void for being in fact a Pactum Commisorium.

Spouses Erlinda and Emilio Javillionar (Sps) obtained a

loan from A. Francisco Realty (Petitioner) for 7.5 million,
evidenced inter alia by a deed of mortgage over realty and

Issue:

an undated deed of sale of the mortgaged property, both

executed in favor of petitioner.

Whether or not CA erred in holding that the loan

agreement is a Pactum Commisorium.

The loan agreement stipulated that in the event of Sps

default of their interest payments w/o prior arrangements
with the petitioner, full possession of the property will be
transferred and deed of sale thereof will be registered in

Held:
CA correct in holding loan agreement void for being a
Pactum Commisorium!

Citing jurisprudence, petitioner contends that a Pactum

Commissorium is defined as a deed of mortgage providing
for the automatic conveyance of the mortgaged property in
case of the failure of the debtor to pay the loan, and a
forfeiture clause in a deed of mortgage,thus surmising that
the proscribed stipulation should be found in the loan
mortgage deed itself.

The court held that the stipulations on the promissory

notes providing for automatic transfer of ownership and
registration of deed of sale in favor of petitioners due to
the failure on the part of sps. to pay the interest due was
in substance a pactum commissorium.

State Investment House Inc. v. CA

Facts:
Spouses Oreta (Sps) purchased a parcel of land from Solid
Homes, Inc. (SOLID). SOLID executed a mortgage agreement
with State Investment House, Inc. (STATE) consisting of
subdivided lots including that of the Sps. For failure of SOLID
to meet its obligations in the mortgage agreement, STATE
extrajudicially foreclosed the properties including the subject
lot.
Sps subsequently filed a complaint with the HLURB against
SOLID and STATE for failure of the former to execute the
necessary deed of sale relative to their agreement with the
former and for failing to deliver the said property.

The Legal Affairs department of the HLURB ruled in favor of

the
Sps. ordering STATE to execute a deed of conveyance in favor
of sps, and to deliver to them the corresponding certificate of
title.
Issue:
Whether or not State had the right/authority to constitute the
mortgage with the subject property.
Held:

No, sps unregistered rights is superior to that of STATEs as

mortgagee of SOLID

Petitioner admits the superior rights of sps over the

subject property as it did not pray for the nullification of
the contract between sps and SOLID, but instead asked
for the payment of the release value of the property in
question, plus interest, attorneys fees and costs of suit
against SOLID or, in case of the latters inability to pay,
against respondent spouses before it can be required to
release the title of the subject property in favor of the
respondent spouses. STATEs registered mortgage right
over the property is inferior to that of respondent sps
unregistered right. The unrecorded sale between sps and
SOLID is preferred for the reason that if the original
owner (SOLID, in this case) had parted with his
ownership of the thing sold then he no longer had
ownership and free disposal of that thing so as to be able
to mortgage it again. Registration of the mortgage is of
no moment since it is understood to be without prejudice
to the better right of third parties.

contract which resulted in foreclosure by PNB of the

mortgaged properties.

PNB vs. RBL Enterpirises

Art. 2129. The creditor may claim from a third person in
possession of the mortgaged property, the payment of the part
of the credit secured by the property which said third person
possesses, in the terms and with the formalities which the law
establishes. (1879)

Issue:

Facts:
RBL Enterprises (RBL) leased a lot from Nelly Bedrejo
(Berdejo) for purposes of opening a prawn hatchery. It took a
loan out for 2 million with PNB for purposes of

increasing production an improvement

aforementioned hatchery farms.

The RTC held PNB liable for breach of the loan contract,
as well as for damages suffered by RBL. Affirming the
lower court, the CA held that Nelly Bedrejo, who was not
a party to the Mortgage Contract, could not be compelled
to affix her signature thereto. The appellate court further
ruled that the registration of the mortgage not only
revealed PNBs intention to give full force and effect to
the instrument but, more important, gave the mortgagee
ample security against subsequent owners of the
chattels.

of

the

To secure payment thereof, RBL executed in favor of

PNB, a.) real estate mortgage over 2 parcel of lands, and
b.) real estate and chattel mortgage over the buildings,
facilities and culture tanks located on the leased property
of Berdejo.
PNB subsequently released part of the total loan,
amounting to approximately 1 million. However, PNB
refused to release the remainder allegedly due to RBLs
failure to obtain a lessors consent from Berdejo as
provided in the Real Estate and Chattel Mortgage

Whether or not the Court of Appeals committed serious

error when it held that Petitioner PNB has no legal basis
to require respondents to secure the conformity of the
lessor and owner of the property.
Held:
Judgement Affirmed
If the parties truly intended to suspend the release of the
P1,000,000 balance of the loan until the lessors
conformity to the Mortgage Contract would have been
obtained, such condition should have been plainly
stipulated either in that Contract or in the Credit
Agreement. The tenor of the language used in
paragraph. 9.07, as well as its position relative to the
whole Contract, negated the supposed intention to make

the release of the loan subject to the fulfillment of the

clause. From a mere reading thereof, respondents could
not reasonably be expected to know that it was
petitioners unilateral intention to suspend the release of
the P1,000,000 balance until the lessors conformity to
the Mortgage Contract would have been obtained.

The said agreement also stipulated property the siblings

owned, Hacienda Salvacion. It was agreed that as soon as
they should obtain a Torrens title to the said hacienda a
second mortgage upon the same would be executed by
Mariano Garchitorena, acting in his own behalf and as attorney
in fact of his sister, to secure said debt.

As correctly held by the appellate court, the lessors

nonconformity to the Mortgage Contract would not cause
petitioner any undue prejudice or disadvantage, because
the registration and the annotation were considered
sufficient notice to third parties that the property was
subject to an encumbrance.

The Hacienda Salvacin was divided into three parcels for

purposes of the registration proceedings. Of these three
parcels the lot No. 2 was the first to be registered, and when
the certificate of title issued, the defendant, Mariano
Garchitorena, instead of constituting a second mortgage
thereon in favor of the estate of Ana Maria Alcantara,
mortgaged the lot to one Bartolome M. Martin, to secure a loan
for the sum of 11,000. Three days thereafter Laplana
instituted the present action for the purpose, as already stated,
of compelling the defendants to execute a mortgage and to
recover the amount claimed.

Since PNB failed to release the P1,000,000 balance of

the loan, the Real Estate and Chattel Mortgage Contract
became unenforceable to that extent.

Laplana vs. Garchitorena

Facts:
Defendant Mariano Garchitorena, acting under competent
power of attorney from to sister, Andree Garchitorena,
executed a public document the the City of Manila, on behalf
both of himself and is sister admitting that the two were
indebted to the plaintiff, Josefa Laplana, as administratrix of
Ana Maria Alcantara in the amount of 24,902.86.

Laplana insists the act of Mariano Garchitorena in mortgaging

lot No. 2 to a stranger constitutes a diminution of the value of
the security which he had contracted to give to the plaintiff
and, under the Civil Code, confers on the creditor the right to
treat the whole debt as due. The trial court ruled in favor of
Laplana.
Defendants contend that the mortgage for loan was for whole
piece of land (Hacienda Salvacion), and not merely a part
thereof, thus exempting them from the obligation to constitute
a mortgage for the 3 lots to secure the loan.
Issue:
May the Garchitorenas ber compelled to execute a mortgage
on the 3 lots, given that the original agreement was for the
mortgage of the entire Hacienda.

Held:
Decision affirmed, the defendants were obligated to execute a
mortgage in favor of the plaintiff immediately upon obtaining a
title to any part thereof, in preference to any creditor other than
the Philippine National Bank which had a first mortgage for
P15,000 on the estate. It is pretended by the defendants that
the intention was that the mortgage should be created when
a Torrens title should be obtained to the whole hacienda,
and that the obligation to execute a mortgage did not arise
when a certificate of title had been obtained to one lot only of
the three constituting the hacienda. We consider this
suggestion an untenable evasion of the spirit of the
agreement, and it is obvious that the creation of a second
mortgage in favor of Martin was in violation of the stipulation to
execute a second mortgage on the property to the plaintiff.

It is true that a promise to constitute a mortgage gives rise only

to a personal obligation between the contracting parties and
creates no real right in the property, but the agreement to
constitute the mortgage is lawful and such stipulation can be
enforced by the creditor, being in no wise inconsistent with the
right to recover the indebtedness. In consideration of equity,
the court held that the property must be considered to be
subject to the same lien as if the mortgage which had been
agreed to be made had been actually executed. However, the
court held that the proper remedy to be conceded is not
precisely the compelling of the defendants to execute the
mortgage, a declaration of the existence of the lien being
sufficient.