Lex Rex Ph

A. Francisco Realty and Development Corp. v. CA Digest

“Automatic Appropriation of Mortgage is Void”


Petitioner Francisco Realty (Realty) granted a loan of P7.5 Million to respondent spouses Javillonar (the spouses).

The spouses executed a mortgage of their house in valle verde (TCT 5874), issued promissory note stating the spouses pay the interest in 6 months. It expressly provided that in failure to pay will result to full possession and registration of the mortgaged property. They provided an undated deed of sale in favor of The Realty.

The realty claims spouses failed to pay the interest. As a consequence, they registered the land in its favor.

Next, the spouses obtained an additional loan of P2.5 Million from the realty which they attached their house in Valle Verde as security

In May 1992, the Realty demanded possession of the mortgaged realty and the payment of 4% monthly interest from May 1992, plus surcharges.

Spouses refused to vacate.

The Realty filed the present action for possession before the Regional Trial Court in Pasig City.

A. Francisco RealtySpouses Javillonar
The realty claims spouses failed to pay the interest. As a consequence, they registered the land in its favor.admitted liability but
it was not their intent to sell the realty because the undated deed of sale
they were not notified of the notice of sale in favor of the Realty
they were paying the interest
compliant was for ejectment, therefore RTC had no jurisdiction (it should be MTC)
sought the cancellation of registration of mortgage

(Who filed to RTC: Realty):
RTC: Favored Francisco Realty.
– declared valid the registration of house in Valle Verde, Pasig (TCT No. 85569);
-spouses to cease and desist from committing acts of possession

Spouses appealed to CA:
CA: Reversed in toto RTC Pasig City decision and its own May 7, 1996 resolution. Favored the Spouses.
Reasons: (1) RTC as appellate court had no jurisdiction over the case because; (2) ⭐The deed of sale was a pactum commissorium which is prohibited by Art. 2088 of the Civil Code.

Realty appealed to SC:

Is the undated Deed of Sale constitutive of PACTUM COMMISSORIUM under Article 2088? Yes.

The creditor cannot appropriate the things given by way to pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void.

ART. 2088

automatic appropriation of the creditor in the event of failure of debtor to pay the debt. – Nakpil vs. IAC

Realty’s Contention: What is envisioned or prohibited in 2088 is automatic conveyance of mortgaged property in case of failure of the debtor to pay the loan. It is a forfeiture clause in a deed of mortgage. In this case, it is not inside a mortgage deed, but in a deed of sale. ← Court: this is patently without merit

(1) Court cited cases: Nakpil vs. IAC, etc.

(2) Two Elements of Pactum Commisorium

    • 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
    • That there should be a stipulation for an automatic appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of the principal obligation within the stipulated period.

Decision of SC: Promissory note is void for being pactum commissorium. AFFIRMED CA decision.

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