G.R. No. 172592. July 9, 2008.

*
SPOUSES WILFREDO N. ONG and EDNA SHEILA PAGUIO-ONG,
petitioners, vs. ROBAN LENDING CORPORATION, respondent.
Civil Law; Contracts; Loans; Pactum Commissorium; Court finds that the
Memorandum of Agreement and Dation in Payment constitute pactum
commissorium, which is prohibited under Article 2088 of the Civil Code.This Court
finds that the Memorandum of Agreement and Dation in Payment constitute pactum
commissorium, which is prohibited under Article 2088 of the Civil Code which
provides: 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.
Same; Same; Same; Elements of Pactum Commissorium.The elements of
pactum commissorium, which enables the mortgagee to acquire ownership of the
mortgaged property without the need of any foreclosure proceedings, are: (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 non-payment of the principal obligation
within the stipulated period.
Same; Same; Same; Dation In Payment; Dacion En Pago; In a true dacion en
pago, the assignment of the property extinguishes the monetary debt.Respondent
argues that the law recognizes dacion en pago as a special form of payment whereby
the debtor alienates property to the creditor in satisfaction of a monetary obligation.
This does not persuade. In a true dacion en pago, the assignment of the property
extinguishes the monetary debt. In the case at bar, the alienation of the properties was
by way of security, and not by way of satisfying the debt. The Dacion in Payment did
not extinguish petitioners obligation to respondent. On the contrary, under the
Memorandum of Agreement executed on the same day as the Dacion in Payment,
petitioners had to execute a promissory note for P5,916,117.50 which they were to
pay within one year.
_______________
* SECOND DIVISION.
517
VOL. 557, JULY 9, 2008
517
Ong vs. Roban Lending Corporation
Same; Same; Same; Same; The questioned contracts were freely and voluntarily
executed by petitioners and respondent is of no moment, pactum commissorium being
void for being prohibited by law.Respondent citesSolid Homes, Inc. v. Court of
Appeals, 271 SCRA 157 (1997), where this Court upheld a Memorandum of
Agreement/Dacion en Pago. That case did not involve the issue of pactum
commissorium. That the questioned contracts were freely and voluntarily executed by
petitioners and respondent is of no moment, pactum commissorium being void for
being prohibited by law.
Same; Same; Interests; Courts may reduce interest rates, penalty charges and
attorneys fees if they are iniquitous or unconscionable.Respecting the charges on
the loans, courts may reduce interest rates, penalty charges, and attorneys fees if they
are iniquitous or unconscionable.
Remedial Law; Summary Judgments; Genuine Issues; A summary judgment is
permitted only if there is no genuine issue as to any material fact and moving party is
entitled to a judgment as a matter of law; A genuine issue, as opposed to a fictitious
or contrived one, is an issue of fact that requires the presentation of evidence.
Prescinding from the above disquisition, the trial court and the Court of Appeals erred
in holding that a summary judgment is proper. A summary judgment is permitted only
if there is no genuine issue as to any material fact and a moving party is entitled to a
judgment as a matter of law. A summary judgment is proper if, while the pleadings on
their face appear to raise issues, the affidavits, depositions, and admissions presented
by the moving party show that such issues are not genuine. A genuine issue, as
opposed to a fictitious or contrived one, is an issue of fact that requires the
presentation of evidence. As mentioned above, petitioners prayer for accounting
requires the presentation of evidence on the issue of partial payment.
Same; Judgment on the Pleadings; A judgment on the pleadings may be
rendered only when an answer fails to tender an issue or otherwise admits the
material allegations of the adverse partys pleadings.But neither is a judgment on
the pleadings proper. A judgment on the pleadings may be rendered only when an
answer fails to tender an issue or otherwise admits the material allegations of the
adverse partys pleadings. In the case at bar, respondents
518
518
SUPREME COURT REPORTS ANNOTATED
Ong vs. Roban Lending Corporation
Answer with Counterclaim disputed petitioners claims that the Memorandum of
Agreement and Dation in Payment are illegal and that the extra charges on the loans
are unconscionable. Respondent disputed too petitioners allegation of bad faith.
PETITION for review on certiorari of the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Jesus A. Concepcion for petitioners.
Eric V. Mendoza for respondent.
CARPIO-MORALES, J.:
On different dates from July 14, 1999 to March 20, 2000, petitioner-
spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong obtained several
loans from Roban Lending Corporation (respondent) in the total amount of
P4,000,000.00. These loans were secured by a real estate mortgage on
petitioners parcels of land located in Binauganan, Tarlac City and covered
by TCT No. 297840.1
On February 12, 2001, petitioners and respondent executed an
Amendment to Amended Real Estate Mortgage2 consolidating their loans
inclusive of charges thereon which totaled P5,916,117.50. On even date,
the parties executed a Dacion in Payment Agreement3wherein petitioners
assigned the properties covered by TCT No. 297840 to respondent in
settlement of their total obligation, and a Memorandum of Agreement4
reading:
That the FIRST PARTY [Roban Lending Corporation] and the SECOND PARTY
[the petitioners] agreed to consolidate and restructure all aforementioned loans, which
have been all past due and
_______________
1 Records, pp. 11-16.
2 Id., at p. 37.
3 Id., at p. 40.
4 Id., at pp. 38-39.
519
VOL. 557, JULY 9, 2008
519
Ong vs. Roban Lending Corporation
delinquent since April 19, 2000, and outstanding obligations totaling P5,916,117.50.
The SECOND PARTY hereby sign [sic] another promissory note in the amount of
P5,916,117.50 (a copy of which is hereto attached and forms x x x an integral part of
this document), with a promise to pay the FIRST PARTY in full within one year from
the date of the consolidation and restructuring, otherwise the SECOND PARTY agree
to have their DACION IN PAYMENT agreement, which they have executed and
signed today in favor of the FIRST PARTY be enforced[.]5
In April 2002 (the day is illegible), petitioners filed a
Complaint,6docketed as Civil Case No. 9322, before the Regional Trial
Court (RTC) of Tarlac City, for declaration of mortgage contract as
abandoned, annulment of deeds, illegal exaction, unjust enrichment,
accounting, and damages, alleging that the Memorandum of Agreement
and the Dacion in Payment executed are void for beingpactum
commissorium.7
Petitioners alleged that the loans extended to them from July 14, 1999
to March 20, 2000 were founded on several uniform promissory notes,
which provided for 3.5% monthly interest rates, 5% penalty per month on
the total amount due and demandable, and a further sum of 25% attorneys
fees thereon,8 and in addition, respondent exacted certain sums
denominated as EVAT/AR.9 Petitioners decried these additional charges
as illegal, iniquitous, unconscionable, and revolting to the conscience as
they hardly allow any borrower any chance of survival in case of
default.10
Petitioners further alleged that they had previously made payments on
their loan accounts, but because of the illegal
_______________
5 Id., at pp. 38-39.
6 Id., at pp. 1-5.
7 Id., at p. 2.
8 Id., at pp. 2-3. Vide id., at p. 20.
9 Id., at p. 21.
10 Id., at p. 3.
520
520
SUPREME COURT REPORTS ANNOTATED
Ong vs. Roban Lending Corporation
exactions thereon, the total balance appears not to have moved at all,
hence, accounting was in order.11
Petitioners thus prayed for judgment:
a) Declaring the Real Estate Mortgage Contract and its amendments x
x x as null and void and without legal force and effect for having been
renounced, abandoned, and given up;
b) Declaring the Memorandum of Agreement x x x and Dacion in
Payment x x x as null and void for being pactum commissorium;
c) Declaring the interests, penalties, Evat [sic] and attorneys fees
assessed and loaded into the loan accounts of the plaintiffs with defendant
as unjust, iniquitous, unconscionable and illegal and therefore, stricken out
or set aside;
d) Ordering an accounting on plaintiffs loan accounts to determine
the true and correct balances on their obligation against legal charges only;
and
e) Ordering defendant to [pay] to the plaintiffs: --
e.1 Moral damages in an amount not less than P100,000.00 and
exemplary damages of P50,000.00;
e.2 Attorneys fees in the amount of P50,000.00 plus P1,000.00
appearance fee per hearing; and
e.3 The cost of suit.12
as well as other just and equitable reliefs.
In its Answer with Counterclaim,13 respondent maintained the legality
of its transactions with petitioners, alleging that:
x x x x
If the voluntary execution of the Memorandum of Agreement and Dacion in
Payment Agreement novated the Real Estate Mortgage then the allegation of Pactum
Commissorium has no more legal leg to stand on;
_______________
11 Id., at p. 3.
12 Id., at p. 4.
13 Id., at pp. 51-54.
521
VOL. 557, JULY 9, 2008
521
Ong vs. Roban Lending Corporation
The Dacion in Payment Agreement is lawful and valid as it is recognized x x x
under Art. 1245 of the Civil Code as a special form of payment whereby the debtor-
Plaintiffs alienates their property to the creditor-Defendant in satisfaction of their
monetary obligation;
The accumulated interest and other charges which were computed for more than
two (2) years would stand reasonable and valid taking into consideration [that] the
principal loan is P4,000,000 and if indeed it became beyond the Plaintiffs capacity to
pay then the fault is attributed to them and not the Defendant[.]14
After pre-trial, the initial hearing of the case, originally set on
December 11, 2002, was reset several times due to, among other things,
the parties efforts to settle the case amicably.15
During the scheduled initial hearing of May 7, 2003, the RTC issued
the following order:
Considering that the plaintiff Wilfredo Ong is not around on the ground that he is
in Manila and he is attending to a very sick relative, without objection on the part of
the defendants counsel, the initial hearing of this case is reset to June 18, 2003 at
10:00 oclock in the morning.
Just in case [plaintiffs counsel] Atty. Concepcion cannot present his witness in
the person of Mr. Wilfredo Ong in the next scheduled hearing, the counsel manifested
that he will submit the case for summary judgment.16(Italics supplied)
It appears that the June 18, 2003 setting was eventually rescheduled to
February 11, 2004 at which both counsels were present17 and the RTC
issued the following order:
The counsel[s] agreed to reset this case on April 14, 2004, at 10:00 oclock in the
morning. However, the counsels are directed to be ready with their memorand[a]
together with all the exhibits or evidence needed to support their respective positions
which should be
_______________
14 Id., at pp. 52-53.
15 Id., at pp. 127-128, 138-143, 147-153.
16 Id., at p. 141.
17 Id., at p. 154.
522
522
SUPREME COURT REPORTS ANNOTATED
Ong vs. Roban Lending Corporation
the basis for the judgment on the pleadings if the parties fail to settle the case in the
next scheduled setting.
x x x x18 (Italics supplied)
At the scheduled April 14, 2004 hearing, both counsels appeared but
only the counsel of respondent filed a memorandum.19
By Decision of April 21, 2004, Branch 64 of the Tarlac City RTC,
finding on the basis of the pleadings that there was no pactum
commissorium, dismissed the complaint.20
On appeal,21 the Court of Appeals22 noted that
x x x [W]hile the trial court in its decision stated that it was rendering judgment
on the pleadings, x x x what it actually rendered was a summary judgment. A
judgment on the pleadings is proper when the answer fails to tender an issue, or
otherwise admits the material allegations of the adverse partys pleading. However, a
judgment on the pleadings would not have been proper in this case as the answer
tendered an issue, i.e. the validity of the MOA and DPA. On the other hand, a
summary judgment may be rendered by the court if the pleadings, supporting
affidavits, and other documents show that, except as to the amount of damages, there
is no genuine issue as to any material fact.23
Nevertheless, finding the error in nomenclature to be mere semantics
with no bearing on the merits of the case,24
_______________
18 Id., at p. 155.
19 Id., at pp. 156-164, 204.
20 Id., at pp. 205-206.
21 Id., at p. 207.
22 Decision of November 30, 2005, penned by Court of Appeals Associate Justice Portia
Alio-Hormachuelos, with the concurrences of Associate Justices Mariano C. Del Castillo
and Magdangal M. de Leon. CA Rollo, pp. 35-45.
23 CA Rollo, pp. 40-41.
24 Id., at p. 41.
523
VOL. 557, JULY 9, 2008
523
Ong vs. Roban Lending Corporation
the Court of Appeals upheld the RTC decision that there was nopactum
commissorium.25
Their Motion for Reconsideration26 having been denied,27petitioners
filed the instant Petition for Review on Certiorari,28faulting the Court of
Appeals for having committed a clear and reversible error
I. . . . WHEN IT FAILED AND REFUSED TO APPLY PROCEDURAL
REQUISITES WHICH WOULD WARRANT THE SETTING ASIDE OF THE
SUMMARY JUDGMENT IN VIOLATION OF APPELLANTS RIGHT TO DUE
PROCESS;
II. . . . WHEN IT FAILED TO CONSIDER THAT TRIAL IN THIS CASE IS
NECESSARY BECAUSE THE FACTS ARE VERY MUCH IN DISPUTE;
III. . . . WHEN IT FAILED AND REFUSED TO HOLD THAT THE
MEMORANDUM OF AGREEMENT (MOA) AND THE DACION EN PAGO
AGREEMENT (DPA) WERE DESIGNED TO CIRCUMVENT THE LAW
AGAINST PACTUM COMMISSORIUM; and
IV. . . . WHEN IT FAILED TO CONSIDER THAT THE MEMORANDUM OF
AGREEMENT (MOA) AND THE DACION ENPAGO (DPA) ARE NULL AND
VOID FOR BEING CONTRARY TO LAW AND PUBLIC POLICY.29
The petition is meritorious.
Both parties admit the execution and contents of the Memorandum of
Agreement and Dation in Payment. They differ, however, on whether both
contracts constitute pactum commissorium or dacion en pago.
This Court finds that the Memorandum of Agreement and Dation in
Payment constitute pactum commissorium, which is
_______________
25 Id., at pp. 41-43.
26 Id., at pp. 48-53.
27 Id., at pp. 65-66.
28 Id. at pp. 8-25.
29 Rollo, p. 15.
524
524
SUPREME COURT REPORTS ANNOTATED
Ong vs. Roban Lending Corporation
prohibited under Article 2088 of the Civil Code which provides:
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 elements of pactum commissorium, which enables the mortgagee
to acquire ownership of the mortgaged property without the need of any
foreclosure proceedings,30 are: (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 non-payment of the principal obligation
within the stipulated period.31
In the case at bar, the Memorandum of Agreement and the Dation in
Payment contain no provisions for foreclosure proceedings nor
redemption. Under the Memorandum of Agreement, the failure by the
petitioners to pay their debt within the one-year period gives respondent
the right to enforce the Dation in Payment transferring to it ownership of
the properties covered by TCT No. 297840. Respondent, in effect,
automatically acquires ownership of the properties upon petitioners failure
to pay their debt within the stipulated period.
Respondent argues that the law recognizes dacion en pago as a special
form of payment whereby the debtor alienates property to the creditor in
satisfaction of a monetary obligation.32 This does not persuade. In a true
dacion en pago, the assignment of the property extinguishes the monetary
debt.33
_______________
30 Vide Lumayag v. Heirs of Jacinto Nemeo, G.R. No. 162112, July 3, 2007, 526 SCRA
315, 328.
31 Development Bank of the Philippines v. Court of Appeals, 348 Phil. 15, 31; 284 SCRA
14, 26 (1998).
32 Records, p. 53. Vide Civil Code, Article 1245.
33 Vide Civil Code, Article 1245; Development Bank of the Philippines v. Court of
Appeals, 348 Phil. 15, 30; 284 SCRA 14, 25 (1998).
525
VOL. 557, JULY 9, 2008
525
Ong vs. Roban Lending Corporation
In the case at bar, the alienation of the properties was by way of security,
and not by way of satisfying the debt.34 The Dacion in Payment did not
extinguish petitioners obligation to respondent. On the contrary, under the
Memorandum of Agreement executed on the same day as the Dacion in
Payment, petitioners had to execute a promissory note for P5,916,117.50
which they were to pay within one year.35
Respondent cites Solid Homes, Inc. v. Court of Appeals36 where this
Court upheld a Memorandum of Agreement/Dacion en Pago.37That case
did not involve the issue of pactum commissorium.38
That the questioned contracts were freely and voluntarily executed by
petitioners and respondent is of no moment, pactum commissorium being
void for being prohibited by law.39
Respecting the charges on the loans, courts may reduce interest rates,
penalty charges, and attorneys fees if they are iniquitous or
unconscionable.40
This Court, based on existing jurisprudence,41 finds the monthly
interest rate of 3.5%, or 42% per annum unconscionable and thus reduces
it to 12% per annum. This Court finds
_______________
34 Vide Development Bank of the Philippines v. Court of Appeals, ibid.
35 Records, p. 38.
36 341 Phil. 261; 271 SCRA 157 (1997).
37 Records, p. 160.
38 Solid Homes, Inc. v. Court of Appeals, supra note 37 at pp. 274-280.
39 Vide Civil Code, Articles 1409 and 2088.
40 Vide Civil Code, Articles 1229 and 2227; United Coconut Planters Bank v. Beluso,
G.R. No. 159912, August 17, 2007; 530 SCRA 567, 590; Poltan v. BPI Family Savings
Bank, Inc., G.R. No. 164307, March 5, 2007, 517 SCRA 430, 444-446; Radiowealth
Finance Co., Inc. v. International Corporate Bank, G.R. Nos. 77042-43, February 28, 1990,
182 SCRA 862, 868-869.
41 Vide Poltan v. BPI Family Savings Bank, Inc., G.R. No. 164307, March 5, 2007, 517
SCRA 430, 444-446.
526
526
SUPREME COURT REPORTS ANNOTATED
Ong vs. Roban Lending Corporation
too the penalty fee at the monthly rate of 5% (60% per annum) of the total
amount due and demandableprincipal plus interest, with interest not paid
when due added to and becoming part of the principal and likewise bearing
interest at the same rate, compounded monthly42unconscionable and
reduces it to a yearly rate of 12% of the amount due, to be computed from
the time of demand.43 This Court finds the attorneys fees of 25% of the
principal, interests and interests thereon, and the penalty fees
unconscionable, and thus reduces the attorneys fees to 25% of the
principal amount only.44
The prayer for accounting in petitioners complaint requires
presentation of evidence, they claiming to have made partial payments on
their loans, vis--vis respondents denial thereof.45 A remand of the case is
thus in order.
Prescinding from the above disquisition, the trial court and the Court of
Appeals erred in holding that a summary judgment is proper. A summary
judgment is permitted only if there is no genuine issue as to any material
fact and a moving party is entitled to a judgment as a matter of law.46 A
summary judgment is proper if, while the pleadings on their face appear to
raise issues, the affidavits, depositions, and admissions presented by the
moving party show that such issues are not genuine.47 A genuine issue, as
opposed to a fictitious or contrived one, is an issue of fact that requires the
presenta-
_______________
42 Records, p. 41.
43 Vide United Coconut Planters Bank v. Beluso, G.R. No. 159912, August 17, 2007,
530 SCRA 567, 590, 604-605.
44 Vide Titan Construction Corporation v. Uni-Field Enterprises, Inc., G.R. No. 153874,
March 1, 2007, 517 SCRA 180, 190.
45 Vide records, pp. 3, 51-52.
46 Rules of Court, Rule 35, Section 3; Pineda v. Heirs of Eliseo Guevarra, G.R. No.
143188, February 14, 2007, 515 SCRA 627, 638.
47 Vide Marcelo v. Sandiganbayan, G.R. No. 156605, August 28, 2007, 531 SCRA 385,
398.
527
VOL. 557, JULY 9, 2008
527
Ong vs. Roban Lending Corporation
tion of evidence.48 As mentioned above, petitioners prayer for accounting
requires the presentation of evidence on the issue of partial payment.
But neither is a judgment on the pleadings proper. A judgment on the
pleadings may be rendered only when an answer fails to tender an issue or
otherwise admits the material allegations of the adverse partys
pleadings.49 In the case at bar, respondents Answer with Counterclaim
disputed petitioners claims that the Memorandum of Agreement and
Dation in Payment are illegal and that the extra charges on the loans are
unconscionable.50 Respondent disputed too petitioners allegation of bad
faith.51
WHEREFORE, the challenged Court of Appeals Decision
isREVERSED and SET ASIDE. The Memorandum of Agreement and the
Dacion in Payment executed by petitioner-spouses Wilfredo N. Ong and
Edna Sheila Paguio-Ong and respondent Roban Lending Corporation on
February 12, 2001 are declared NULL AND VOID for being pactum
commissorium.
In line with the foregoing findings, the following terms of the loan
contracts between the parties are MODIFIED as follows:
1. The monthly interest rate of 3.5%, or 42% per annum, is reduced to
12% per annum;
2. The monthly penalty fee of 5% of the total amount due and
demandable is reduced to 12% per annum, to be computed from the time
of demand; and
3. The attorneys fees are reduced to 25% of the principal amount
only.
_______________
48 Ibid.
49 Rules of Court, Rule 34, Section 1.
50 Records, pp. 53.
51 Id., at p. 51.
Copyright 2014 Central Book Supply, Inc. All rights reserved.