CREDIT DOCTRINE:

Bustamante v Rosel 1 - Stipulations re vealing the intention of the creditor to acquire the mortgaged
GR No. 126800 | Nov 29, 1999 | J. Pardo property given as security for a loan are embraced in the concept of pactum
SSSA | Group # Ewan commissorium, which is proscribe d by law.

PETITIONERS/PROSECUTORS: Natalia Bustamante , pe t. 2 - The e le ments of pactum commissorium are (DBP v CA [1998]):
RESPONDENTS/DEFENDANTS: Sps. Rodito and Norma Rose l, resp. 1 - There is mortgaged property as security for payment of a pr incipal
obligation; and
TOPIC: Secure d Transactions -> Ple dge and Mortgage -> Pactum Commissorium 2 - There is stipulation for automatic appropr iation by the cre ditor of the
mortgage d prope rty in case of non-payment of the principal obligation
CASE SUMMARY: within the stipulate d pe riod.
Resp. Norma e ntere d into a loan agreeme nt with pe t. and he r late husband, se cured (3) There exists a creditor-debtor relationship between the parties (Nakpil
by a real mortgage ove r a portion of pe t.’s parce l of land, with a provide d stipulation v IAC [1993])
in the ir agreeme nt that in the e vent of failure to pay, pe t. had the option to buy or
purchase the collateral for a certain conside ration inclusive of the borrowe d amount FACTS:
and int. the re in.  The loan was for Php 100K, payable w/in 2 yrs. @ 18% p.a. inte rest
 Such loan was secure d by a real mortgage ove r resp. parce l of land along
Whe n the loan was about to mature , resp. propose d to buy the collate ral at the pre -set Congressional Ave nue , specifically 70 sq. mete rs there of (out of 423 sq. me te rs),
price , but pe t. re fuse d and instead aske d for e xtension of time to pay while offering including the apartme nt building built the re on.
anothe r lot instead, to which the resp. re fuse d in re turn as we ll.  The conside ration for the option to purchase in case of failure to pay was for Php
200K.
Whe n pe t. tende re d payme nt of the loan, resp. refuse d to acce pt, insisting instead that  The othe r lot pet. wante d to se ll to resp. instead was locate d at Road 20, Proj. 8,
pe t. sign a dee d of absolute sale of the collateral. QC.

Resp. file d an action for Specific Performance against pe t., invoking the option to buy ISSUES and RULING:
provide d in the ir loan agreeme nt. Meanwhile pe t. consigne d the payme nt of the loan  WON pet. failed to pay the loan – NO
with the City Treasurer of QC, upon petition with the RTC there in. o The loan was due for payment on March 1, 1989. On said date , pe t. te nde red
payme nt to resp., but resp. re fuse d to acce pt such and instead insiste d on
The RTC dismisse d resp. complaint. The CA re verse d the RTC. se lling the collate ral.
o Whe n resp. re fuse d to acce pt the payme nt, pe t. validly consigne d such
The SC initially affirme d the CA in a prior resolution, but re ve rse d the CA decision amount with the trial court.
and affirme d the RTC decision upon a motion for reconside ration by pe t. o So, e ven assuming arguendo that the stipulation for option to purchase was
valid, resp. had not acquire d such right because the suspe nsive condition
While the ge neral rule is that the contract is the law be twee n the parties, a clear (failure to pay the loan) had not actually occurre d. The obligation to se ll on
e xce ption to this is whe n a stipulation there in is contrary to law (Art. 1306 of the Civil the part of pe t. neve r arose .
Code ). In this case , the Court he ld that the stipulation was in the nature of a pactum o The Court also note d how disadvantageous it would be for the pe t. to be
commissorium, which is prohibite d by law (Art. 2088 of the Civil Code ). oblige d to se ll the collateral, give n the inade quate conside ration (Php 200K)
 for a 70 sq. m. property along Congressional Ave ., QC. (tantamount to as collateral in favor of the creditor appears to be
unjust e nrichme nt of resp.) (Judicial Notice of property values? Char) 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
 WON the stipulation in the loan agreement was valid – NO (RELEVANT)
creditor acquires the co llateral in the event of non-
o Ge n. Rule : Contracts have the force of law be twee n the parties and must be
payment of the loan. This is within the conce pt of pactum
complie d with in good faith. commissorium. Such stipulation is void.
o Exce ption: Art. 1306 of the Civil Code -> Stipulations contrary to law,  NOTE: It can also be said that, the wording of the
morals, good customs, public orde r, or public policy. stipulation aside , the inte nt of resp. was also
o In this case , the Court scrutinize d the stipulation in question: made manifestly clear by his subseque nt acts in
this case, such has his constant insiste nce in
 “…[ I]n the e ve nt the borrowe rs fail to pay, the le nde r has
invoking the option to buy, AND his re fusal to
the option to buy or purchase the collate ral for a total
acce pt payme nt of the loan whe n such mature d.
consideration of TWO HUNDRED THOUSAND
(P200,000.00) PESOS, inclusive of the borrowe d amount o (Quotable Quote from this case ): All pe rsons in nee d of money are liable to
and inte rest there in.” e nter into contractual re lationships whateve r the condition if only to
 (Doctrine 1) This stipulation reveals a subtle intention of alle viate the ir financial burde n albe it temporarily. He nce , courts are duty
the creditor to acquire the property given as secur ity for bound to e xercise caution in the inte rpre tation and resolution of contracts
lest the le nde rs de vour the borrowe rs like vultures do with the ir prey.
the loan. This is embraced in the concept of pactum
commissorium, which is proscr ibed by law.
DISPOSITIVE: Petition (MR) GRANTED, SC Resolution REVERSED, Complaint
 Art. 2088, Civil Code : The cre ditor cannot appropriate the
DISMISSED.
things give n by way of ple dge or mortgage, or dispose of
them. Any stipulation to the contrary is null and void.
o (Doctrine 2) Both e leme nts of pactum commissorium are present: PROVISIONS:
 1 - The portion of pe t.’s lot along Congressional Ave . was  NCC: Article x, Section y, par. Z: “xxx important section of lawxxx ”
mortgaged by way of secur ity for the payment of a  P.D. No. 139843: “xxx important section of specia l laws
principal obligation (the loan); and
 2 - The stipulation provided in such loan allowed for the
automatic appropriation by resp. of the mortgaged
property in case of non-payment.
 (3) - The Court also cite d the case of Nakpil v IAC [1993],
and in the quote d ruling in this case, another element of
pactum commissorium is the existence of a creditor-
debtor relationship between the parties.
 NOTE: I can be said that such e le ment is already
absorbe d and implie d by the first e leme nt.
o A summary of the Court’s ruling is provide d near the e nd of this case :
 A significant task in contract inte rpretation is the
asce rtainme nt of the inte ntion of the parties and looking
into the words use d by the parties to proje ct that inte ntion.
In this case, the intent to appropriate the property given