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ONG vs.


GR NO. 172592 July 9, 2008

(7/14/99 3/20/00) Petitioner spouses obtained several loans from respondents in the total amount of
P4M. These loans were secured by a real estate mortgage.
(2/12/01) The parties executed an Amendment to Amended Real Estate Mortgage consolidating their
loans inclusive of charges thereon which totaled to P5.9M.
The parties executed a Dacion in Payment Agreement wherein petitioners assigned the properties to
respondent in settlement of their total obligation.
(April 2002) Petitioners filed a complaint before RTC Tarlac for the declaration of mortgage contract as
abandoned, accounting and damages alleging that the MOA and the Dacion in Payment executed are
void for being pactum commissorium.
Petitioners alleged that the loans extended to them were founded on several P/N which provided for 3.5%
monthly interest rates, 5% penalty per month on the total amount due and demandable and 25%
attorney's fees. Petitioners decried these additional charges as illegal and unconscionable" as they hardly
allow any borrower any chance of survival in case of default.
The respondent maintained the legality of its transactions with petitioner stating the Dacion is lawful and
valid as it is recognized under the Civil Code and that the accumulated interest and other charges
computed for more than 2 years would stand reasonable and valid taking into consideration that the
principal loan is P4M.
RTC: no pactum commissorium.
Complaint dismissed
CA: upheld RTC
ISSUE: WON the charges are unconscionable
YES. SC held that the monthly interest rate of 3.5% or 42% per annum unconscionable. Respecting the

charges on the loans, courts may reduce interest rates, penalty charges and attorney's fees if they are
iniquitous or unconscionable. The penalty fee at the monthly rate of 5% or 60% per annum of the total
amount due and demandable principal + interest, with the interest not paid when due added to and
becoming part of the principal and likewise bearing interest at the same rate, compounded monthly
unconscionable and reduces it to 12% per annum.

Elements of Pactum Commissorum 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
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.