Case Digest on A. Francisco Realty and Development Corp. vs.

Court of Appeals
July 27, 2010
A. Francisco Realty and Development Corp. vs. CA [298 SCRA 349 (Oct 30 1998)]
Pactum Commissorium
Facts: A. Francisco Realty granted a loan of P7.5 M to spouses Javillonar, in consideration of which, the latter executed a
promissory note, a real estate mortgage over a certain property, and a deed of sale of said mortgaged property in favor of A.
Francisco.
Upon maturity, Javillonar spouses failed to pay, and as a consequence, A. Francisco registered the sale of the mortgaged property,
for which a new TCT was issued.
A. Francisco demanded possession of the mortgaged realty. Spouses refused to vacate. Hence, A. Francisco filed a case for
possession before the RTC.
The spouses admitted that they owed money in favor of A. Francisco but they also alleged that it was not their intention to sell the
realty as the deed of sale executed by them was merely an additional security for the payment of their loan. RTC adjudged in favor
of A. Francisco. On appeal, CA reversed RTC decision and dismissed the complaint against the spouses holding that the deed of
sale was void, being in the nature of a pactum commissorium prohibited by law. Hence, this petition with the SC.
Issue: Whether or not the deed of sale executed by the spouses was void, being in the nature of pactum commissorium.
Held: Yes. Art. 2088 of the Civil Code provides that the creditor cannot appropriate the things given by way of pledge or mortgage,
or dispose of them. Any stipulation to the contrary is void. What is envisioned by this article is a provision in the deed of mortgage
providing for the automatic conveyance of the mortgaged property in case of the failure of the debtor to pay the loan. A pactum
commissorium is a forfeiture clause in a deed of mortgage. The proscribed stipulation of automatic conveyance must be found in
the mortgage deed itself.
In the case at bar, the stipulations in the promissory note provide that, upon failure of spouses to pay interest, ownership of the
property would be automatically transferred to A. Francisco and the deed of sale in its favor would be registered. These stipulations
are in substance a pactum commissorium. They embody the two elements of pactum commissorium, to wit:
(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;
(2) 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.