NATALIA P. BUSTAMANTE, petitioner vs. SPOUSES RODITO F. ROSEL and NORMA A. ROSEL, respondents.

Facts: The Sps. Bustamante borrowed a sum of money from the Sps. Rosel through a loan which
stipulated, among others, that: a 70 sq. m. parcel of land of the Sps. Bustamante will be collateral; and
that the Sps. Rosel as lenders have the option to purchase the collateral lot for P 200,000.00, inclusive of
the amount and interest therein. When the loan was about to mature on March 1, 1989, the Sps. Rosel
proposed to buy at the pre-set price of P200,000.00, the seventy 70 sq. m. parcel of land. This was
refused by the Sps. Bustamante, who requested that the period of payment be extended. They offered
another land instead, with the consideration that the borrowed amount become down payment. The
lender refused to accept payment upon being offered by the petitioners and insisted that the collateral
be sold to them. The petitioners deposited the amount to the trial court instead, showing their desire to
pay. The trial court Denied the execution of the Deed of Sale and just ordered the payment of the loan
with interest. This was REVERSED by the Court of Appeals hence this petition.
BUSTAMANTE: The real intention of the parties to the loan was to put up the collateral as guarantee
similar to an equitable mortgage according to Article 1602 of the Civil Code.
ROSEL: Respondents argue that contracts have the force of law between the contracting parties and
must be complied with in good faith.
Issue: Whether or not the Deed of Sale can be executed considering the conditions stipulated in the
loan.
HELD: No, it cannot be executed. The sale of the collateral is an obligation with a suspensive condition. It
is dependent upon the happening of an event, without which the obligation to sell does not arise as
provided in Article 1181 of the Civil Code. The event that is to be based upon is the non-payment of the
petitioners. This did not happen because the petitioner tendered payment at the due date which
respondents refused to accept, insisting that petitioner sell to them the collateral of the loan. Upon such
refusal, they deposited the amount in the trial court showing their intention to pay. A scrutiny of the
stipulation of the parties reveals a subtle intention of the creditor to acquire the property given as
security for the loan. This stipulation is embraced in the concept of pactum commissorium, which is
prohibited by law. Pactum commissorium occurs if there was a creditor-debtor relationship between the
parties; the property was used as security for the loan; and there was automatic appropriation by the
borrower.

DEVELOPMENT BANK OF THE PHILIPPINES vs. SPOUSES JESUS and ANACORITA DOYON
Facts: The Spouses Doyon acquired several loans amounting to 10 million pesos with their real estate
property and JD bus line motor vehicles mortgaged as security for loans. They failed to pay due
obligations to the petitioners DBP. The respondents then requested petitioner to restructure their
existing loan terms which were agreed upon by both parties resulting to the written promissory notes
(contracted by both parties) by the respondents to petitioner. Petitioner demanded respondent spouses
Doyon to pay in full amount existing loans with their failure to meet their due payments agreed in the
promissory notes. With respondents adamant refusal to pay said loans, petitioner filed for extrajudicial
foreclosure of the real and chattel mortgages in RTC, Ormoc City. Respondents then filed for nullification
of foreclosure claiming they had already paid the principle amount of their loans. The Civil Case stalled
for three years. Petitioner due to inaction moved for the dismissal of the case and withdrew application
for extrajudicial foreclosure to which the RTC granted both petitions. Petitioners then filed for
extrajudicial foreclosure of respondents real and chattel mortgages with DBP Sherrif of Makati. Sheriff
secured properties and subsequently issued notices of sale at public auction. Respondents filed for
damages suit against petitioner and DBP sheriff pointing out that petitioners motion for dismissal of
their civil case led them to believe that their loans had been extinguished. Court awarded the damages
suit in favor of the respondents holding DBP with the exclusion of the Sheriff be held liable in paying due
costs. Petitioners file for motion for reconsideration denied then leading to existing petition for
certiorari
DBP: Petitioner basically asserts that it did not act in bad faith when it foreclosed on respondents real
and chattel mortgages anew. Because respondents loans were past due, it had the right to satisfy its
credit by foreclosing on the mortgages.
DOYON: Respondents claimed that the provision in the mortgage contracts allowing petitioner as
mortgagee to take constructive possession of the mortgaged properties upon respondents default was
void. The provision allegedly constituted a pactum commissorium since it permitted petitioner to
appropriate the mortgaged properties.
ISSUE WON petitioners exercising extrajudicial foreclosure and subsequent issuances for sale at public
auction proceedings acted in bad faith. NO
SC RULING
Held that petitioners did NOT act in bad faith as they were merely acting on their legal right to remedy
against a defaulting debtor, which is considered to be a known sound banking practice. Therefore, court
rules that petitioners having acted their legal right dis so in good faith and are not in violation of Art. 19
of the Civil Code.

FURTHER REFRENCE:

Under the provisions of Art. 19 of the Civil Code for an action for damages to prosper, complainant
MUST prove that:
a.)

Defendant have the legal right or duty

b.)

Exercised his right/performed his duty with bad faith

c.)

Complainant was prejudiced/injured as result of the said exercise or performance by defendant

With reference to the first requisite, defendant (respondents herein) in failing to comply with the
stipulated contracts agreed and signed upon by both petitioner and respondents, which states that
failure to comply with due loan obligations upon maturity date real and chattel mortgages are thereby
subject to foreclosure by default for the purpose of satisfying his credit. Hence, respondents have no
legal right to file for damages under said article.

Regarding the second requisite, bad faith imports a dishonest purpose or some moral obliquity or
conscious doing of a wrong that partakes the nature of fraud. However, petitioners have acted on their
legal right, which respondents have duly recognized in signing the contract can not accuse the
petitioners of having acted in bad faith.