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G.R. No. 126800 November 29, 1999

1. Norma Rosel entered into a loan agreement with Natalia Bustamante and her late husband Ismael
C. Bustamante for the amount of P100,000 for the period of 2 years with interest of 18%
a. and to guaranty payment, putting as collateral 70 sqm inclusive of the apartment, of the
said land
b. that if borrowers fail to pay, lender has an option to buy the collateral for 200k
2. When loan was to mature, Spouses Rosel proposed to buy at a pre-set price of 200k
3. Bustamante refused and requested for extension of time to pay the loan.
a. offered to sell another residential lot with the principal loan plus interest as downpayment.
4. Spouses refused to extend the payment of the loan and accept the lot as it was occupied by
squatters and Bustamante and her husband were not the owners but mere land developers entitled to
subdivision shares or commission if and when they developed at least 1/2 of the subdivision area.
5. Bustamante tendered payment of the loan which the Spouses refused to accept
a. insisting on Bustamante's signing of a prepared deed of absolute sale of the collateral
6. Spouses Rosel filed with RTC a complaint for specific performance with consignation against the
Spouses Bustamante.
7. Spouses Rosel sent a demand letter asking Bustamante to sell the collateral pursuant to the option
to buy embodied in the loan agreement.
8. However, Bustamante filed with RTC a petition for consignation, and deposited the amount of
P153,000 with the City Treasurer.
9. Bustamante still refused and the barangay conciliation failed
a. so Spouses consigned the amount of P47,500 with the TC
b. Spouses considered the principal loan of P100k and interest of P52k so leaving a balance
of 47.5k
10. TC ruled and
a. denied prayer for the execution of the Deed of Sale to convey the collateral
b. ordered Bustamante to pay the loan with interest counted from due date until time when
Bustamante deposited the amount with the City Treasurer.
11. Spouses appealed and CA reversed
a. ordering Bustamante to accept the amount of P47k deposited with the Clerk of Court
b. and Bustamante to execute the Deed of Sale
c.Bustamante are allowed to withdraw the P153k deposited by them
12. Hence, Petition
BUSTAMANTE: that 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.
SPOUSES ROSEL: that the agreement between the parties was not a sale with right of re-purchase, but a
loan with interest at 18% per annum for a period of two years and if petitioner fails to pay, the respondent
was given the right to purchase the property or apartment for P200,000.00, which is not contrary to law,
morals, good customs, public order or public policy.

Issue: Did Bustamante fail to pay the loan at its maturity date and whether the stipulation in the loan
contract was valid and enforceable? Bustamante did not fail to pay and Stipulation was void
The loan was due for payment on March 1, 1989.
o On said date, Bustamante tendered payment to settle the loan which the Spouses refused to
accept, insisting that Bustamante sell to them the collateral of the loan.
o When Spouses refused to accept payment, Bustamante consigned the amount with the trial
There was eagerness from the Spouses to acquire the property given as collateral to guarantee
the loan.
The sale of the collateral is an obligation with a suspensive condition.
o It is dependent upon the happening of an event, without which the obligation to sell does not
o Since the event did not occur, Spouses do not have the right to demand fulfillment of
Bustamantes obligation, especially where the same would not only be disadvantageous to
Bustamante but would also unjustly enrich the Spouses considering the inadequate
consideration (P200,000.00) for a 70 square meter property situated at Congressional Avenue,
Quezon City.

On Spouses argument that contracts has the force of law between the contracting parties and
must be complied with in good faith.
o There are, exceptions to the rule, specifically Article 1306 of the Civil Code
o Art. 1306. The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy
Stipulation of the parties reveals an intention of the creditor to acquire the property given as
security for the loan.
This is embraced in the concept of pactum commissorium, which is proscribed by law.
The elements of pactum commissorium are as follows:
o (1) there should be a property mortgaged by way of security for the payment of the principal
obligation, and
o (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.
A significant task in contract interpretation is the ascertainment of the intention of the parties and
looking into the words used by the parties to project that intention.
The intent to appropriate the property given as collateral in favor of the creditor (SPOUSES)
appears to be evident, for the debtor (BUSTAMANTE) is obliged to dispose of the collateral at the pre-
agreed consideration amounting to practically the same amount as the loan.
In effect, the creditor acquires the collateral in the event of non-payment of the loan.
o This is within the concept of pactum commissorium.
o Such stipulation is void.
Petition Granted