Bustamante vs Rosel Digest

Facts: Respondent Rosel entered into a loan agreement with petitioner spouses Bustamante wherein the latter
borrowed P100,000 payable in 2 years. To guarantee payment, the spouses put as collateral 70 sq m of their lot inclusive
of the apartment therein. In the event of borrowers default, contract states the lender has the option to buy or purchase
the collateral for P200,000.

When the loan was about to mature on March 1, 1989, respondents proposed to buy the said portion at the pre-set
price. Petitioners, however, refused and requested for extension of time to pay the loan. On the due date, petitioners
tendered payment of the loan to respondents which the latter refused to accept. On March 4, 1990, respondents sent a
demand letter asking petitioner to sell the collateral pursuant to the option to buy embodied in the loan agreement.
Prior to that, they filed with the RTC an action for specific performance in February.

Issue: Is the respondent justified in compelling petitioners to sell the portion of the lot pursuant to the stipulation in the
loan?

Held:

No as doing so is tantamount to pactum commissorium. The elements of pactum commissorium are as follows: (1)
there should be a property mortgaged by way of security for the payment of the principal obligation, and (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.

In this case, the intent to appropriate the property given as collateral in favor of the creditor appears to be
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 creditor acquires the collateral in the event of non
payment of the loan. This is within the concept of pactum commissorium. Such stipulation is void.