Bustamante vs Rosel 319 SCRA 413

Facts: Respondent Rosel entered into a loan agreement with petitioner spouses Bustamante. Wherein
the latter borrowed P100,000.00 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 the 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, respondents proposed to buy the said portion at the pre-set price.
Petitioners 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. Respondent sent a
demand letter asking petitioner to sell the collateral pursuant to the option to buy the collateral
embodied in the loan agreement.

Issue: Whether the respondent justified in compelling petitioners to sell the portion of the lot pursuant
to the stipulation in the load.

Held: No. As doing so is tantamount to pactum commissorium. The elements of pactum commissorium
are as follows: (a) 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 a collateral in favour 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.
Yau Chu vs Court of Appeals 177 SCRA 793

Facts: Since 1980, Victoria Yau Chu had been purchasing cement on credit from CAMS. To guaranty
payment for her cement withdrawals, she executed in favor of CAMS deeds of assignment of her time
deposits in Family Savings Bank. The total amount came up to P320K. Except for serial numbers and the
dates of the time deposit certificates, the deeds of assignment prepared by Victoria’s lawyer uniformly
read:

... That the assignment serves as a collateral or guarantee for the payment of my obligation with the
said CAMS TRADING ENTERPRISES, INC. on account of my cement withdrawal from said company, per
separate contract executed between us.

In July 1980, CAMS notified the bank that Victoria had an unpaid account with it in the sum of about P314K
and requested the encashment of the time deposit certificates assigned to it by Victoria. As proof, it
submitted to the bank a letter from Victoria admitting her outstanding account with CAMS reaching
P404.5K. The bank verbally advised Victoria of CAMS’ request and after she verbally agreed, the bank
encashed the certificates and delivered about P283K because one time deposit lacked the proper
signatures.

Victoria then turned around and demanded that the bank and CAMS restore her time deposit. When both
refused, she filed a complaint to recover the sum from them before the RTC of Makati. The RTC dismissed
the complaint for lack of merit. Court of Appeals affirmed. Before the Supreme Court she argued that the
encashment of her time deposit certificates was pactum commissorium.

Issue: Whether the encashment of Victoria’s time deposit certificates amount to pactum commissorium?

Held: No. Since the collateral in this case was also money, there was no need to sell the thing pledged at
public auction in order to satisfy the pledgor’s obligation. All that had to be done to convert the pledgor's
time deposit certificates into cash was to present them to the bank for encashment after due notice to
the debtor.

The encashment of the deposit certificates was not a pactum commissorium as prohibited under Article
2088 of the Civil Code. A pactum commissorium is a provision for the automatic appropriation of the
pledged or mortgaged property by the creditor in payment of the loan upon its maturity. This
prohibition is intended to protect the obligor, pledgor, or mortgagor against being overreached by his
creditor who holds a pledge or mortgage over property whose value is much more than the debt. Where,
as in this case, the security for the debt is also money deposited in a bank, the amount of which is even
less than the debt, it is not illegal for the creditor to encash the time deposit certificates to pay the debtors’
overdue obligation, with the latter’s consent.
Spouses Rabat vs PNB

Facts: Spouses Rabat applied, and were granted a loan by PNB, a medium term loan of P4,000,000, to
mature in 3 years. Petitioners signed a credit agreement and executed a real estate mortgage over 12
parcels of land. Thereafter petitioners failed to pay their outstanding balance when it became due. PNB
responded with a denial to request of petitioners for extension of time for settlement, subsequently
PNB filed for extrajudicial foreclosure of mortgage executed by petitioners. The Parcels of land were
sold at Public auction, with PNB as highest bidder at P3,874,800. The proceeds of the auction sale were
inadequate to satisfy entire obligation, so PNB sent additional demand letters to petitioners. PNB filed
with RTC of Manila a complaint for a sum of money, due to failure by petitioners to settle obligation
which had already amounted to P14,745,398.25 with interest, penalties, and other charges. Petitioners
in their answer assailed the validity of the auction sale, for want of notice to them before and after the
foreclosure sale, and the bid price was grossly inadequate and unconscionable.

The RTC dismissed the complaint. The auction sale of the properties were set aside, and PNB was
ordered to reconvey to petitioners the remaining properties after sufficient sale of properties to satisfy
the obligation. PNB appealed to CA, which upheld RTC’s decision for nullification of foreclosure sales.

PNB appealed to SC (G.R. No. 134406). SC granted the petition and the case was remanded to CA to
decide on the basis of the errors raised by PNB in its brief. CA amended its decision, resolving errors
assigned by PNB, but still affirmed RTC decision. On MR, however, CA found for PNB. Petitioners moved
for reconsideration, but was denied, hence appeal by them to SC.

Issue: Whether the inadequacy of PNB’s bid price renders the forced sale of the properties invalid.

Held: No. SC ruled against petitioners. The auction bid was valid. The mode of forced sale utilized was
an extrajudicial foreclosure of real estate mortgage which is governed by Act No. 3135, as amended. The
law reveals nothing to the effect that there should be a minimum bid price or that the winning bid
should be equal to the appraised value of the foreclosed property or to the amount owed by the
mortgage debtor. What is clearly provided is that a mortgage debtor is given the opportunity to redeem
the foreclosed property "within the term of one year from and after the date of sale." In the case at bar,
other than the mere inadequacy of the bid price at the foreclosure sale, respondent did not allege any
irregularity in the foreclosure proceedings nor did she prove that a better price could be had for her
property under the circumstances.

In Bank of the Philippine Islands, etc. v. Reyes: unlike in an ordinary sale, inadequacy of the price at a
forced sale is immaterial and does not nullify a sale since, in a forced sale, a low price is more beneficial
to the mortgage debtor for it makes redemption of the property easier.
Servicewide Specialist Inc. vs CA 320 SCRA 478

Facts: Respondent spouses Atty. Jesus and Elizabeth Ponce bought on installment a Holden Torana vehicle
from C. R. Tecson Enterprises. They executed a promissory note and a chattel mortgage on the vehicle in
favor of the C. R. Tecson Enterprises to secure payment of the note. The mortgage was registered both in
the Registry of Deeds and the Land Transportation Office.

C. R. Tecson Enterprises, in turn, executed a deed of assignment of said promissory note and chattel
mortgage in favor of Filinvest Credit Corporation with the conformity of respondent spouses. In 1976,
respondent spouses transferred and delivered the vehicle to Conrado R. Tecson by way of sale with
assumption of mortgage. Subsequently, Filinvest assigned all its rights and interest over the same
promissory note and chattel mortgage to petitioner Servicewide Specialists Inc. without notice to
respondent spouses. Due to the failure of respondent spouses to pay the installments under the
promissory note from October 1977 to March 1978, and despite demands to pay the same or to return
the vehicle, petitioner was constrained to file before the Regional Trial Court of Manila on May 22, 1978
a complaint for replevin with damages against them.

Respondent spouses denied any liability claiming they had already returned the car to Conrado Tecson
pursuant to the Deed of Sale with Assumption of Mortgage. They filed a third party complaint against
Conrado Tecson praying that in case they are adjudged liable to petitioner, Conrado Tecson should
reimburse them.

Issue: Whether the consent of the creditor- mortgagee necessary when the debtor-mortgagor alienates
the property to a third person?

Held: A mortgage credit may be alienated or assigned to a third person. The assignee’s consent is
necessary in order to bind him of the alienation of the mortgaged thing by the debtor-mortgagor .

In any case, applying by analogy Article 2128 of the Civil Code to a chattel mortgage, it appears that a
mortgage credit may be alienated or assigned to a third person. Since the assignee of the credit steps into
the shoes of the creditor-mortgagee to whom the chattel was mortgaged, it follows that the assignee’s
consent is necessary in order to bind him of the alienation of the mortgaged thing by the debtor-
mortgagor.

This is tantamount to a novation. As the new assignee, petitioner’s consent is necessary before
respondent spouses’ alienation of the vehicle can be considered as binding against third persons.
Petitioner is considered a third person with respect to the sale with mortgage between respondent
spouses and third party defendant Conrado Tecson.