checks to cover the unpaid electric and water bills the
CALIBO VS CA correctness of which Pablo said he still had to verify with Mike.
GR No. 120528 Jan 29, 2001
FACTS:
Pablo Abella – tractor owner
Mike Abella – son of Pablo
Calibo – lessor of Mike
On January 25, 1979, Pablo U. Abella purchased an
agricultural tractor which he used in his farm in Dagohoy,
Bohol. Sometime in 1985, Pablo Abella's son, Mike Abella
rented for residential purpose the house of defendant-
appellant Dionosio R. Calibo, Jr., in Tagbilaran City.
In October 1986, Pablo Abella pulled out his aforementioned
tractor from his farm in Dagohoy, Bohol, and left it in the
safekeeping of his son, Mike Abella, in Tagbilaran City. Mike
kept the tractor in the garage of the house he was leasing
from Calibo.
Since he started renting Calibo's house, Mike had been
religiously paying the monthly rentals therefor, but beginning
November of 1986, he stopped doing so. The following month,
Calibo learned that Mike had never paid the charges for
electric and water consumption in the leased premises which
the latter was duty-bound to shoulder. Thus, Calibo
confronted Mike about his rental arrears and the unpaid
electric and water bills.
During this confrontation, Mike informed Calibo that he (Mike)
would be staying in the leased property only until the end of
December 1986. Mike also assured Calibo that he would be
settling his account with the latter, offering the tractor as
security. Mike even asked Calibo to help him find a buyer for
the tractor so he could sooner pay his outstanding obligation.
In January 1987 when a new tenant moved into the house
formerly leased to Mike, Calibo had the tractor moved to the
garage of his father's house, also in Tagbilaran City.
Apprehensive over Mike's unsettled account, Calibo visited
him in his Cebu City address in January, February and March,
1987 and tried to collect payment. On all three occasions,
Calibo was unable to talk to Mike as the latter was reportedly
out of town. On his third trip to Cebu City, Calibo left word
with the occupants of the Abella residence thereat that there
was a prospective buyer for the tractor.
The following week, Mike saw Calibo in Tagbilaran City to
inquire about the possible tractor buyer. The sale, however,
did not push through as the buyer did not come back
anymore. When again confronted with his outstanding
obligation, Mike reassured Calibo that the tractor would
stand as a guarantee for its payment. That was the last time
Calibo saw or heard from Mike.
After a long while, or on November 22, 1988, Mike's father,
Pablo Abella, came to Tagbilaran City to claim and take
possession of the tractor. Calibo, however, informed Pablo
that Mike left the tractor with him as security for the payment
of Mike's obligation to him.
Pablo offered to write Mike a check for P2,000.00 in payment
of Mike's unpaid lease rentals, in addition to issuing postdated
Calibo told Pablo that he would accept the P2,000.00-check
only if the latter would execute a promissory note in his favor
to cover the amount of the unpaid electric and water bills.
Pablo was not amenable to this proposal. The two of them
having failed to come to an agreement, Pablo left and went
back to Cebu City, unsuccessful in his attempt to take
possession of the tractor."
On November 25, 1988, private respondent instituted an
ACTION FOR REPLEVIN, claiming ownership of the tractor
and seeking to recover possession thereof from petitioner. As
adverted to above, the trial court ruled in favor of private
respondent; so did the Court of Appeals when petitioner
appealed.
Petitioner’s (Calibo) contention:
 That the tractor in question was validly pledged to
him by private respondent's son Mike Abella to
answer for the latter's monetary obligations to
petitioner.
 that the tractor was left with him, in the concept of
an innkeeper, on deposit and that he may validly
hold on thereto until Mike Abella pays his
obligations.
 That even if Mike Abella were not the owner of the
tractor, a principal-agent relationship may be
implied between Mike Abella and private
respondent. He contends that the latter failed to
repudiate the alleged agency, knowing that his son
is acting on his behalf without authority when he
pledged the tractor to petitioner.
Respondent: asserts that the CA ruled appropriate on the
matter
ISSUE: WON there was a valid pledge over the tractor despite
the fact that the pledgor was not the absolute owner? NO
RULING:
CONTRACT OF PLEDGE
 The creditor is given the right to retain his debtor's
movable
 property in his possession, or in that of a third
person to whom it has been delivered, until the
debt is paid.
 For the contract to be valid, it is necessary that:
(1) the pledge is constituted to secure the
fulfillment of a principal obligation;
(2) the pledgor be the absolute owner of the thing
pledged; and (3) the person constituting the pledge
has the free disposal of his property, and in the
absence thereof, that he be legally authorized for
the purpose
"He who is not the owner or proprietor of the
property pledged or mortgaged to guarantee the
 fulfillment of a principal obligation, cannot legally
constitute such a guaranty as may validly bind the
property in favor of his creditor, and the pledgee or
mortgagee in such a case acquires no right
whatsoever in the property pledged or
mortgaged."
Application to the case:
As found by the trial court and affirmed by respondent court,
the pledgor in this case, Mike Abella, was not the absolute
owner of the tractor that was allegedly pledged to petitioner.
The tractor was owned by his father, private respondent, who
left the equipment with him for safekeeping. Clearly, the
SECOND REQUISITE for a valid pledge, that the pledgor be the
absolute owner of the property, is absent in this case.
Hence, there is no valid pledge.
Discussion:
So in this case, simple lang ang principle niya. It actually
applies Article 2085.The subject property is a tractor, so
movable siya. It actually talks about pledge.
The pledgor here, Mike Abella, subjected the tractor to a
pledge while in fact, hindi pala sakanya. It's actually owned
by his father. Binigay sakanya ng papa niya hindi para
ipasubject to a pledge but actually just for safekeeping.
Article 2085 is applicable wherein, before you can actually
have a valid contract of pledge, you should be the absolute
owner of the property. Or at least, you are actually
authorized by the absolute owner to subject the property to
a contract of pledge or mortgage. That's the ruling in the
case of Calibo vs. Court of Appeals.
Bangko sentral vs libo-on
GR No. 173864 Nov 23, 2015
FACTS:
Spouses Libo-on – owner of the parcel of land
Rural Bank of Hinigaran, Inc. – creditor of the spouses, debtor
of BSP
BSP – creditor of Rural Bank of Hinigaran, Inc.
On August 29, 1997 and September 17, 1997, respondent
Agustin Libo-on, together with his wife, Mercedes Libo-on
(Spouses Libo-on), secured loans from the Rural Bank of
Hinigaran, Inc., in the amounts of P100,000.00 and
P300,000.00, respectively.
The Spouses Libo-on executed promissory notes payable to
the order of the Rural Bank for a period of 360 days or until
August 24, 1998 and September 12, 1998, respectively. As
security for the loan, the Spouses Libo-on likewise executed a
Deed of Real Estate Mortgage over a parcel of land in favor of
the Rural Bank of Hinigaran.
Meanwhile, on September 19, 1997 and October 17, 1997, the
Rural Bank of Hinigaran, in turn, secured a loan with now
petitioner, Bangko Sentral ng Pilipinas (BSP) in the amount of
P800,000.00 and P640,000.00, respectively.
The Rural Bank of Hinigaran executed a document
denominated as "promissory note with trust receipt
agreement." As a security for the loan, the Rural Bank of
Hinigaran pledged and deposited to BSP promissory notes
with supporting TCTs, including the promissory note and TCT
of the Spouses Libo-ons mortgaged with the former.
On May 3, 2000, BSP demanded from the Spouses Libo-on the
payment of their outstanding loan with the Rural Bank of
Hinigaran. Despite BSP's demand, the Spouses Libo-on failed
to pay.
The loan obligation of the Rural Bank of Hinigaran with BSP
likewise fell due and demandable as the former failed to pay
its loan from BSP. As a result, BSP filed an application for
extrajudicial foreclosure against the mortgage security of the
Spouses Libo-on with the Rural Bank of Hinigaran.
However, before BSP could complete the auction sale, Agustin
Libo-on filed an ACTION AGAINST BSP FOR DAMAGES WITH
PRAYER FOR THE ISSUANCE OF A TEMPORARY RESTRAINING
ORDER AND A WRIT OF PRELIMINARY INJUNCTION.
The Spouses Libo-on contested the extrajudicial foreclosure of
their property and the notice of extrajudicial sale pursuant
thereto. The Spouses Libo-on argued that there is no privity of
contract between him and BSP as the latter was not
authorized by the Rural Bank of Hinigaran to .act on its behalf
nor was the mortgage assigned to it. They further claimed that
the amount sought to be satisfied by the foreclosure is way
beyond what they had contracted with Rural Bank
BSP’s contention:
BSP claimed that its authority to foreclose the subject
mortgage was by virtue of an alleged assignment of
credit, i.e., "Promissory Note with Trust Receipt Agreement"
executed by the Rural Bank of Hinigaran in their favor where
the latter assigned, deposited-and pledged the promissory
notes executed by the Spouses Libo-on including the contract
of real estate mortgage to it.
ISSUE: whether the BSP has the authority to foreclose the
subject mortgage? NO
RULING:
Assignment of credit
"An assignment of credit is an agreement by virtue of which
the owner of a credit, known as the assignor, by a legal cause,
such as sale, dation in payment, exchange or donation, and
without the consent of the debtor, transfers his credit and
accessory rights to another, known as the assignee, who
acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor.
It may be in the form of sale, but at times it may constitute
a dation in payment, such as when a debtor, in order to
obtain a release from his debt, assigns to his creditor a credit
he has against a third person." As a dation in payment,
the assignment of credit operates as a mode of extinguishing
the obligation; the delivery and transmission of ownership of
a thing (in this case, the credit due from a third person) by the
debtor to the creditor is accepted as the equivalent of the
performance of the obligation.15
BSP is persistent in claiming that there was a valid assignment
of credit by virtue of the promissory note with trust receipt
issued by the Rural Bank of Hinigaran in its favor.
However, other than BSP's allegation of assignment of credit,
there was no document denominated as deed of assignment
of credit/mortgage ever presented to show that the Rural
Bank of Hinigaran has indeed transferred its rights to BSP.
Even if we follow BSP's argument that the promissory note
with trust receipt was actually an assignment of credit, the
same will still not hold as BSP foiled to comply with the
formalities required by law for a valid assignment of credit
involving real property.
Indeed, a mortgage credit is a REAL RIGHT, thus, the formality
required by law for its transfer or assignment, i.e., it must be
in a public instrument and must be registered and should be
complied with in order to bind third person.
The mere pledge and deposit of the mortgage contract,
transfer certificate of title and promissory note executed by
the the Rural Bank of Hinigaran in favor o'f BSP, does not
produce the effect of giving BSP the authority to intervene
with the transaction between the Spouses Libo-on and the
Rural Bank of Hinigaran, much less foreclose the mortgaged
property of the Spouses Libo-on.
In the absence of a notarized deed of assignment, BSP cannot
be considered as an assignee who can proceed against the
Spouses Libo-on's property.
Moreover, the Rural Bank of Hinigaran in fact HAS NO
AUTHORITY TO PLEDGE THE SECURITY DOCUMENTS to BSP
during the term of the real estate mortgage contract between
the Rural Bank of Hinigaran and the Spouses Libo-on because
if it is within the term of the contract, the mortgaged property
remains to be the property of the latter.
It must be stressed that for a contract of pledge to be valid, it
is necessary that:
(1) the pledge is constituted to secure the fulfillment of a
principal obligation;.
(2) the pledgor be the absolute owner of the thing pledged;
and
(3) the person constituting the pledge has the free disposal of
his property, and in the absence thereof, that he be legally
authorized for the purpose.
Application to the case:
Here, the Rural Bank of Hinigaran was neither the absolute
owner of the subject property nor the security documents it
had pledged to BSP, since again, at the time of the transaction
between the Rural Bank of Hinigaran and BSP on September
19, 1997, there is still an existing real estate mortgage
contract between the Spouses Libo-on and the Rural Bank of
Hinigaran. The possession of the security documents was
given to the Rural Bank of Hinigaran merely as security
collateral in case of non-payment of the loan.
Its only purpose is to guarantee the fulfillment of the Spouses
Libo-on's obligation and, in case of default on the part of the
latter, the Rural Bank of Hinigaran as credit-mortgagee may
execute the obligation on the real property given as a
mortgage by way of judicial or extrajudicial foreclosure.
Thus, unless the subject property is foreclosed and there was
subsequent consolidation of title, the Spouses Libo-on remains
to be the owner of the subject property. Given these
circumstances, the Rural Bank of Hinigaran could not have
constituted a valid pledge on the subject property's TCT. That
the pledgor be the absolute owner of the thing pledged is an
essential requisite of a contract of pledge.
He who is-not the owner or proprietor of the property
pledged or mortgaged to guarantee the fulfillment of a
principal obligation, cannot legally constitute such a guaranty
as may validly bind the property in favor of his creditor, and
the pledgee or mortgagee in such a case acquires no right
whatsoever in the property pledged or mortgaged.2
Discussion:
So this case still talks about Article 2085 (2) of the Civil Code.
Here, the pledgor is the Rural Bank of Hinigaran, however, the
absolute owner of the property subject of the security here is
actually the Spouses Libo-on. So because of the fact that the
pledgor is not the absolute owner of the property, there is no
valid contract of pledge or mortgage. Hence, yung mortgagee
or pledgee, wala siyang right to actually foreclose that
property later on, because of the fact nthat in the first place,
wala namang valid contract of pledge or mortgage.
Class,bear with the cases. Most of them actually discuss Article
2085. Number 2 lang pa jud. But at least you would know na
most probably, there would be questions regarding provisions
common to pledge or mortgage. Naa lang gyud na siya sa
Article 2085 (2) and Article 2088.
On May 3, 2000, BSP demanded from the Spouses Libo-on
the payment of their outstanding loan with the Rural Bank of
Hinigaran. Despite BSP's demand, the Spouses Libo-on failed
Development bank vs prudential
bank
GR No. 143772 Nov 22, 2005
FACTS:
Litex – mortgagor
DBP – mortgagee
Prudential bank – held the mortgaged property under trust
receipt
In 1973, Lirag Textile Mills, Inc. (Litex) opened an irrevocable
commercial letter of credit with respondent Prudential Bank
for US$498,000. These were released to Litex under covering
"trust receipts" it executed in favor of Prudential Bank. On
October 10, 1980, DBP granted a foreign currency loan in the
amount of US$4,807,551 to Litex.
To secure the loan, Litex executed real estate and chattel
mortgages on its plant site in Montalban, Rizal, including the
buildings and other improvements, machineries and
equipments there. Among the machineries and equipments
mortgaged in favor of DBP were the articles covered by the
"trust receipts."
Sometime in June 1982, Prudential Bank learned about DBP’s
plan for the overall rehabilitation of Litex. In a July 14, 1982
letter, Prudential Bank notified DBP of its claim over the
various items covered by the "trust receipts" which had been
installed and used by Litex in the textile mill. Prudential Bank
informed DBP that it was the absolute and juridical owner of
the said items and they were thus not part of the mortgaged
assets that could be legally ceded to DBP.
For the failure of Litex to pay its obligation, DBP extra-
judicially foreclosed on the real estate and chattel
mortgages, including the articles claimed by Prudential Bank.
Subsequently, DBP caused to be published in the September 2,
1984 an invitation to bid in the public sale to be held on
September 10, 1984. Learning of the intended public auction,
Prudential Bank wrote a letter dated September 6, 1984 to
DBP reasserting its claim over the items covered by "trust
Cavite dev’t bank vs spouses lim
receipts" in its name and advising DBP not to include them in
the auction. It also demanded the turn-over of the articles or
alternatively, the payment of their value.
Without the knowledge of Prudential Bank, however, DBP sold
the Litex textile mill, as well as the machineries and
equipments therein, to Lyon Textile Mills, Inc. (Lyon) on June
8, 1987. Since its demands remained unheeded, Prudential
Bank filed a complaint for a sum of money with damages
against DBP 
DBP Contention: he disputed articles were not proper objects
of a trust receipt agreement
ISSUE: Whether or not the chattel mortgage covers the goods
under the trust receipt? NO
RULING:
Article 2085 (2) of the Civil Code requires that, in a contract of
pledge or mortgage, it is essential that the pledgor or
mortgagor should be the absolute owner of the thing pledged
or mortgaged.
Article 2085 (3) further mandates that the person constituting
the pledge or mortgage must have the free disposal of his
property, and in the absence thereof, that he be legally
authorized for the purpose.
Litex had neither absolute ownership, free disposal nor the
authority to freely dispose of the articles. Litex could not have
subjected them to a chattel mortgage. Their inclusion in the
mortgage was void7and had no legal effect.
There being no valid mortgage, there could also be no valid
foreclosure or valid auction sale.9 Thus, DBP could not be
considered either as a mortgagee or as a purchaser in good
faith
No one can transfer a right to another greater than what he
himself has. Nemo dat quod non habet. Hence, Litex could not
transfer a right that it did not have over the disputed items.
Corollarily, DBP could not acquire a right greater than what its
predecessor-in-interest had. The spring cannot rise higher
than its source.
DBP merely stepped into the shoes of Litex as trustee of the
imported articles with an obligation to pay their value or to
return them on Prudential Bank’s demand. By its failure to pay
or return them despite Prudential Bank’s repeated demands
and by selling them to Lyon without Prudential Bank’s
knowledge and conformity, DBP became a trustee ex
maleficio.
Discussion: So, in this case, same principle, Article 2085 (2).
Since he's not the absolute owner of the property, then he
mortgaged it, there was actually no valid contract of mortgage
in the first place. And since there is no valid contract of
mortgage, the resulting foreclosure sale or auction sale later
on will also be deemed void.
GR No. 131679 Feb 1, 2000
FACTS:
CDB – mortgagee of Rodolfo
Rodolfo Guansing – mortgagor of CDB
Perfecto Guansing – father of Rodolfo, owner of the land
Lolita Chan Lim – buyer of the land in the foreclosure sale
Petitioners Cavite Development Bank (CDB) and Far East Bank
and Trust Company (FEBTC) are banking institutions duly
organized and existing under Philippine laws. On or about June
15, 1983, a certain Rodolfo Guansing obtained a loan in the
amount of P90,000.00 from CDB, to secure which he
mortgaged a parcel of land.
As Guansing defaulted in the payment of his loan, CDB
foreclosed the mortgage. At the foreclosure sale held on
March 15, 1984, the mortgaged property was sold to CDB as
the highest bidder. Guansing failed to redeem, and on March
2, 1987, CDB consolidated title to the property in its name.
On June 16, 1988, private respondent Lolita Chan Lim, offered
to purchase the property from CDB. The written Offer to
Purchase, signed by Lim and Gatpandan, states in part:
We hereby offer to purchase your property at #63 Calavite and Retiro
Sts., La Loma, Quezon City for P300,000.00 under the following terms
and conditions:
(1) 10% Option Money;
(2) Balance payable in cash;
(3) Provided that the property shall be cleared of illegal occupants or
tenants.
Pursuant to the foregoing terms and conditions of the offer,
Lim paid CDB P30,000.00 as Option Money. However, after
some time following up the sale, Lim discovered that the
subject property was originally registered in the name of
Perfecto Guansing, father of mortgagor Rodolfo Guansing.
Rodolfo succeeded in having the property registered in his
name, the same title he mortgaged to CDB. It appears,
however, that the father, Perfecto, instituted Civil in the
Regional Trial Court for the cancellation of his son's title.
On March 23, 1984, the trial court rendered a decision
restoring Perfecto's previous title and cancelling TCT No.
300809 on the ground that the latter was fraudulently secured
by Rodolfo. This decision has since become final and
executory.
Aggrieved by what she considered a serious misrepresentation
by CDB and its mother-company, FEBTC, on their ability to sell
the subject property, Lim, joined by her husband, filed on
August 29, 1989 an ACTION FOR SPECIFIC PERFORMANCE
AND DAMAGES against petitioners in the Regional Trial Court,
the complaint was amended by impleading the Register of
Deeds of Quezon City as an additional defendant.
CDB contention:
Petitioners deny that a contract of sale was ever perfected
between them and private respondent Lolita Chan Lim. They
contend that Lim's letter-offer clearly states that the sum of
P30,000,00 was given as option money, not as earnest money.
They thus conclude that the contract between CDB and Lim
was merely an option contract, not a contract of sale.
ISSUE:
Was there a contract of sale? – There was a perfected
contract of sale but CDB did not have a valid title to the
property.
RULING:
A. AS TO WON THERE WAS IT IS A CONT OF
SALE OR OPTION CONTRACT- CONTRACT
OF SALE
The contention has no merit. Contracts are not defined by the
parries thereto but by principles of law. In determining the
nature of a contract, the courts are not bound by the name or
title given to it by the contracting parties. In the case at bar,
the sum of P30,000.00, although denominated in the offer to
purchase as "option money," is actually in the nature of
earnest money or down payment when considered with the
other terms of the offer.
An option contract is therefore a contract separate from and
preparatory to a contract of sale which, if perfected, does not
result in the perfection or consummation of the sale. Only
when the option is exercised may a sale be perfected.
In this case, however, after the payment of the 10% option
money, the Offer to Purchase provides for the payment only
of the balance of the purchase price, implying that the
"option money" forms part of the purchase price. This is
precisely the result of paying earnest money under Art. 1482
of the Civil Code. It is clear then that the parties in this case
actually entered into a contract of sale, partially
consummated as to the payment of the price
Given CDB's acceptance of Lim's offer to purchase, it appears
that a contract of sale was perfected and, indeed, partially
executed because of the partial payment of the purchase
price. There is, however, a serious legal obstacle to such sale,
rendering it impossible for CDB to perform its obligation as
seller to deliver and transfer ownership of the property.
Nemo dat quod non habet, as an ancient Latin maxim says.
One cannot give what one does not have. In applying this
precept to a contract of sale, a distinction must be kept in
mind between the "perfection" and "consummation" stages of
the contract.
B. WAS THERE A PERFECTED CONTRACT OF
SALE (foreclosure sale) – THERE WAS A
PERFECTED SALE, BUT RENDERED
INEFFECTIVE OR VOID
A contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the
contract and upon the price. It is, therefore, not required that,
at the perfection stage, the seller be the owner of the thing
sold or even that such subject matter of the sale exists at that
point in time. Thus, under Art. 1434 of the Civil Code, when a
person sells or alienates a thing which, at that time, was not
his, but later acquires title thereto, such title passes by
operation of law to the buyer or grantee. This is the same
principle behind the sale of "future goods" under Art. 1462 of
the Civil Code. However, under Art. 1459, at the time of
delivery or consummation stage of the sale, it is required that
the seller be the owner of the thing sold. Otherwise, he will
not be able to comply with his obligation to transfer
ownership to the buyer. It is at the consummation stage where
the principle of nemo dat quod non habet applies.
A contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the
contract and upon the price.10 It is, therefore, not required
that, at the perfection stage, the seller be the owner of the
thing sold or even that such subject matter of the sale exists at
that point in time.
Thus, under Art. 1434 of the Civil Code, when a person sells or
alienates a thing which, at that time, was not his, but later
acquires title thereto, such title passes by operation of law to
the buyer or grantee. This is the same principle behind the
sale of "future goods" under Art. 1462 of the Civil Code.
However, under Art. 1459, at the time of delivery or
consummation stage of the sale, it is required that the seller
be the owner of the thing sold. Otherwise, he will not be able
to comply with his obligation to transfer ownership to the
buyer. It is at the consummation stage where the principle
of nemo dat quod non habet applies.
C. FORECLOSURE SALE IN RELATION TO THE
MORTGAGE
In this case, the sale by CDB to Lim of the property mortgaged
in 1983 by Rodolfo Guansing must, therefore, be deemed a
nullity for CDB did not have a valid title to the said property.
To be sure, CDB never acquired a valid title to the property
because the foreclosure sale, by virtue of which, the property
had been awarded to CDB as highest bidder, is likewise void
since the mortgagor was not the owner of the property
foreclosed.
A foreclosure sale, though essentially a "forced sale," is
still a sale in accordance with Art. 1458 of the Civil Code,
under which the mortgagor in default, the forced seller,
becomes obliged to transfer the ownership of the thing sold to
the highest bidder who, in turn, is obliged to pay therefor the
bid price in money or its equivalent.
Being a sale, the rule that the seller must be the owner of
the thing sold also applies in a foreclosure sale. This is the
reason Art. 2085 of the Civil Code, in providing for the
essential requisites of the contract of mortgage and pledge,
requires, among other things, that the mortgagor or pledgor
be the absolute owner of the thing pledged or mortgaged, in
anticipation of a possible foreclosure sale should the
mortgagor default in the payment of the loan.
Important part: exception na kahit hndi owner sa
property mortgaged pwede maging valid ang
foreclosure sale
There is, however, a situation where, despite the fact that the
mortgagor is not the owner of the mortgaged property, his
title being fraudulent, the mortgage contract and any
foreclosure sale arising therefrom are given effect by reason
of public policy.
This is the:
doctrine of "the mortgagee in good faith "
 based on the rule that all persons dealing with
property covered by a Torrens Certificate of Title,
as buyers or mortgagees, are not required to go
beyond what appears on the face of the title.
 The public interest in upholding the indefeasibility
of a certificate of title, as evidence of the lawful
ownership of the land or of any encumbrance
thereon, protects a buyer or mortgagee who, in
good faith, relied upon what appears on the face of
the certificate of title.
This principle is cited by petitioners in claiming that, as a
mortgagee bank, it is not required to make a detailed
investigation of the history of the title of the property given as
security before accepting a mortgage.
We are not convinced, however, that under the circumstances
of this case, CDB can be considered a mortgagee in good faith.
While petitioners are not expected to conduct an exhaustive
investigation on the history of the mortgagor's title, they
cannot be excused from the duty of exercising the due
diligence required of banking institutions.
In Tomas v. Tomas, we noted that it is standard practice for
banks, before approving a loan, to send representatives to the
premises of the land offered as collateral and to investigate
who are real owners thereof, noting that banks are expected
to exercise more care and prudence than private individuals in
their dealings, even those involving registered lands, for their
business is affected with public interest. (OCULAR
INSPECTION)
Application to the case:
In this case, there is no evidence that CDB observed its duty of
diligence in ascertaining the validity of Rodolfo Guansing's
title. It appears that Rodolfo Guansing obtained his fraudulent
title by executing an Extra-Judicial Settlement of the Estate
With Waiver where he made it appear that he and Perfecto
Guansing were the only surviving heirs entitled to the
property, and that Perfecto had waived all his rights thereto.
This self-executed deed should have placed CDB on guard
against any possible defect in or question as to the
mortgagor's title. Moreover, the alleged ocular inspection
report by CDB's representative was never formally offered in
evidence. Indeed, petitioners admit that they are aware that
the subject land was being occupied by persons other than
Rodolfo Guansing and that said persons, who are the heirs of
Perfecto Guansing, contest the title of Rodolfo.
Discussion: This is a very good case since it cites an exception
to Article 2085 (2).
As a General rule: If you're not the absolute owner of the
property, there could be no valid pledge or mortgage in the
first place. But in this case, there is an exception, which is the
Doctrine of Mortgagee in Good Faith. What does this actually
say?
For example: There was a land, a real property, subject to a
contract of mortgage. It was actually used to secure the
property. Then the creditor exercises due diligence- he is a
mortgagee in good faith, tiningnan niya talaga kung yung
property nakapangalan talaga kay debtor. Pinuntahan niya
talaga yung property. Pagcheck niya, ang nakatira talaga dun si
debtor.
If he did all these, he actually checked the validity of the
properties subject to the mortgage, chineck niya talaga ang
owner ay si mortgagor, the creditor can actually be said to be
a mortgagee in good faith. But, for example, there are
instances when you trace a title, malaman mo nalang na wala
pala siyang precedent title. So there are actually things like
that where you are not expected, as a mortgagee, to go
through that lengthy process to actually check if valid ba yung
title ni pledgee or mortgagor.
If you did exercises that could actually make you a mortgagee
in good faith, then the exception applies to you. But if you
didn't, then the general rule applies to you that under Article
2085 (2), that the mortgagor must be the absolute owner
before the contract of pledge or mortgage can actually be
deemed valid. So remember that .Always remember as well
that an argument invoking the Doctrine of mortgagee in good
faith is less inclined to be granted in favor of banks. Because
when we talk about banking institutions, they are actually
dealing with public interest and they are required to practice
high degree of diligence, as compared to private individuals.
Here in this case, it was discussed that as a bank, dapat mas
naging careful siya and nag take in further sa details.
I remember, I have also encountered a case like this. There
was a financial institution, tapos nagpautang sila and merong
mortgage na involved. Hindi nakabayad yung debtor, and now
they want to foreclose the real estate mortgage. At the face of
the title, the mortgagor was actually the owner. It looks well
and good on its face. When we checked (had due diligence).
We discovered na walang precedent title. The precedent title
provided actually refers to another land. Wala din silang
certain plans. Ang question is, itong client namin na bank, can
we actually say that it is a mortgagee in good faith? can we go
to the exception or wala tlagang valid contract of mortgage in
the first place? But when you actually look at the title, hindi
naman talga halata. Just remember that especially later on,
the first na hanapin sainyo in court is if you did an ocular
inspection. If you do that, medyo pwede ka nang pumasok dun
sa doctrine of mortgagee in good faith. Just make sure si
mortgagor lang talaga yung andun sa subject property.
Vda de jayme vs ca
GR No. 128669 October 4, 2002
FACTS:
Spouses Jayme – owners of the property
Neri – president of Asiancars
MBTC – mortgagee of the land which Asiancars mortgaged
The spouses Graciano and Mamerta Jayme are the registered
owners of Lot 2700, situated in the Municipality of Mandaue
(now Mandaue City), Cebu. On January 8, 1973, they entered
into a Contract of Lease with George Neri, president of Airland
Motors Corporation (now Cebu Asiancars Inc.), covering one-
half of Lot 2700. The lease was for twenty (20) years.
The terms and conditions of the lease contract stipulated that
Cebu Asiancars Inc. (hereafter, Asiancars) may use the leased
premises as a collateral to secure payment of a loan which
Asiancars may obtain from any bank, provided that the
proceeds of the loan shall be used solely for the construction
of a building which, upon the termination of the lease or the
voluntary surrender of the leased premises before the
expiration of the contract, shall automatically become the
property of the Jayme spouses (the lessors).
A Special Power of Attorney dated January 26, 1974, was
executed in favor of respondent George Neri, who used the lot
to secure a loan of P300,000 from the General Bank and Trust
Company. The loan was fully paid on August 14, 1977.
In October 1977, Asiancars obtained a loan of P6,000,000 from
the Metropolitan Bank and Trust Company (MBTC). The entire
Lot 2700 was offered as one of several properties given as
collateral for the loan. As mortgagors, the spouses signed a
Deed of Real Estate Mortgage dated November 21, 1977 in
favor of MBTC. It stated that the deed was to secure the
payment of a loan obtained by Asiancars from the bank.
To assure the Jayme spouses, Neri and the other officers of
Asiancars, namely Benny Liongben Lee, William Leong Koc Lee,
Connie U. Neri, Edward James Lee, Roberto Uykim and Charles
P. Uykim, executed an undertaking dated November 7, 1977.
In it they promised, in their personal capacities and/or in
representation of Cebu Asiancars, Inc., "to compensate Mr. &
Mrs. Graciano Jayme for any and all or whatever damage they
may sustain or suffer by virtue and arising out of the mortgage
to MBTC of the aforestated parcel of land." In addition, Neri
wrote a letter addressed to Mamerta Jayme acknowledging
her "confidence and help" extended to him, his family and
Asiancars. He promised to pay their indebtedness to MBTC
before the loan was due.
Meeting financial difficulties and incurring an outstanding
balance on the loan, Asiancars conveyed ownership of the
building on the leased premises to MBTC, by way of "dacion
en pago." The building was valued at P980,000 and the
amount was applied as partial payment for the loan. There still
remained a balance of P2,942,449.66, which Asiancars failed
to pay.
Eventually, MBTC extrajudicially foreclosed the mortgage.
Meanwhile, Graciano Jayme died, survived by his widow
Mamerta and their children. As a result of the foreclosure,
Graciano’s heirs filed a civil complaint, for Annulment of
Contract with Damages with Prayer for Issuance of Preliminary
Injunction, against respondent Asiancars, its officers and
incorporators and MBTC. Later, in 1999, Mamerta Jayme also
passed away.
Petitioner’s (heirs) contention:
 that Neri and Asiancars did not tell them that the
indebtedness secured by the mortgage was for
P6,000,000 and that the security was the whole of
Lot 2700.
 that the Jayme spouses were illiterate and only
knew how to sign their names. That because they
did not know how to read nor write, and had given
their full trust and confidence to George Neri, the
spouses were deceived into signing the Deed of
Real Estate Mortgage. Their intention as well as
consent was only to be bound as guarantors.
ISSUE: WON the dacion en pago by Asiancars in favor of MBTC
is valid and binding despite the stipulation in the lease
contract that ownership of the building will vest on the Jaymes
at the termination of the lease. YES
RULING:
The facts show that the spouses affixed their signature on the
Deed of Real Estate Mortgage, in the presence of two
instrumental witnesses, and duly notarized by Atty. Rodolfo Y.
Cabrera. As a notarized document, it has in its favor the
presumption of regularity, and to overcome this
presumption, there must be evidence that is clear,
convincing and more than merely preponderant that there
was irregularity in its execution; otherwise, the document
should be upheld.
The Deed of Real Estate Mortgage entered into by the Jayme
spouses partake of a Third Party Mortgage under Art. 2085 (3)
of the Civil Code which reads:
The following requisites are essential to the contracts of
pledge and mortgage: xxx
(3) That the persons constituting the pledge or mortgage
have the free disposal of their property, and in the
absence thereof, that they be legally authorized for the
purpose.
Third persons who are not parties to the principal
obligation may secure the latter by pledging or
mortgaging their own property.
(since ang spouses ang may-ari ng ppty nahulog na ngpayag
sila na imortgage ang property nila in favor of the bank sad  )
In the case of Lustan vs. CA, et al., this Court recognized the
abovecited provision and held that "so long as valid consent
was given, the fact that the loans were solely for the benefit of
(the debtor) would not invalidate the mortgage with respect
to petitioner’s property. In consenting thereto even granting
that petitioner may not be assuming personal liability for the
debt, her property shall nevertheless secure and respond for
the performance of the principal obligation."
Clearly, the law recognizes instances when persons
not directly parties to a loan agreement may give
as security their own properties for the principal
transaction.
With the assistance of a lawyer and consultation with their
literate children, the spouses though illiterate could not feign
ignorance of the stipulations in the deed. Patently, theirs was
not a vitiated consent. It could not now be justifiably asserted
by petitioners that the Jayme spouses only intended to be
bound as guarantors and not as mortgagors.
In this jurisdiction, when the property of a third person which
has been expressly mortgaged to guarantee an obligation to
which the said person is a stranger, said property is directly
and jointly liable for the fulfillment thereof, in the same
manner as the mortgaged property of the debtor himself.
In the case at bar, when Asiancars failed to pay its obligations
with MBTC, the properties given as security (one of them
being the land owned by the Jaymes) became subject to
foreclosure. When several things are given to secure the same
debt in its entirety, all of them are liable for the debt, and the
creditor does not have to divide his action by distributing the
debt among the various things pledged or mortgaged. Even
when only a part of the debt remains unpaid, all the things
are liable for such balance.
The alienation of the building by Asiancars in favor of MBTC
for the partial satisfaction of its indebtedness is, in our view,
also valid. The ownership of the building had been effectively
in the name of the lessee -mortgagor (Asiancars), though with
the provision that said ownership be transferred to the Jaymes
upon termination of the lease or the voluntary surrender of
the premises. The lease was constituted on January 8, 1973
and was to expire 20 years thereafter, or on January 8, 1993.
The alienation via dacion en pago was made by Asiancars to
MBTC on December 18, 1980, during the subsistence of the
lease. At this point, the mortgagor, Asiancars, could validly
exercise rights of ownership, including the right to alienate it,
as it did to MBTC.
The real estate mortgage was actually a third party
mortgage which is explained under Article 2085
(3). This recognizes instances wherein third
persons, not directly a party to the loan agreement,
may give as security their own properties for the
principal transaction.
Q: What do you call that? Another term for that
third party in a mortgage or pledge?
A: Accommodation mortgagor or pledgor.
Q: There was also a discussion here regarding the
provision that contracts of pledge or mortgage is
actually indivisible. There was a discussion
regarding the indivisibility of a pledge or mortgage.
Why?
A: It was also added here by the Court that when
the property of a third person which has been
expressly mortgaged to guarantee an obligation to
which the said person is a stranger, said property
is directly and jointly liable for the fulfillment thereof
in the same manner as the mortgaged property of
the debtor himself. In the case, when Asiancars
failed to pay its obligations, the properties given as
security which includes the property of the Jaymes,
then became subject to foreclosure. It was stated
here that when several properties or several things
are given to secure the same debt, in its entirety,
all of them are liable for the debt, and the creditor
does not have to divide his action by distributing
the debt among the various things pledged or
mortgaged, even when only a part of the debt
remains unpaid, all the things are liable for such
balance.
Discussion: Remember this case. It discussed
an Accommodation mortgagor and Article 2085 (3)
and finally, the principle that a mortgage or pledge
is actually indivisible
MANILA BANKING VS
TEODORO
GR No. 53955 January 13, 1989
FACTS:
On April 25, 1966, defendants, together with Anastacio
Teodoro, Sr., jointly and severally, executed in favor of plaintiff
a Promissory Note (No. 11487) for the sum of P10,420.00
payable in 120 days, or on August 25, 1966, at 12% interest
per annum. Defendants failed to pay the said amount inspire
of repeated demands and the obligation as of September 30,
1969 stood at P 15,137.11 including accrued interest and
service charge.
On May 3, 1966 and June 20, 1966, defendants Anastacio
Teodoro, Sr. (Father) and Anastacio Teodoro, Jr. (Son)
executed in favor of plaintiff two Promissory Notes (Nos.
11515 and 11699) for P8,000.00 and P1,000.00 respectively,
payable in 120 days at 12% interest per annum. Father and
Son made a partial payment on the May 3, 1966 promissory
Note but none on the June 20, 1966 Promissory Note, leaving
still an unpaid balance of P8,934.74 as of September 30, 1969
including accrued interest and service charge.
It appears that on January 24, 1964, the Son executed in favor
of plaintiff a Deed of Assignment of Receivables from the
Emergency Employment Administration in the sum of
P44,635.00. The Deed of Assignment provided that it was for
and in consideration of certain credits, loans, overdrafts and
other credit accommodations extended to defendants as
security for the payment of said sum and the interest thereon,
and that defendants do hereby remise, release and quitclaim
all its rights, title, and interest in and to the accounts
receivables. Further.
(1) The title and right of possession to said accounts receivable is to
remain in the assignee, and it shall have the right to collect the same
from the debtor, and whatsoever the Assignor does in connection with
the collection of said accounts, it agrees to do as agent and
representative of the Assignee and in trust for said Assignee ;
xxx xxx xxx
(6) The Assignor guarantees the existence and legality of said accounts
receivable, and the due and punctual payment thereof unto the
assignee, ... on demand, ... and further, that Assignor warrants the
solvency and credit worthiness of each and every account.
(7) The Assignor does hereby guarantee the payment when due on all
sums payable under the contracts giving rise to the accounts receivable
... including reasonable attorney's fees in enforcing any rights against
the debtors of the assigned accounts receivable and will pay upon
demand, the entire unpaid balance of said contract in the event of non-
payment by the said debtors of any monthly sum at its due date or of
any other default by said debtors;
xxx xxx xxx
(9) ... This Assignment shall also stand as a continuing guarantee for any
and all whatsoever there is or in the future there will be justly owing
from the Assignor to the Assignee ...
In their stipulations of Fact, it is admitted by the parties that
plaintiff extended loans to defendants on the basis and by
reason of certain contracts entered into by the defunct
Emergency Employment Administration (EEA) with defendants
for the fabrication of fishing boats, and that the Philippine
Fisheries Commission succeeded the EEA after its abolition;
that non-payment of the notes was due to the failure of the
Commission to pay defendants after the latter had complied
with their contractual obligations; and that the President of
plaintiff Bank took steps to collect from the Commission, but
no collection was effected.
For failure of defendants to pay the sums due on the
Promissory Note, this action was instituted on November 13,
1969, originally against the Father, Son, and the latter's wife.
Because the Father died, however, during the pendency of the
suit, the case as against him was dismiss under the provisions
of Section 21, Rule 3 of the Rules of Court. The action, then is
against defendants Son and his wife for the collection of the
sum of P 15,037.11 on Promissory Note No. 14487; and
against defendant Son for the recovery of P 8,394.7.4 on
Promissory Notes Nos. 11515 and 11699, plus interest on both
amounts at 12% per annum from September 30, 1969 until
fully paid, and 10% of the amounts due as attorney's fees.
Neither of the parties presented any testimonial evidence and
submitted the case for decision based on their Stipulations of
Fact and on then, documentary evidence.
ISSUES:
 (1) whether or not the assignment of receivables has the
effect of payment of all the loans contracted by appellants
from appellee bank; NO
(2) whether or not appellee bank must first exhaust all legal
remedies against the Philippine Fisheries Commission before it
can proceed against appellants for collections of loan under
the promissory notes which re plaintiffs bases in the action for
collection in Civil Case No. 78178. NO.
RULING:
ISSU
E #1
It is evident that the assignment of receivables executed by
appellants on January 24, 1964 did not transfer the ownership
of the receivables to appellee bank and release appellants
from their loans with the bank incurred under promissory
notes Nos. 11487,11515 and 11699.
The Deed of Assignment provided that it was for and in
consideration of certain credits, loans, overdrafts, and their
credit accommodations in the sum of P10,000.00 extended to
appellants by appellee bank, and as security for the payment
of said sum and the interest thereon; that appellants as
assignors, remise, release, and quitclaim to assignee bank all
their rights, title and interest in and to the accounts receivable
assigned (lst paragraph).
It was further stipulated that the assignment will also stand
as a continuing guaranty for future loans of appellants to
appellee bank and correspondingly the assignment shall also
extend to all the accounts receivable; appellants shall also
obtain in the future, until the consideration on the loans
secured by appellants from appellee bank shall have been fully
paid by them (No. 9).
The position of appellants, however, is that the deed of
assignment is a quitclaim in consideration of their
indebtedness to appellee bank, not mere guaranty, in view of
the following provisions of the deed of assignment. The
character of the transactions between the parties is not,
however, determined by the language used in the document
but by their intention. 
Definitely, the assignment of the receivables did not result
from a sale transaction. It cannot be said to have been
constituted by virtue of a dation in payment for appellants'
loans with the bank evidenced by promissory note Nos. 11487,
11515 and 11699 which are the subject of the suit for
collection in Civil Case No. 78178.
At the time the deed of assignment was executed, said loans
were non-existent yet. The deed of assignment was executed
on January 24, 1964 (Exh. "G"), while promissory note No.
11487 is dated April 25, 1966 (Exh. 'A), promissory note
11515, dated May 3, 1966 (Exh. 'B'), promissory note 11699,
on June 20, 1966 (Exh. "C").
At most, it was a dation in payment for P10,000.00, the
amount of credit from appellee bank indicated in the deed of
assignment. At the time the assignment was executed, there
was no obligation to be extinguished except the amount of
P10,000.00. Moreover, in order that an obligation may be
extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that
the old and the new obligations be on every point
incompatible with each other (Article 1292, New Civil Code).
Obviously, the deed of assignment was intended as collateral
security for the bank loans of appellants, as a continuing
guaranty for whatever sums would be owing by defendants to
plaintiff, as stated in stipulation No. 9 of the deed.
 In case of doubt as to whether a transaction is a
pledge or a dation in payment, the presumption is in
favor of pledge, the latter being the lesser
transmission of rights and interests
In one case, the assignments of rights, title and interest of the
defendant in the contracts of lease of two buildings as well as
her rights, title and interest in the land on which the buildings
were constructed to secure an overdraft from a bank
amounting to P110,000.00 which was increased to
P150,000.00, then to P165,000.00 was considered by the
Court to be documents of mortgage contracts inasmuch as
they were executed to guarantee the principal obligations of
the defendant consisting of the overdrafts or the indebtedness
resulting therefrom. The Court ruled that an assignment to
guarantee an obligation is in effect a mortgage and not an
absolute conveyance of title which confers ownership on the
assignee
ISSUE #2
As to whether or not appellee bank must have to exhaust all
legal remedies against the Philippine Fisheries Commission
before it can proceed against appellants for collection of loans
under their promissory notes, must also be answered in the
negative.
The obligation of appellants under the promissory notes not
having been released by the assignment of receivables,
appellants remain as the principal debtors of appellee bank
rather than mere guarantors. The deed of assignment merely
guarantees said obligations. That the guarantor cannot be
compelled to pay the creditor unless the latter has exhausted
all the property of the debtor, and has resorted to all the legal
remedies against the debtor, under Article 2058 of the New
Civil Code does not therefore apply to them.
It is of course of the essence of a contract of pledge or
mortgage that when the principal obligation becomes due, the
things in which the pledge or mortgage consists may be
alienated for the payment to the creditor (Article 2087, New
Civil Code).
Application to the case:
In the instant case, appellants are both the principal debtors
and the pledgors or mortgagors. Resort to one is, therefore,
resort to the other.
Appellee bank did try to collect on the pledged receivables. As
the Emergency Employment Agency (EEA) which issued the
receivables had been abolished, the collection had to be
coursed through the Office of the President which
disapproved the same. The receivable became virtually
worthless leaving appellants' loans from appellee bank
unsecured. It is but proper that after their repeated demands
made on appellants for the settlement of their obligations,
appellee bank should proceed against appellants. It would be
an exercise in futility to proceed against a defunct office for
the collection of the receivables pledged.
Q: Was there pactum commissorium? What is pactum
commissorium?
A: Pactum Commissorium happens when the thing
mortgaged or pledged shall automatically become the
property of the creditor in the event of non-payment of
debt within the period fixed. By such stipulation, the
creditor would be able to acquire ownership of the
property given as security without the need of public
sale.
In this case, there was actually pactum commissorium
because pursuant to Article 2087, it is of course the
essence of a contract of pledge or mortgage that when
the principal obligation becomes due, the things in
which the pledge or mortgage consists may be alienated
for the payment of the creditor. Thus, in this case, the
Teodoros are both the principal debtors and at the same
time the pledgors or mortgagors.
Q: Why was there pactum commissorium? Ano yung
nature ng deed of assignments?
A: The nature ng deed of assignments was actually a
collateral security.
Q: and what did it actually avoid? By virtue of the face
na may deed of assignemtns na, ano yung naskip na
process, that's why there's actually pactum
commissorium?
A: There was pactum commissorium because it was
automatically appropriated. What was avoid was the
public sale.
Discussion:
1. When there is doubt as between a contract
being a dation in payment or a pledge, we
actually go in favor of pledge, because there's
lesser transmission of rights. When we talk
about dation in payment, automatic transfer
talaga yun ng ownership. When wesay pledge,
security muna. Jan lang matatransfer kapag if
ever later on, you will not be able to pay.
2. Here, the deeds of assignments are actually in
the form of pactum commissorium because it
actually avoided the public sale. There was
automatic appropriation of the property.
Hence, pactum commissorium.
Sps. Hechanova v. Adil
G.R. L-44940, September 25, 1986

Facts: Jose Servando obtained a loan from his cousin
Pio Servando secured by a mortgage of three parcels of
land. Pio filed a case to annul the deed of sale made by
Jose in favor of Sps. Gemma and Nicanor Hechanova
over said parcels of land, impugning its validity as being
made fraudulent and prayed that it be made null and
void.
Attached to the complaint of Pio was a copy of the
alleged mortgage:
This is to certify that I, Jose Servando… the sole
owner of three parcels of land… mortgaged the said
property to my cousin, Pio Servando, in the amount
of Php 20,000 redeemable for a period not
exceeding 10 years, the mortgage amount bearing
an interest at 10% per annum.
I further certify that in case I fail to redeem the said
properties within the period stated above, my
cousin, Pio Servando, shall become the sole owner
thereof.
Contention: Sps. Hechanova contend that the
mortgage is invalid and unenforceable since it was a
mere private document and was not recorded in the
Registry of Deeds; and consequently, Pio had no cause
of action.
Issue: Was there a valid mortgage constituted in favor
of Pio?
Ruling: NO. It contains a stipulation pacto comisorio
which is null and void.
It is clear from the records of this case that Pio has no
cause of action. Pio has no standing to question the
validity of the deed of sale executed by the Jose
Servando in favor of Sps. Hechanova. No valid
mortgage has been constituted Pio’s favor, the alleged
deed of mortgage being a mere private document and
not registered; moreover, it contains a The fact that the parties have agreed at the same time,
stipulation  (pacto comisorio)  which is null and void
under Article 2088 of the Civil Code. Even assuming
that the property was validly mortgaged to Pio, his
recourse was to foreclose the mortgage, not to seek
annulment of the sale.
Discussion:
In this case, there was pactum commissorium. This is
because the contract provides that: “I further certify
that in case I fail to redeem the said properties within
the period stated above, my cousin, Pio Servando, shall
become the sole owner thereof.” There was no
mention of any foreclosure sale in the said contract.
Apparently, there was automatic appropriation.
Alcantara v. Alinea
G.R. L-3227, March 22, 1907
Facts: Pedro Alcantara alleged that on the February 29,
1904, Ambrosio Alinea and Eudosia Belarmino
borrowed from him P480, payable in January 1905
under the agreement that if, at the expiration of the
said period, said amount should not be paid, it would
be understood that the house and lot owned by Alinea
and Belarmino shall be considered as absolutely sold to
Alcantara for the said sum. As the time for the payment
of said sum has expired and no payment has been
made, Alinea and Belarmino refuse to deliver to
Alcantara the said property, openly violating their
contract and depriving him to his loss of the rents
which he should receive counting from February, 1905.
Alcantara filed a complaint to have Alinea and
Belarmino deliver to him the house and lot claimed,
and to pay him as rent P8/month from February of that
year, and to pay the costs of the action.
The CFI ordered Alinea and Belarmino to deliver to
Alcantara the house and lot and to pay the costs of the
action, not making any finding upon the question of
loss or damages by reason of the absence of proof.
Issue: Was there a stipulation of pactum commissorium
in this case? What contract was entered into between
the parties?
Ruling: It was a contract of loan and a promise of sale
of a house and lot; consequently, there was no
stipulation of pactum commissorium, there being no
contract of mortgage or pledge or antichresis.
Contract of Loan and Promise of Sale: Valid
We have in this case a contract of loan and a promise
of sale of a house and lot, the price of which should be
the amount loaned, if within a fixed period of time such
amount should not be paid by the debtor-vendor of the
property to the creditor-vendee of same.
in such a manner that the fulfilment of the promise of
sale would depend upon the non-payment or return of
the amount loaned, has not produced any charge in the
nature and legal conditions of either contract, or any
essential defect which would tend to nullify the same.
If the promise of sale is not vitiated because, according
to the agreement between the parties thereto, the
price of the same is to be the amount loaned and not
repaid, neither would the loan be null or illegal, for the
reason that the added agreement provides that in the
event of failure of payment the sale of property as
agreed will take effect, the consideration being the
amount loaned and not paid.
No mortgage
The property, the sale of which was agreed to by the
debtors, does not appear mortgaged in favor of the
creditor, because in order to constitute a valid
mortgage it is indispensable that the instrument be
registered in the Register of Property, in accordance
with article 1875 of the Civil Code. In the case at bar,
the transaction does not constitute a mortgage, nor
could it possibly be a mortgage, for the reason of said
document is not vested with the character and
conditions of a public instrument.
Not a pledge
Also, the said property could not be pledged, not being
personal property, and notwithstanding the said
double contract the debtor continued in possession
thereof and the said property has never been occupied
by the creditor.
Not antichresis
Neither was there ever any contract of antichresis by
reason of the said contract of loan, inasmuch as the
creditor plaintiff has never been in possession thereof,
nor has he enjoyed the said property, nor for one
moment ever received its rents; therefore, there are no
proper terms in law, taking into consideration the
terms of the conditions contained in the aforesaid
contract, whereby this court can find that the contract
was null, and under no consideration whatever would it
be just to apply to the plaintiff articles 1859 and 1884
of the same code.
Pre-requisite of Pactum Commissorium
The contract (pactum commissorium), indicates the
existence of the contracts of mortgage or of pledge or
that of antichresis, none of which have coincided in
the loan indicated herein.
Conclusion
It is a principle in law that the will of the contracting
parties is the law of contracts. It was agreed between
the parties herein that if Alinea and Belarmino should
not pay the loan of P480 in January1905, the property
belonging to the them and described in the contract
should remain sold for the said sum. The document of
contract has been recognized by the defendant Alinea
and by the witnesses who signed same with him, being
therefore an authentic and efficacious document; and
as the amount loaned has not been paid and continues
in possession of the debtor, it is only just that the
promise of sale be carried into effect, and the
necessary instrument be executed by the vendees.
Discussion:
In this case, when we talk about pact commissorium,
the first element would be- there should either be a
contract of pledge, mortgage or antichresis. Here, there
was no pact commissorium because, in the first place,
there was no pledge, mortgage or antichresis. There
was no mortgage because it was not in a public
instrument. There is also no pledge because it doesn’t
involve personal properties. There was also no
antichresis because there was no possession nor
enjoyment of the property.
Sps Uy Tong and Kho Po Giok v. CA,Bayahihan
Automotive
G.R. 77465, May 21, 1988
Facts: Uy Tong (also known as Henry Uy) and Kho Po
Giok (SPOUSES) used to be the owners of Apartment
No. 307 of the Ligaya Building, together with the
leasehold right for 99 years over the land on which the
building stands. The land is registered in the name of
Ligaya Investments, Inc. It appears that Ligaya
Investments, Inc. owned the building which houses the
apartment units but sold Apartment No. 307 and
leased a portion of the land in which the building
stands to the SPOUSES.
In 1969, the SPOUSES purchased from Bayanihan
Automotive, Inc. 7 units of motor vehicles for a total
amount of P47,700 payable in 3 installments. The
“Agreement” provided a stipulation:
That if for any reason the VENDEE should fail to pay
her aforementioned obligation to the VENDOR,  the
latter shall become automatically the owner of the
former's apartment which is located at No. 307,
Ligaya Building, Alvarado St., Binondo, Manila, with
the only obligation on its part to pay unto the
VENDEE the amount of P3,535 and in such event
the VENDEE shall execute the corresponding Deed
of absolute Sale in favor of the VENDOR and or the
Assignment of Leasehold Rights. 
After making a down payment of P7,700.00, the
SPOUSES failed to pay the balance of P40,000. Due to
these unpaid balances, BAYANIHAN filed an action for
specific performance against the SPOUSES. The trial
court rendered a judgment in favor of BAYANIHAN,
ordering the SPOUSES to “pay the sum of P40,000; in
the event of their failure to do so within 30 days from
notice of this judgment, they are ordered to execute
the corresponding deed of absolute sale in favor of the
BAYANIHAN and/or the assignment of leasehold rights
over the SPOUSES’ apartment.”
Pursuant to said judgment, an order for execution
pending appeal was issued by the trial court, and a
deed of assignment dated May 27, 1972, was
executed by the SPOUSES over the apartment together
with the leasehold right over the land on which the
building stands.
Notwithstanding the execution of the deed of
assignment, the Spouses remained in possession of the
premises. This prompted BAYANIHAN to file an
ejectment case against the spouses.
Contention:
The SPOUSES contend that the deed of assignment is
null and void because it is in the nature of a pactum
commissorium and/or was borne out of the same. It
raises the stipulation in their “Agreement” where Giok
agreed that the apartment will automatically become
the property of BAYANIHAN upon her mere failure to
pay her obligation.
Issue: Is the deed of assignment in the nature of a
pactum commissorium (and is thus null and void)?
Ruling: NO. It is not in the nature of a pactum
commissorium; thus, the deed of assignment if valid.
The prohibition on pactum commissorium stipulations
is provided for by Article 2088 of the Civil Code:
Art. 2088. The creditor cannot appropriate the
things given by way of pledge or mortgage, or
dispose of the same. Any stipulation to the
contrary is null and void.
Elements
The aforequoted provision furnishes the two elements
for pactum commissorium to exist:
(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; and
(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.
Application to the Case
A perusal of the terms of the questioned agreement
evinces no basis for the application of the pactum
commissorium provision.
First, there is no indication of any contract of
mortgage entered into by the parties. It is a fact
that the parties agreed on the sale and purchase of
trucks.
Second, there is no case of automatic appropriation
of the property by BAYANIHAN. When the SPOUSES
defaulted in their payments of the second and third
installments of the trucks they purchased,
BAYANIHAN filed an action in court for specific
performance. The trial court rendered favorable
judgment for BAYANIHAN and ordered the
SPOUSES to pay the balance of their obligation and
in case of failure to do so, to execute a deed of
assignment over the property involved in this case.
The Spouses elected to execute the deed of
assignment pursuant to said judgment.
Clearly, there was no automatic vesting of title
on Bayanihan because it took the intervention of
the trial court to exact fulfillment of the
obligation, which, by its very nature is
"anathema to the concept of pacto
commissorio." And even granting that the original
agreement between the parties had the badges of
pactum commissorium, the deed of assignment
does not suffer the same fate as this was
executed pursuant to a valid judgment in Civil
Case No. 80420 as can be gleaned from its very
terms and conditions. This being the case, there is
no reason to impugn the validity of the said deed of
assignment.
Discussion:
In this case, the Court enumerated the elements of a
pactum commissorium.
1. There should be a pledge, mortgage or antichresis.
2. There should be a stipulation for automatic
appropriation of the creditor of the thing pledged,
mortgaged or antichresised in the event of non-
payment of the principal obligation within the
stipulated period.
Here, the first element is absent because there was no
mortgage involved. There was only a contract of sale.
The second element is also absent as there was no
automatic appropriation because there was an action
for specific performance filed.
Philnico v. PMO
G.R. 199420 August 27, 2014
Note the definition of Pactum Commissorium in this
case
Facts: Privatization and Management Office (PMO),
Philnico Industrial Corp. (PIC) and Philnico Processing
Corp. (PPC) executed a contract, denominated as the
Amended and Restated Definitive Agreement (ARDA),
which laid down the terms and conditions of the
purchase and acquisition by PIC from PMO shares of
stock of PPC, as well as receivables of PMO from PPC.
Among the provisions of ARDA, the following is
relevant to the case:
8.02 Consequence of Default.
In case of default, the title to the Existing Shares
and the Converted Shares shall ipso facto revert
to the Seller without need of demand in case
such payment default is not remedied by the
Buyer within ninety (90) days from the due date
of the second installment.
In accordance with the ARDA, PMO executed and
delivered to PIC the necessary documents to transfer
the former’s rights, title, and interests to and in the PPC
shares of stock to Philnico; and PPC issued new
certificates for the same shares of stock in the name of
PIC and/or its nominees. PIC and PNPI as pledgors and
PMO as pledgee also executed a Pledge Agreement.
In the meantime, the nickel refinery complex of PPC
became obsolete and much of the facilities therein
were already scrap. On account of the huge financial
cost of building a new nickel refinery plant, coupled
with the economic problems then affecting the
AsiaPacific Region, PMO, PIC, and PPC executed an
Amendment Agreement which provided for the
restructuring of the payment terms of the entire
obligation under the ARDA.
Three years later, PMO notified PIC for its default in
payment of its obligations and demanded that it settle
its unpaid amortizations within 90 days or else PMO
would enforce the automatic reversion of the PPC
shares of stock under 8.02 of ARDA. On February 4,
2003, a day before the deadline for payment set by
PMO, PIC filed before the RTC a Complaint for
Prohibition against Reversion of Shares with Prayer for
Writ of Preliminary Injunction and/or Temporary
Restraining Order
RTC: “While the failure of PIC to meet its
amortization with respect to the smaller portion of
the purchase price cannot be denied, said default
cannot automatically result in the reversion of the
shares of stocks to PMO. The provision in the
ARDA providing for ipso facto reversion of the
shares of stock is null and void for being a pactum
commissorium.”
CA: Section 8.02 does not constitute a pactum
commissorium. In the instant case, the subject
ARDA basically pertains to the contract of sale of
shares of stock. There was nothing given by way of
pledge or mortgage in said contract, through
which PMO could have appropriated the shares to
itself should default in the payment thereof arise.
The ARD and the Pledge Agreement are entirely
separate and distinct contracts.
Issue: Does Section 8.02, on ipso facto or automatic
reversion of the PPC shares of stock to PMO in case of
default by PIC, constitute a pactum commissorium?
Ruling: YES. Section 8.02 of the ARDA constitutes
pactum commissorium and thus, null and void for
being contrary to Article 2088 of the Civil Code.
Pactum Commissorium: Definition
Pactum commissorium is among the contractual
stipulations that are deemed contrary to law. It is
defined as "a stipulation empowering the creditor to
appropriate the thing given as guaranty for the
fulfillment of the obligation in the event the obligor
fails to live up to his undertakings, without further
formality, such as foreclosure proceedings, and a public
sale." It is explicitly prohibited under Article 2088 of the
Civil Code.
Application to the case
Both elements of pactum commissorium are present:
(1) By virtue of the Pledge Agreement, PIC pledged its
PPC shares of stock in favor of PMO as security for
the fulfillment of the former’s obligations under
the ARDA 1996 and the Pledge Agreement itself;
and
(2) There is automatic appropriation as under Section
8.02 of the ARDA, in the event of default by PIC,
title to the PPC shares of stock shall ipso facto
revert from PIC to PMO without need of demand.
ARDA and Pledge Agreement: Not Separate and
Distinct
It was argued by PMO, and adopted by the CA, that
there is no pactum commissorium because the ARDA
and the Pledge Agreement are entirely separate and
distinct contracts. This is wrong,
In Blas v. Angeles-Hutalla, the Court recognized that the
agreement of the parties may be embodied in only one
contract or in two or more separate writings. In case of
the latter, the writings of the parties should be read
and interpreted together in such a way as to render
their intention effective.
The agreement between PMO and Philnico is the sale
of PPC shares of stock by the former to the latter, to be
secured by a pledge on the very same shares of stock.
The ARDA and pledge agreement though executed in
separate written instruments, are integral to one
another. Clearly, it was the intention of the parties to
enter into and execute both contracts for a complete
effectuation of their agreement.
On one hand, Section 2.04 of the ARDA explicitly
requires the execution of a pledge agreement as
security for the payment by PIC of the purchase
price for the PPC shares of stock and receivables,
and even provides the form for said pledge
agreement in Annex A thereof. Section 2.07 of the
ARDA also states that the closing of the sale and
purchase of the PPC shares of stock and receivables
shall take place on the same date that PIC shall
execute and deliver the pledge agreement,
together with the certificates of shares of stock, to
PMO. On the other hand, the "Whereas Clauses" of
the Pledge Agreement expressly mentions the
ARDA and explains that the Pledge Agreement is
being executed to secure payment by PIC of the
purchase price and all other amounts due to PMO
under the ARDA, aswell as the performance by PIC
of its other obligations under the ARDA and the
Pledge Agreement itself. Clearly, it was the
 intention of the parties to enter into and execute
both contracts for a complete effectuation of their
agreement.
To reiterate, the Pledge Agreement secures, for the
benefit of PMO, the performance by PIC of its
obligations under both the ARDA and the Pledge
Agreement itself. It is with the execution of the Pledge
Agreement that PIC turned over possession of its
certificates of shares of stock in PPC to PMO.
Other jurisprudence:
 In A. Francisco Realty and Development
Corporation v. CA, therein petitioner similarly denied
the existence of pactum commissorium because the
proscribed stipulation was found in the promissory
note and not in the mortgage deed. The Court held
that the contention is patently without merit; to
sustain the theory of petitioner would be to allow a
subversion of the prohibition in Art. 2088.
 In Nakpil v. Intermediate Appellate Court, which
involved the violation of a constructive trust, no
deed of mortgage was expressly executed between
the parties in that case. Nevertheless, this Court
ruled that an agreement whereby property held in
trust was ceded to the trustee upon failure of the
beneficiary to pay his debt to the former as secured
by the said property was void for being a pactum
commissorium.
 In Reyes v. Sierra, the act of applicant in registering
the property in his own name upon mortgagor’s
failure to redeem the property would amount to a
pactum commissorium which is against good morals
and public policy.
Conclusion
Appreciating the ARDA together with the Pledge
Agreement, the Court can only conclude that Section
8.02 of the ARDA constitutes pactum commissorium
and, therefore, null and void.
Discussion:
This case discusses pactum commissorium specifically,
was Section 8.02 of the ARDA tantamount to pactum
commissorium? The Court held yes. What I like about
this case is that it beautifully defined what pactum
commissorium is as compared to the other cases.
Remember the definition:
Pactum Commissorium – is a stipulation empowering
the creditor to appropriate the thing given as guaranty
for the fulfillment of the obligation in the event the
obligor fails to live up to his undertakings without
further formality, such as foreclosure proceedings and
a public sale.
So for me, very important yung word dun na “without
further formality” kasi if ever lang may further
formality before the creditor takes hold of the
property, it already takes it out of the ambit of pactum
commissorium. So here, merong pactum
commissorium because:
1. [There is a] pledge. Again go back to the case of
Alcantara v. Alinea. Kailangang merong either
pledge, mortgage or antichresis.
2. [There is] automatic appropriation here because
the ownership of the stocks would actually
automatically ipso facto revert from PIC to PMO
without need of demand. Obviously there is
automatic appropriation, hence the second
element is also satisfied.
Sps. Ong v. Roban Lending
G.R. 172529, July 9, 2008
Facts: Spouses Wilfredo and Edna Ong obtained several
loans from Roban Lending Corporation in the total
amount of ₱4,000,000, secured by a real estate
mortgage on their parcels of land in Tarlac. The parties
later executed an Amendment to Amended Real Estate
Mortgage consolidating their loans. On even date, the
parties executed a Dacion in Payment Agreement
wherein the spouses assigned the properties to Roban
Lending in settlement of their total obligation, and a
Memorandum of Agreement (MOA) reading:
That [Roban] and [Spouses Ong] agreed to
consolidate and restructure all aforementioned
loans xxx. The [Spouses Ong] hereby sign [sic]
another promissory note xxx with a promise to pay
[Roban] in full within one year from the date of the
consolidation and restructuring, otherwise [Spouses
Ong] agree to have their "DACION IN PAYMENT"
agreement, which they have executed and signed
today in favor of [Roban] be enforced[.]
Contentions:
Spouses Ong then filed a complaint before the RTC for
declaration of mortgage contract as abandoned,
annulment of deeds, illegal exaction, unjust
enrichment, accounting, and damages, alleging that the
MOA and the Dacion in Payment executed are void for
being pactum commissorium.
Roban Lending maintained the legality of the
transactions, alleging that if the voluntary execution of
the MOA and Dacion in Payment Agreement novated
the REM, then the allegation of pactum commissorium
has no more legal leg to stand on; and that the Dacion
in Payment Agreement is lawful and valid as it is
recognized x x x under Art. 1245 of the Civil Code as a
special form of payment.
Both parties admit the execution and contents of
the Memorandum of Agreement and Dacion in
Payment. They differ, however, on whether both
 contracts constitute pactum
commissorium (contention of Sps. Ong) or dacion
en pago (contention of Roban Lending).s
Issue: Do the MOA and Dacion In Payment constitute a
pactum commissorium or a dacion en pago?
Discussion:
In this case, there was pactum commissorium. Again,
the elements of pactum commissorium are actually
provided for:
(1) dapat may pledge, mortgage or antichresis;
(2) dapat may automatic appropriation.

Ruling: They constitute pactum commissorium, which
is prohibited under the Civil Code. Consequently, it is
null and void.
The elements of pactum commissorium, which enables
the mortgagee to acquire ownership of the mortgaged
property without the need of any foreclosure
proceedings, are:
(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.
Application to the case
In the case at bar, the Memorandum of Agreement and
the Dacion in Payment contain no provisions for
foreclosure proceedings nor redemption. Under the
MOA, the failure by the spouses to pay their debt
within the one-year period gives Roban Lending the
right to enforce the Dacion in Payment transferring to
it ownership of the properties. Roban Lending, in
effect, automatically acquires ownership of the
properties upon the spouses’ failure to pay their debt
within the stipulated period.
You need to also cite the other case wherein they
explained that there was no further formality, hence
there was no automatic appropriation. So if ever there
are questions regarding pactum commissorium not
only in your exam but also in the Bar, i-mix and match
nyo lang yung different cases but never ever forget the
two elements of pactum commissorium.
The unique argument present in this case was [because
of the contention that] there is not pactum
commissorium [because there was] dacion en pago.
Then again, the Supreme Court discussed here, while in
a real dacion en pago, you transfer the property or you
assign properties with the intention to extinguish the
obligation. Here, the transfer of the properties was
actually by way of security, hence when you look at the
intention why the properties were assigned in the first
place, you cannot say that there was a real dacion en
pago. It was really by way of security, hence may
pactum commissorium tayo in this case.

As to dacion en pago
Roban Lending argues that the law recognizes dacion
en pago as a special form of payment whereby the
debtor alienates property to the creditor in satisfaction
of a monetary obligation.

This does not persuade. In a true dacion en pago, the

assignment of the property extinguishes the monetary
debt. In the case at bar, the alienation of the properties
was by way of security, and not by way of satisfying the
debt. The Dacion in Payment did not extinguish
spouses’ obligation to Roban Lending. On the contrary,
under the Memorandum of Agreement executed on
the same day as the Dacion in Payment, the spouses
had to execute a promissory note for ₱5,916,117.50
which they were to pay within one year. (As discussed
by Ma’am, look at the intention of the assignment of
the properties).

That the questioned contracts were freely and

voluntarily executed by the spouses and respondent is
of no moment, pactum commissorium being void for
being prohibited by law.

Sps. Pen v. Sps. Julian
G.R. 160408, January 11, 2016
Facts: The Spouses Santos and Linda Julian obtained a
loan from Adelaida Pen. They were later again
extended loans by Adelaida. As security, the Spouses
Julian executed a Real Estate Mortgage over their
property registered in the name of Santos Julian.
According to Pen, when the loans became due and
demandable the Spouses Julian failed to pay despite
several demands. As such, Adelaida Pen decided to
institute foreclosure proceedings. However, she was
prevailed upon by Linda Julian not to foreclose the
property because of the cost of litigation and since it
would cause her embarrassment. Instead, Linda offered
their mortgaged property as payment in kind. The
parties agreed to have the property valued at P70,000
and executed a deed of sale. Spouses Pen further
alleged that Linda offered to repurchase the property
but they failed to do so on the agreed date. In another
offer, Linda offered to pay P100,000 as sign of good
faith and the same was deducted from the balance.
However, instead of paying the balance, the Spouses
Julian instituted a civil complaint and filed an adverse
claim and lis pendens.
The Julians contended that at the time the mortgage
was executed, they were required by Adelaida to sign a
1-page document purportedly an Absolute Deed of
Sale, said document did not contain any consideration
and was “undated, unfilled and unnotarized.”
Later, Linda learned that the title to the mortgaged
property had already been registered in the name of
Adelaida. Linda then filed a suit for cancellation of sale
and ccancellation of title issued to Sps. Pen, recover of
possession and damages. The complaint alleged that
Adelaida, through bad faith, caused to be notarized the
Deed of Sale earlier signed by Linda, and used this to
transfer to herself the mortgaged land.
RTC: Deed of Sale is void due to lack of consideration.
CA: Deed of Sale is void not because of lack of
consideration, but because of the deed of sale having
been executed at the same time as the real estate
mortgage, which rendered the sale as a
prohibited pactum commissorium in light of the fact
that the deed of sale was blank as to the consideration
and the date, which details would be filled out upon
the default by the respondents
Issue: Is the deed of sale void by reason of pactum
commissorium?
Ruling: YES.
Elements:
The elements for pactum commissorium  to exist are as
follows, to wit:
(a) that there should be a pledge or mortgage
wherein property is pledged or mortgaged by
way of security for the payment of the principal
obligation; and
(b) 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
Application to the case
Both elements of pactum commissorium are present.
(1) The first element was present considering that the
property of the Spouses Julian was mortgaged by
Linda in favor of Adelaida as security for the
farmer's indebtedness.
(2) As to the second, the authorization for
Adelaida to appropriate the property
subject of the mortgage upon Linda's
default was implied from Linda's having
signed the blank deed of sale
simultaneously with her signing of the real
estate mortgage.
The haste with which the transfer of property was
made upon the default by Linda on her obligation,
and the eventual transfer of the property in a
manner not in the form of a valid dacion en pago,
ultimately confirmed the nature of the transaction
as a pactum commissorium.
It is notable that in reaching its conclusion that Linda's
deed of sale had been executed simultaneously with
the real estate mortgage, the CA first compared the
unfilled deed of sale presented by Linda with the
notarized deed of sale adduced by Adelaida. The CA
justly deduced that the completion and execution of
the deed of sale had been conditioned on the non-
payment of the debt by Linda, and reasonably
pronounced that such circumstances rendered the
transaction pactum commissorium.

The petitioners have theorized that their transaction

with the respondents was a valid dacion en pago by
highlighting that it was Linda who had offered to sell
her property upon her default.

No Dacion en Pago
Dacion en pago is in the nature of a sale because
property is alienated in favor of the creditor in
satisfaction of a debt in money. For a valid dacion en
pago to transpire, however, the attendance of the
following elements must be established, namely:
(a) the existence of a money obligation;
(b) the alienation to the creditor of a property by
the debtor with the consent of the former; and
(c) the satisfaction of the money obligation of the
debtor.

To have a valid dacion en pago, therefore, the

alienation of the property must fully extinguish the
debt. Yet, the debt of the Spouses Julian subsisted
despite the transfer of the property in favor of
Adelaida.

Discussion:
In this case, there was pactum commissorium.