PACTUM COMMISORIUM

NATALIA P. BUSTAMANTE, petitioner vs. SPOUSES RODITO F. ROSEL and NORMA A. ROSEL,
respondents. 319 SCRA 413
Facts: The Sps. Bustamante borrowed a sum of money from the Sps. Rosel through a loan which
stipulated, among others, that: a 70 sq. m. parcel of land of the Sps. Bustamante will be collateral;
and that the Sps. Rosel as lenders have the option to purchase the collateral lot for P 200,000.00,
inclusive of the amount and interest therein. When the loan was about to mature on March 1, 1989,
the Sps. Rosel proposed to buy at the pre-set price of P200,000.00, the seventy 70 sq. m. parcel of
land. This was refused by the Sps. Bustamante, who requested that the period of payment be
extended. They offered another land instead, with the consideration that the borrowed amount
become down payment. The lender refused to accept payment upon being offered by the
petitioners and insisted that the collateral be sold to them. The petitioners deposited the amount to
the trial court instead, showing their desire to pay. The trial court Denied the execution of the Deed
of Sale and just ordered the payment of the loan with interest. This was REVERSED by the Court of
Appeals hence this petition.
BUSTAMANTE: The real intention of the parties to the loan was to put up the collateral as guarantee
similar to an equitable mortgage according to Article 1602 of the Civil Code.
ROSEL: Respondents argue that contracts have the force of law between the contracting parties and
must be complied with in good faith.
Issue: Whether or not the Deed of Sale can be executed considering the conditions stipulated in
the loan.
HELD: No, it cannot be executed. The sale of the collateral is an obligation with a suspensive
condition. It is dependent upon the happening of an event, without which the obligation to sell does
not arise as provided in Article 1181 of the Civil Code. The event that is to be based upon is the nonpayment of the petitioners. This did not happen because the petitioner tendered payment at the
due date which respondents refused to accept, insisting that petitioner sell to them the collateral of
the loan. Upon such refusal, they deposited the amount in the trial court showing their intention to
pay. A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor to acquire
the property given as security for the loan. This stipulation is embraced in the concept of pactum
commisorium, which is prohibited by law. Pactum commisorium occurs if there was a creditordebtor relationship between the parties; the property was used as security for the loan; and there
was automatic appropriation by the borrower.

DEVELOPMENT BANK OF THE PHILIPPINES vs. SPOUSES JESUS and ANACORITA DOYON
582 SCRA 403
Facts: The Spouses Doyon acquired several loans amounting to 10 million pesos with their real
estate property and JD bus line motor vehicles mortgaged as security for loans. They failed to pay
due obligations to the petitioners DBP. The respondents then requested petitioner to restructure
their existing loan terms which were agreed upon by both parties resulting to the written
promissory notes (contracted by both parties) by the respondents to petitioner. Petitioner
demanded respondent spouses Doyon to pay in full amount existing loans with their failure to meet
their due payments agreed in the promissory notes. With respondents adamant refusal to pay said
loans, petitioner filed for extrajudicial foreclosure of the real and chattel mortgages in RTC, Ormoc
City. Respondents then filed for nullification of foreclosure claiming they had already paid the
principle amount of their loans. The Civil Case stalled for three years. Petitioner due to inaction
moved for the dismissal of the case and withdrew application for extrajudicial foreclosure to which
the RTC granted both petitions. Petitioners then filed for extrajudicial foreclosure of respondents
real and chattel mortgages with DBP Sherrif of Makati. Sheriff secured properties and subsequently
issued notices of sale at public auction. Respondents filed for damages suit against petitioner and
DBP sheriff pointing out that petitioners motion for dismissal of their civil case led them to believe
that their loans had been extinguished. Court awarded the damages suit in favor of the respondents
holding DBP with the exclusion of the Sheriff be held liable in paying due costs. Petitioners file for
motion for reconsideration denied then leading to existing petition for certiorari
DBP: Petitioner basically asserts that it did not act in bad faith when it foreclosed on respondents
real and chattel mortgages anew. Because respondents loans were past due, it had the right to
satisfy its credit by foreclosing on the mortgages.
DOYON: Respondents claimed that the provision in the mortgage contracts allowing petitioner as
mortgagee to take constructive possession of the mortgaged properties upon respondents default
was void. The provision allegedly constituted a pactum commisorium since it permitted petitioner
to appropriate the mortgaged properties.
ISSUE WON petitioners exercising extrajudicial foreclosure and subsequent issuances for sale at
public auction proceedings acted in bad faith.
SC RULING
Held that petitioners did NOT act in bad faith as they were merely acting on their legal right to
remedy against a defaulting debtor, which is considered to be a known sound banking practice.
Therefore, court rules that petitioners having acted their legal right dis so in good faith and are not
in violation of Art. 19 of the Civil Code.
When the principal obligation becomes due and the debtor fails to perform his obligation, the
creditor may foreclose on the mortgage for the purpose of alienating the (mortgaged) property to
satisfy his credit.

Development Bank of the Philippines vs. Court of Appeals

284 SCRA 14
Facts:
Private respondent Lydia Cuba is a grantee of a fishpond lease agreement from the Government.
She later obtained a loan from DBP in the amounts of P109, 000, P109, 000, and P98, 700 under the
terms stated in the three promissory notes. As a security for the said loan Cuba executed a two
Deed of Assignment of her Leasehold Rights. Then she failed to pay her loan when it became due in
accordance with the terms of the promissory notes. DBP in turn appropriated the leasehold rights
of Cuba over the fishpond, without foreclosure proceedings, whether judicial or extrajudicial. After
appropriating the said leasehold rights DBP executed a Deed of Conditional Sale of the Leasehold
Rights in favor of respondent Cuba over the same fishpond, to which Cuba agreed. Respondent Cuba
failed to pay the amortizations stipulated in the Deed of Conditional Sale, however she was able
enter with DBP a temporary arrangement with DBP for the Deferment Notarial Rescission of Deed
of Conditional Sale. However, a Notice of Rescission thru Notarial Act was sent the DBP to Cuba,
then it took possession of the fishpond in question. After it took possession of the said fishpond,
DBP disposed the property in favor of Agripina Caperal through a deed of conditional sale. Then a
new fishpond lease agreement was awarded by the Government to Caperal. Lydia Cuba filed an
action with the Regional Trial Court of Pangasinan for the declaration of nullity of DBPs
appropriation of her leaseholds over the subject fishpond, for the annulment of the Deed of
Conditional Sale executed in her favor by DBP, the annulment of DBPs sale of the fishpond to
Caperal, and the restoration of her rights over the said fishpond and for damages. The RTC ruled in
favor of Cuba, declaring that DBPs taking possession and ownership of the subject property
without foreclosure was violative of Art. 2088 of the Civil Code, and that condition No. 12 of the
Assignment of the Leasehold Rights was void for being a clear case of pactum commisorium.
Both Cuba and DBP elevated the case to the CA, with Cuba seeking an increase in the amount of
damages, while DBP questioned the findings of fact and law of the RTC. The CA reversed the ruling
of the RTC with regards to the validity of the acts of DBP.
Issue: Whether or not condition No. 12 of the Assignment of the Leasehold Rights would operate
as case of pactum commisorium.
Held: The act of DBP under condition No. 12 of the Assignment of Leasehold Rights did not
constitute as a case of pactum commisorium, when appropriated for itself Cubas leasehold rights
over the subject fishpond, because condition No. 12 only gave DBP the authority to sell the said
property and use the proceeds of the sale to satisfy Cubas obligation, it did not operate as an
automatic transfer of ownership of the said property to DBP. However, DBP exceeded its authority
granted under condition No. 12, when it appropriated for itself such rights without judicial or
extrajudicial foreclosure, thereby making his acts violative of Article 2088 of the Civil Code, which
forbids a creditor from appropriating, or disposing of, the thing given as security for the payment of
a debt.