Francisco Realty v CA (Digest)

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Date Made:

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SALES

Sale distinguished from other Contracts

10 Sep 2016

AJLCardeño

CASE NAME: A. Francisco Realty & Dev’t Corp. vs. CA and Sps. Romulo & Erlinda Javillonar PONENTE: Mendoza, J.

Case Date: 30 Oct 1998

Case Summary: A. Francisco Realty granted a Php 7.5M loan to spouses Javillonar, wherein the spouses executed a promissory note, a real estate mortgage over a certain property, and a deed of sale of said mortgaged property in favor of A. Francisco. Upon maturity of loan, the spouses failed to pay, so A. Francisco demanded possession of the mortgaged realty. The spouses alleged that it was not their intention to sell as the deed of sale was merely an additional security for their loan payment. The RTC adjudged in favor of A. Francisco. On appeal, CA reversed RTC decision. SC sustained the CA decision. Rule of Law: Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void.

Detailed Facts: 1. A. Francisco Realty granted a Php 7.5M loan to spouses Javillonar, in consideration of which, the latter executed: a) A promissory note; b) A real estate mortgage over a certain property; and c) An undated deed of sale of said mortgaged property in favor of A. Francisco. 2. Upon maturity of the loan, the spouses failed to pay. 3. As a consequence, A. Francisco registered the sale of the mortgaged property, for which a new TCT was issued. 4. A. Francisco then demanded possession of the mortgaged realty. 5. The spouses refused to vacate. 6. A. Francisco then filed a case for possession before the RTC. 7. The spouses admitted that their financial liability to A. Francisco but they also alleged that it was not their intention to sell the realty since it was merely an additional security for their loan payment. 8. The RTC adjudged in favor of A. Francisco. 9. On appeal, the CA reversed RTC, holding that the deed of sale was void, being in the nature of a pactum commissorium which is prohibited by law. 10. Hence, this petition with the SC. 11. During trial, A. Francisco contended that the forfeiture clause in the Promissory Note was not a pactum commissorium because Art. 2088 (NCC) provided that a pactum commissorium is a forfeiture clause in a deed of mortgage, and thus the forfeiture stipulation should be in the mortgage deed itself in order to be prohibited. BLOCK D 2019 1

Issue: WON a forfeiture clause (in the Promissory Note) not incorporated in the mortgage deed is constitutive of pactum commissorium. - YES Holding: The stipulations in the promissory notes providing that, upon failure of mortgagor (spouses) to pay interest, ownership of the property would be automatically transferred and the deed of sale in its favor would be registered to mortgagee (A. Francisco), are in substance a pactum commissorium. The stipulations in the Promissory Note embody the two elements of pactum commissorium: (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. To sustain the theory of the petitioner (that the forfeiture clause should be in the mortgage deed itself in order to be prohibited) would be to allow a subversion of the prohibition. Ruling: CA Decision regarding pactum commissorium is AFFIRMED. Other Opinions:

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