I. Title: Ong v.

Roban Lending
G.R. No. 172592 July 9, 2008

II. Doctrine
Pactum commissorium is prohibited under Article 2088 of the Civil Code.

Article 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."

III. Facts
Sps. Ong obtained several loans from Roban Lending on different dates in total
amount of 4M. The loans were secured by a REM on Sps. Ongs property (property).
The loans were later consolidated thru and amendment to the REM, a Dacion in
Payment Agreement (DPA) was also executed wherein Sps. Ong assigned the
property to Roban.
Under their MOA, in case Sps. Ong fails to pay their loan in total within one year,
Roban will enforce the DPA.
Sps. Ong filed a comlaint with the RTC claiming that the MOA and DPA were void
for being pactum commissorium, and that the interest, charges and the attorneys fees
were unconscionable.
Roban Lending countered that the voluntary execution of MOA and DPA novated the
REM, hence the allegation of pactum commissorium has no leg to stand on, and that
the interest, charges are valid considering the principal amount of 4M.
RTC: No pactum commissorium, complaint dismissed.
CA: RTC affirmed, MR denied.

IV. Issues
(1) Whether the contracts constitute pactum commissorium. (YES)

V. Held
(1) Pactum commissorium is prohibited under Article 2088 of the Civil Code.

Article 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."

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.

In the case at bar, the MOA AND DPA contain no provisions for foreclosure proceedings
nor redemption. Under the Memorandum of Agreement, the failure of Sps. Ong to pay
their debt within the one-year period gives Roban the right to enforce the Dacion in
Payment transferring to it ownership of the property. Roban, in effect, automatically
acquires ownership of the properties upon Sps. Ongs failure to pay their debt within the
stipulated period.

Re: the Dation as special form of payment.

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 Sps. Ongs obligation to
Roban.

MOA and DPA null and void for being a pactum commissorium.