Pactum Commissorium is prohibited under Art 2088 of the CC which
provides: the creditor cannot appropriate the things given by way of DOCTRINE: Pactum Commissorium is the Automatic appropriation by the pledge or mortgage, or dispose of them, Any stipulation is null and creditor of the thing pledged or mortgaged upon the failure of the debtor void. to pay the principal obligation. Article 2088 prohibits this “The creditor cannot Elements of Pactum Commissorium appropriate the things given by way of pledge or mortgage, or dispose of o There should be a property mortgaged by way of security for them. Any stipulation to the contrary is null and void.” the payment of the principal obligation o There should be a stipulation for automatic appropriation by FACTS: the creditor of the thing mortgaged in case of non-payments Spouses Ong obtained several loans from respondent Roban Lending of the principal obligation within the stipulated period. Corp that was secured by real estate mortgage on petitioner parcels In the case at bar, the Memorandum and Dacion contains no of land located in Tarlac City. provision for foreclosure nor redemption. On Feb 2001, Spouses on executed an “Amendment to Amend Real Respondent argues that dacion is a special form of payment. Estate Mortgage” consolidating their loans inclusive of charges which However, in the case at bar, the alienation of the properties was by totals to 5. 9 mil. To extinguish this, the parties executed a Dacion in way of security and not by way of satisfying the debt. The Dacion did Payment Agreement where petitioner assigned properties covered by not extinguish the petitioner obligations. The petitioner had to the mortgage property to respondent in settlement of their total execute a promissory note for 5 mill first which they were to pay obligation, and a Memorandum of Agreement which provides that within one year. The respondents would automatically acquire the Spouses Ong promise to pay the amount due within one year or else properties upon petitioners failure to pay debts within stipulated the Dacion will be enforced. period. In April 2002, Spouses Ong filed a complaint before the RTC of With regard to the interest imposed, the contract provides that the Tarlac to declare the mortgage contract as abandoned, annul the petitioner must pay. 3.5% per month (42% per annum) and 5% per deeds, illegal exaction, unjust enrichment, accounting and damages, month penalty (60% pa) unconscionable. The court reduced it to alleging that the Memorandum of Agreement and Dacion in Payment 12%. executed are void for being PACTUM COMMISSORIUM. Spouses Ong wins o Petitioner allege that the loans were added interest denominated as EVAT/AR. Petitioner decried these additional charges as illegal, iniquitous, unconscionable, and revolting to the conscience as they hardly allow any borrower any chance of survival in case of default. Respondent Roban maintained the legality of the transacrtion. RTC found no pactum commisorium and dismissed the complaint CA upheld the RTC decision