G.R. No. 217368, August 05, 2024
Ruby Shelter Builders and Realty Development Corporation, represented by its President, Ruben Sia, Petitioner, vs. Romeo Y. Tan, Roberto L. Obiedo and Atty. Tomas A. Reyes, Respondents.

FACTS

Petitioner Ruby Shelter Builders and Realty Development Corporation (Ruby Shelter) obtained a loan from respondents Romeo Y. Tan and Roberto L. Obiedo, secured by a Real Estate Mortgage over five parcels of land. As of March 2005, the outstanding debt was PHP 95,700,620.00. The parties executed a Memorandum of Agreement (MOA) dated March 17, 2005. Under the MOA, Ruby Shelter was allowed to pay the indebtedness on or before December 31, 2005, with respondents condoning interests, penalties, and surcharges for a 15-month period. By way of dacion en pago, Ruby Shelter agreed to execute deeds of absolute sale, uniformly dated January 2, 2006, over the mortgaged properties in favor of the respondents. The MOA provided that if Ruby Shelter redeemed any property by paying the corresponding redemption sum, the corresponding deed of sale would be nullified. If Ruby Shelter failed to tender payment for any parcel, the respondents were allowed to present the deeds of absolute sale for registration. Ruby Shelter immediately executed separate Deeds of Absolute Sale, all dated January 3, 2006. On December 27, 2005, Ruby Shelter wrote a letter intimating its intention to redeem the properties and requesting a meeting to discuss concerns on the computation of interests, but the parties failed to arrive at a mutually acceptable amount. Ruby Shelter filed a Complaint to annul the deeds of absolute sale, alleging they were null and void for being pactum commissorium. The Regional Trial Court (RTC) dismissed the complaint, upholding the MOA and deeds of sale, and ordered Ruby Shelter and Ruben Sia to pay liquidated damages. The Court of Appeals (CA) initially reversed the RTC but later issued an Amended Decision affirming the RTC’s dismissal of the complaint and declaration that the parties had agreed to novate their earlier real estate mortgage.

ISSUE

Whether the stipulations in the Memorandum of Agreement and the subsequent Deeds of Absolute Sale constitute a pactum commissorium, and are therefore void.

RULING

No. The Supreme Court held that the prohibition against pactum commissorium does not extend to a mutual agreement between the debtor and creditor that the mortgaged property is sold to the latter to extinguish the obligation. The MOA dated March 17, 2005, constituted a novation of the original loan and real estate mortgage agreement, converting it into a contract of sale by way of dacion en pago. The elements of dacion en pago were present: there was an existing obligation, the parties agreed to alienate the property to the creditor, and the alienation was to extinguish the obligation. The execution of the deeds of sale was not a pactum commissorium because it was not a stipulation in the mortgage contract itself, but a subsequent mutual agreement for a dacion en pago. The MOA gave Ruby Shelter the option to pay the debt and redeem the properties until December 31, 2005, and the deeds of sale were to take effect only if Ruby Shelter failed to pay. This was a valid conditional sale, not an automatic appropriation of the mortgaged property by the creditors upon default. The Court affirmed the CA Amended Decision, which upheld the RTC’s dismissal of the complaint.