GR L 77465; (May, 1988) (Digest)
G.R. No. L-77465. May 21, 1988.
SPOUSES UY TONG & KHO PO GIOK, petitioners, vs. HONORABLE COURT OF APPEALS, HONORABLE BIENVENIDO C. EJERCITO, Judge of the Court of First Instance of Manila, Branch XXXVII and BAYANIHAN AUTOMOTIVE CORPORATION, respondents.
FACTS
Petitioners Spouses Uy Tong and Kho Po Giok purchased vehicles from respondent Bayanihan Automotive Corporation (Bayanihan) for P47,700.00, payable in installments. The written agreement stipulated that if the Spouses failed to pay their obligation, Bayanihan would “automatically” become the owner of the Spouses’ apartment unit and leasehold rights, upon payment to the Spouses of P3,535.00. The Spouses defaulted. Bayanihan filed an action for specific performance (Civil Case No. 80420). The trial court rendered judgment ordering the Spouses to pay the debt or, in case of failure, to execute a deed of absolute sale/assignment of their apartment and leasehold rights in favor of Bayanihan upon the latter’s payment of P3,535.00.
Pursuant to the judgment, a deed of assignment was executed by the Spouses with the assistance of their counsel. Bayanihan paid the stipulated amount. Despite this, the Spouses refused to vacate the premises. Bayanihan subsequently filed an action for recovery of possession, which was decided in its favor. The Court of Appeals affirmed this decision.
ISSUE
Whether the deed of assignment executed pursuant to the court’s judgment is void for being a pactum commissorium.
RULING
No, the deed of assignment is valid and not a pactum commissorium. The Supreme Court affirmed the Court of Appeals’ decision. The prohibition against pactum commissorium under Article 2088 of the Civil Code applies to a pledge or mortgage contract where the creditor automatically appropriates the thing given as security upon the debtor’s default, without need of foreclosure. This automatic appropriation is void.
In this case, the transfer of ownership did not arise from a simple stipulation in a contract of security. The deed of assignment was executed pursuant to a final and executory judgment in a specific performance case. The court’s judgment imposed reciprocal obligations: Bayanihan had to pay P3,535.00, and the Spouses had to execute the deed. The fact that the Spouses, assisted by counsel, executed the deed conclusively proves that Bayanihan had complied with its obligation to pay the consideration. The transfer was therefore effected through a court-sanctioned process, not through the creditor’s unilateral act under a security agreement. Consequently, the pactum commissorium prohibition does not apply. Bayanihan, having validly acquired the rights over the property, is entitled to its possession. The petition was denied for lack of merit.