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ROSEL 1999 / Pardo Pledge and mortgage > Pactum commissorium > Effect on pledge or mortgage FACTS Both parties are spouses (Sps. Bustamante; Sps. Rosel). Bustamante borrowed 100k from Rosel for two years with 18% annual interest, and to guaranty payment, the spouses put as collateral a portion of their land, inclusive of the apartment therein. In the event that Bustamante failed to pay, Rosel had the option to buy or purchase said collateral for 200k, inclusive of the borrowed amount and interest. The loan was due for payment on 1 Mar 1989. When the loan was about to mature, Rosel proposed to buy the collateral, but Bustamante refused to sell it. They requested for extension of time to pay the loan, and offered to sell another residential lot. Rosel refused to grant the time extension. They also declined the Bustamantes offer to sell a different lot, as said lot was occupied by informal settlers, and that the Bustamante spouses were merely its land developers. On 1 Mar 1989 [date on which the loan fell due], Bustamante tendered payment of the loan but Rosel refused to accept it and insisted that Bustamante sign a deed of absolute sale of the collateral in their [Rosel] favor. Rosel filed a complaint for specific performance with consignation against Bustamante. On the other hand, Bustamante filed a petition for consignation and deposited 153k with the QC City Treasurer. Rosel consigned 47.5k with the trial court after Bustamante refused to sell the collateral. Computation by Rosel: 200,000.00 (100,000.00) (52,500.00) 47,500.00 Amount at which Rosel could buy the collateral Principal loan 18% annual interest on the loan Amount consigned by Rosel

The trial court ordered Bustamante to pay the 100k loan with 18% annual interest , and it denied Rosels prayer that Bustamante execute a deed of sale. Upon Rosels appeal, CA reversed the RTC ruling, ordering Bustamante to accept the 47,500 deposited by Rosel, and to execute a deed of sale in favor of Rosel. Bustamante was allowed to withdraw the 153k that they deposited with the QC City Treasurer. Bustamante filed a motion for reconsideration with the Supreme Court, alleging that the real intention of the parties was to put up the collateral as guarantee similar to an equitable mortgage [NCC 1602]. Rosel contends by saying that this was not a sale with a right of repurchase. ISSUE & HOLDING WON Bustamante failed to pay the loan at maturity date. NO. Therefore, they cannot be compelled to execute a deed of sale in favor of Rosel. WON the stipulation is void. YES, as it falls within the concept of pactum commissorium. RATIO The Court noted that the sale of the collateral is an obligation with a suspensive condition. Since the event did not occur, Rosel did not have the right to demand fulfillment of Bustamantes obligation, especially where the same would not only be disadvantageous to Bustamante but would also unjustly enrich Rosel considering the inadequate consideration (200k) for a 70 square meter property along Congressional Avenue, Quezon City. A scrutiny of the stipulation of the parties reveals a subtle intention of Rosel [creditor] to acquire the property given as loan security. This is embraced in the concept of pactum commissorium, which is proscribed by law . Elements of pactum commissorium 1. There should be a property mortgaged by way of security for the payment of the principal obligation 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 The intent to appropriate the property given as collateral is evident, for the debtor is obliged to dispose of the collateral at the pre-agreed consideration amounting to practically the same amount as the loan. In effect, the creditor acquires the collateral in the event of non-payment of the loan. This is within the concept of pactum commissorium; therefore, such stipulation is void. All persons in need of money are liable to enter into contractual relationships whatever the condition if only to alleviate their financial burden albeit temporarily. Courts are duty bound to exercise caution in the interpretation and resolution of contracts lest the lenders devour the borrowers like vultures do with their prey.