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In June 4,1979, Solid Homes executed a real estate mortgage in favor of Sate Financing two of its
properties in Pasig City for an amount of 10M which eventually increased to 14M. When the loan
payments fell due, Solid Homes, despite State Financings repeated demands, failed to pay.
State Financing filed a petition for extrajudicial foreclosure but before the scheduled public auction sale,
the two parties agreed on a different payment condition. They executed a DACION EN PAGO. Among
other agreements, the two parties agreed that the 14M shall be paid in 180 days; if 60% of 14M is not
paid in 180 days, document will operate to be an instrument of dacion en pago whereby Solid Homes
obligates itself to transfer, convey and assign to (State Financing), by way of dacion
en pago, its heirs, successors and assigns, and (State Financing) does hereby accept
the conveyance and transfer of the above-described real properties, including all
the improvements thereon, free from all liens and encumbrances, in full payment
of the outstanding indebtedness of (Solid Homes) to (State Financing). SH was also
given ten (10) months counted from and after the one hundred eighty (180) days
from date of signing hereof to repurchase the property.
When SH failed to pay, SF registered the dacion en pago with RD and the latter
cancelled the TCTs under SHs name and issued new TCTs in SFs name without
annotating the right of repurchase.
A new payment scheme was agreed upon by the parties which includes the 30% per
annum interest on the redemption price but on June 16, 1984, SH filed an action
against SF seeking the annulment of dacion en pago and consequent restatement of
the mortgages.
The TC ruled among others that Dacion en Pago was valid but held that the issuance
of the new TCTs without annotation of the right to repurchase rendered it null &
CA ruled that SF was not legally bound to make the annotation, and SH could have
taken steps to protect its own interests.
ISSUE: WON the 30% interest per annum as part of redemption price is
incontravention of 1616?
SC RULING: The court ruled in the negative. It held that Art 1616 is not restrictive or
exlclusive. 1616 must be construed with 1601 which provides that
Art. 1601. Conventional redemption shall take place when the vendor reserves the
right to repurchase the thing sold, with the obligation to comply with the provisions
of article 1616 and other stipulations which may have been agreed upon.
It is clear, therefore, that the provisions of Art. 1601 require petitioner to comply with x x x the
other stipulations of the Memorandum of Agreement/Dacion en Pago it freely entered into with
private respondent.
Contracts have the force of law between the contracting parties who
may establish such stipulations, clauses, terms and conditions as they
may want, subject only to the limitation that their agreements are not
contrary to law, morals, customs, public policy or public order
-- and
the above-quoted provision of the Memorandum does not appear to be
Petitioner, however, is right in its observation that the Court of
Appeals inclusion of registration fees, real estate and documentary
stamp taxes and other incidental expenses incurred by State Financing
in the transfer and registration of its ownership (of the subject
properties) via dacion en pago was vague, if not erroneous,
considering that such transfer and issuance of the new titles were null
and void. Thus, the redemption price shall include only those expenses
relating to the registration of the dacion en pago, but not the registration
and other expenses incurred in the issuance of new certificates of title in
the name of State Financing.