Ong vs.

Roban Lending Corporation

July 9, 2008
Carpio Morales, J.:
Topic: Security Devices
Facts:
On different dates from Jul 14, 1999 to March 20, 2000, petitioner-spouses Ong
obtained several loans from Roban Lending Corporation amounting to P4,000,000.
These were secured by a real estate mortgage over a parcel of land in Tarlac.
On February 21, 2001, both parties executed an Amendment to the Amended Real
Estate Mortgage, a pertinent provision of which states, the Second Party hereby
sign a promissory note in the amount of P5,916,117.50 with a promise to pay the
First Party, otherwise the Second Part agree to have their DACION IN PAYMENT
agreement, which they have executed and signed today in favor of the First Party.
In April 2002, petitioners filed a complaint praying that the Amendment to the
Amended Real Estate Mortgage be annulled for being pactum commissorium, and to
have the interest rates reduced for being unconscionable.
RTC of Tarlac found that there was no pactum commissorium. The CA affirmed the
RTC ruling.
Issue / Held:
WON the Amendment to the Amended Real Estate Mortgage constitutes pactum
commissorium. YES. The Ong spouses won!
Ratio:
2 elements of pactum commissorium (1) there should be a property mortgaged by
way of security for the payment of the principal obligation, and (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.
In a true dacion en pago, the assignment of the property extinguishes the monetary
debt. In the case at bar, the alienation of the property was by way of security and
not by way of satisfying the debt. The Dacion in payment did not extinguish Ongs
obligation to Roban Lending Corporation. On the contrary, Ong had to execute a
promissory not which they were to pay within one year.
As to the interest rates, the court finds the monthly interest rate of 3.5% or 42% per
annum unconscionable and thus reduces it to 12% p.a. while the penalty fee at the
monthly interest rate of 5% (60% p.a.) is also unconscionable and reduced it to 12%
yearly. Moreover, the court finds that the penalty fee of 25% imposed on the
principal, interests and interests thereon unconscionable and thus reduced it to 25%
of the principal amount only.
WHEREFORE, the CA decisions is REVERSED.