Bustmante vs.

Rosel
November 29, 1999 | Pardo, J. | Obligatory force between parties; What may not be stipulated
PETITIONER: Natalia Bustamante
RESPONDENT: Sps. Rodito F. Rosel and Norma Rosel
SUMMARY: Natalia Bustamante and her husband (already deceased) entered into a loan agreement with the Sps. Rosel. According to their
agreement, should Natalia fail to pay the loan, the spouses will have the option to buy the land owned by Natalia, which was designated as
collateral. When the loan was about to mature, the spouses told Natalia that they would like to buy the lot instead. Natalia refused, and the spouses
refused to accept her payment for the loan. RTC ruled in favor of Natalia. CA ruled in favor of the spouses. SC initially ruled in favor of the
spouses, citing that contracts have the force of law between contracting parties. In Natalias MR, however, the SC found that the stipulation
providing for an option to buy is void for being a pactum commissorium, which is proscribed by law under Article 2088, in relation to Article
1306.
DOCTRINE: The general rule is contracts have the force of law between contracting parties, and that parties are free to establish stipulations,
clauses, terms, and conditions as they may deem convenient. One of the exceptions is when the stipulation is contrary to law, which in this case,
was a pactum commissorium. According to Article 2088, The creditor cannot appropriate the things given by way of pledge or motgage, or
dispose of them. Any stipulation to the contrary is null and void.

FACTS:
accept the amount consigned by the spouses.
1. Norma Rosel entered into a loan agreement with Natalia 10. The SC already had a decision, denying Natalias petition on
Bustamante and her late husband, Ismael C. Bustamante. The
the ground that there was no reversible error on the part of
following are the terms and conditions of the loan
the CA in ordering the execution of the necessary deed of
agreement:
sale in conformity with the stipulated agreement. It argued
a. Natalia will borrow the sum of P100,000 from the
that the contract is the law between the parties.
Sps. Rosel. This will be given in a period of 2 years, 11. Natalia filed a motion for reconsideration.
counted from March 1, 1987, with an interest of 18%
per annum.
ISSUE/S:
b. Natalia, as registered owner of a parcel of land, will 1. W/N Natalia failed to loan at its maturity date - NO
use 70 square meters as collateral for payment of the 2. W/N the stipulation in the loan contract was valid and
debt.
enforceable - NO
c. In the event that Natalia fails to pay, the spouses
Rosel will have the option to buy or purchase the RULING: Former ruling set aside, MR GRANTED.
collateral for a total consideration of P200,000,
inclusive of the borrowed amount and interest therein. RATIO:
2. When the loan was about to mature on March 1, 1989, the 1. The sale of the collateral was an obligation with a suspensive
spouses Rosel proposed to buy at the pre-set price of
condition. It was dependent upon the happening of an event
P200,000, the 70 sq. m. parcel of land used as collateral.
Natalias failure to pay the loan. Since Natalia had the
3. Natalia refused to sell and requested for an extension of time
capacity to pay, tendered and even consigned the amount, the
to pay the loan. She also offered to sell to respondents
spouses did not have the right to demand fulfillment of the
another residential lot located at Road 20, Project 8, Quezon
petitioners obligation to deliver the collateral. The Court
City, with the principal loan plus interest to be used as
also took note of the fact that the consideration of P200,000
downpayment.
was inadequate for a 70 sq.m. property located at
4. The spouses Rosel refused to extend the payment of the loan
Congressional Ave., QC.
and to accept the lot in Road 20 because it was occupied by 2. While it is true that a contract has the force of law between
informal settlers, and Natalia and her husband were mere
the contracting parties and must be complied with in good
land developers of the area, and not real owners.
faith, there are certain exceptions as provided in Article
5. On March 1, 1989, Natalia tendered payment of the loan to
1306: those that are contrary to law, morals, good customs,
the spouses, but the latter refused to accept it, and insisted
public order, or public policy.
that Natalia sign a prepared deed of absolute sale of the 3. The court found that the stipulation in the contract (SEE
collateral.
UNDERLINED PART #1 OF FACTS) was a pactum
6. On February 28, 1990, the spouses filed with the RTC of
commissorium, which is proscribed by law (ARTICLE
Quezon City a complaint for specific performance with
2088). The following are the elements of a pactum
consignation. However, on March 4, 1990, they also sent a
commissorium:
demand letter asking Natalia to sell the collateral pursuant to
a) There should be a property mortgaged by way of
the option to buy embodied in the loan agreement.
security for the payment of the principal obligation.
7. On March 5, 1990, Natalia filed a petition for consignation,
b) There should be a stipulation for automatic
and deposited the amount of P153,000 with the City
appropriation by the creditor of the thing mortgaged in
Treasurer. The spouses also consigned the amount of
case of non-payment of the principal obligation within
P47,500. (Because they really, really wanted to buy the land
the stipulated period.
designated as collateral!)
4. The stipulation was declared void, and Natalia is under no
8. RTC ruled in favor of Natalia.
obligation to give the land designated as collateral because she
9. CA reversed and set aside the RTC ruling, requiring Natalia was able to pay the debt.
to execute a deed of sale in favor of the spouses and to