NATALIA P. BUSTAMANTE vs. SPOUSES RODITO F. ROSEL and NORMA A. ROSELG.

R. No. 126800. November 29, 1999 Pardo. J.

FACTS:
The petitioners herein borrowed a sum of money from the respondents through a loan which
stipulated, among others, that: a certain parcel of land of the petitioners will be collateral; and
that the lender (respondents) has the option to purchase the collateral lot for P
200,000.00, inclusive of the amount and interest therein.
When the loan was about to mature on March 1, 1989, respondents proposed to buy at the
preset price of P200,000.00, the seventy (70) square meters parcel of the land. This was refused
by the petitioners, together with the request of the petitioners to extend the period of
payment. The petitioners offered another land instead, with the consideration that the
borrowed amount as down payment.
The lender refused to accept payment upon being offered by the petitioners and insisted
that the collateral be sold to them.
The petitioners deposited the amount to the trial court instead, showing their desire
to pay. The trial court denied the execution of the Deed of Sale and just ordered the payment of
the loan with interest. This was REVERSED by the Court of Appeals hence this petition.
ISSUE:
Whether or not the Deed of Sale can be executed considering the conditions stipulated in the
loan.
HELD:
No, it cannot be executed. The sale of the collateral is an obligation with asuspensive condition.
It is dependent upon the happening of an event, without which the obligation to sell does not
arise as provided in Article 1181 of the Civil Code.
The event that is to be based upon is the non-payment of the petitioners. This did not
happen because the petitioner tendered payment at the due date which respondents refused to
accept, insisting that petitioner sell to them the collateral of the loan. Upon such refusal ,they
deposited the amount in the trial court showing their intention to pay.
A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor to
acquire the property given as security for the loan. This stipulation is embraced in the
concept of pactum commissorium, which is prohibited by law. Pactum commissorium occurs
if there was a creditor-debtor relationship between the parties; the property was used as security
for the loan; and there was automatic appropriation by the borrower.

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public
policy.
A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor to acquire the property
given as security for the loan. This is embraced in the concept of pactum commissorium, which is proscribed
by law.22
The elements of pactum commissorium are as follows: (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.23