H) G.R. No.

77465 May 21, 1988

SPOUSES UY TONG & KHO PO GIOK, petitioners, vs. HONORABLE COURT OF APPEALS, HONORABLE BIENVENIDO C.
EJERCITO, Judge of the Court of First Instance of Manila, Branch XXXVII and BAYANIHAN AUTOMOTIVE CORPORATION,
respondents.

Facts: Petitioners Uy Tong and Kho Po Giok used to be the owners of Apt. No. 307 of the Ligaya Bldg. together with a
leasehold right for 99 years over the land on which the building stands. The said land is registered in the name of Ligaya
Investments, Ic. And it appears that Ligaya Investments owned the building which houses the apartment units but sold
Apt. No. 307 and leased a portion of it to Uy Tong ang Po Giok. On February 1969, the petitioners purchased from
respondent Bayanihan Automotive, Inc. 7 units of motor vehicles for a total amount of P 47,700 payable in 3 installments.
After making a downpayment of P7,000, the petitioners failed to pay the balance of P40,000 which prompted Bayanihan
to file an action for specific performance against petitioners which was rendered in favor of Bayanihan. The SPOUSES
acknowledged receipt of the sum of P3.000.00 more or less, paid by BAYANIHAN pursuant to the said judgment.
The spouses remained in possession of the premises and were allowed to remain in the premises as Lessees for a
stipulated monthly rental until November 30, 1972 and despite the expiration of said period, the petitioners failed to
surrender possession of the premises to Bayanihan which prompted Bayanihan to file an ejectment suit which was
dismissed on the ground that Bayanihan was not a RPI, not being the owner of the building. After demands to vacate the
apt made by Bayanihan’s counsel which was ignored by the petitioners, an action for recovery of possession with damages
was filed by Bayanihan against the spouses, impleading Ligaya Investments – this was decided in favor of Bayanihan. The
decision was denied including reconsideration.
In support of the first argument, petitioners bring to the fore the contract entered into by the parties with hereby
petitioner Kho Po Giok agreed that the apartment in question will automatically become the property of private
respondent BAYANIHAN upon her mere failure to pay... her obligation. This agreement, according to the petitioners is in
the nature of a pactum commissorium which is null and void, hence, the deed of assignment which was borne out of the
same agreement suffers the same fate.

Issue: Whether or not the deed of assignment over the apartment unit and the leasehold rights over the land on which
the building housing the said apartment stands in the nature of a pactum commissorium.

Ruling: The prohibition on pactum commissorium stipulations is provided for by Article 2088 of the Civil Code: Art. 2088.
The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of the same. Any stipulation
to the contrary is null and void.
A perusal of the terms of the questioned agreement evinces no basis for the application of the pactum
commissorium provision. First, there is no indication of any contract of mortgage entered into by the parties. It is a fact
that the parties agreed on the sale and purchase of trucks. Second, there is no case of automatic appropriation of the
property by BAYANIHAN. When the SPOUSES defaulted in their payments of the second and third installments of the
trucks they purchased, BAYANIHAN filed an action in court for specific performance. The trial court rendered... favorable
judgment for BAYANIHAN and ordered the SPOUSES to pay the balance of their obligation and in case of failure to do so,
to execute a deed of assignment over the property involved in this case. The SPOUSES elected to execute the deed of
assignment pursuant to said... judgment.

Clearly, there was no automatic vesting of title on BAYANIHAN because it took the intervention of the trial court to exact
fulfillment of the obligation, which, by its very nature is "... anathema to the concept of pacto commissorio.”