Case Digest: SPOUSES WILFREDO N. ONG AND EDNA SHEILA PAGUIO-ONG v. ROBAN LENDING CORPORATION

SPOUSES WILFREDO N. ONG AND EDNA SHEILA PAGUIO-ONG v. ROBAN LENDING CORPORATION

557 SCRA 516 (2008)

In a true dacion en pago, the assignment of the property extinguishes the monetary debt.

On various dates, petitioner Spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong obtained several loans from respondent Roban Lending Corporation in the total amount of P4, 000,000. These loans were secured by real estate mortgage on Spouses Ong‘s parcel of lands.

Later Spouses Ong and Roban executed several agreements – an amendment to the amended Real Estate Mortgage which consolidated their loans amounting to P5, 916,117.50; dacion in payment wherein spouses Ong assigned their mortgaged properties to Roban to settle their total obligation and Memorandum of Agreement (MOA) in which the dacion in payment agreement will be automatically enforced in case spouses Ong fail to pay within one year from the execution of the agreement.

Spouses Ong filed a complaint before Regional Trial Court of Tarlac City to declare the mortgage contract, dacion in payment agreement, and MOA void. Spouses Ong allege that the dacion in payment agreement is pactum commissorium, and therefore void. In its Answer with counterclaim, Roban alleged that the dacion in payment agreement is valid because it is a special form of payment recognized under Article 1245 of the Civil Code. RTC ruled in favor of Roban, finding that there was no pactum commissorium. The Court of Appeals upheld the RTC decision.

ISSUE:

Whether or not the dacion in payment agreement entered into by Spouses Ong and Roban constitutes pactum commissorium

HELD:

The Court finds that the Memorandum of Agreement and Dacion in Payment constitute pactum commissorium, which is prohibited under Article 2088 of the Civil Code which provides that the creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void

The elements of pactum commissorium, which enables the mortgagee to acquire ownership of the mortgaged property without the need of any foreclosure proceedings, are: (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.

Here, Memorandum of Agreement and the Dacion in Payment contain no provisions for foreclosure proceedings nor redemption. Under the Memorandum of Agreement, the failure by the

petitioners to pay their debt within the one-year period gives respondent the right to enforce the Dacion in Payment transferring to it ownership of the properties covered by TCT No. 297840. Respondent, in effect, automatically acquires ownership of the properties upon Spouses Ong’s failure to pay their debt within the stipulated period.
In a true dacion en pago, the assignment of the property extinguishes the monetary debt.

Here, the alienation of the properties was by way of security, and not by way of satisfying the debt. The Dacion in Payment did not extinguish Spouses Ong’s obligation to Roban. On the contrary, under the Memorandum of Agreement executed on the same day as the Dacion in Payment, petitioners had to execute a promissory note for P5, 916, 117.50 which they were to pay within one year
EDMUNDO T.

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