Zuno, Maria Hazel L.

30, 2014
Juris Doctor
and Deeds

September
Land Titles

Pablo P. Garcia vs. Yolanda Valdez Villar

GR No 158891
June 27, 2012
Topic: Mortgages; Pactum Commissorium
Facts:
The case stemmed from a mortgage transaction involving a lot owned by
Lourdes Galas in favor of Yolanda Villar. The lot was mortgaged to secure a loan
obtained by Galas from Villar in the amount of P2,200,000.00. It was established
from the facts that in the Deed of Real Estate Mortgage executed between Galas
and Villar, the former appoints the latter to sell the subject property in case Galas
fails to pay the loan, and with such, proceeds shall be applied to her outstanding
loan. A year later, the same subject property was subsequently mortgaged in favor
of Pablo Garcia to secure a loan amounting to P1,800,000.00. Afterwards, Galas
decided to sell the subject property to Villar. A Deed of Sale was executed between
them, and a TCT was issued in favor of Villar. Aggrieved, Garcia filed a Petition for
Mandamus with Damages, arguing his main point that the authority given to Villar
as stipulated in te Deed of the Real Estate Mortgage is violative of the prohibition of
Pactum Commissorium. RTC ruled in favor of Garcia. On appeal, CA reversed RTCs
decision and ruled in favor of Villar.
Issue:
Whether the authority given to Villar in the Deed of Real Estate Mortgage is
violative of the prohibition on pactum commissorium?
Supreme Court Ruling:
No. Villars purchase of the subject property did not violate the prohibition on
pactum commissorium.
The following are the elements of pactum commissorium:
1. there should be a property mortgaged by way of security for the payment of the
principal obligation
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 the case at bar, the power of attorney provision above did not provide that
ownership over the subject property would automatically pass to Villar upon Galas
failure to pay the loan on time. What it granted was the mere appointment of Villar
as attorney in fact with authority to sell, or otherwise dispose of the subject
property, and to apply the proceeds to the payment of the loan.

Galas decision to eventually sell the subject property to Villar for an

additional P1,500,000.00 was well within the scope of his rights as the owner of the
subject property. The subject property was transerred to Villar by virtue of another
and separate contract, which is the Deed of Sale. Garcia never alleged that the
transfer of the subject property to Villar was automatic upon Galas failure to pay his
debt, or that the sale was simulated to cover up such automatic transfer.