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NATALIA P. BUSTAMANTE v. SPS. RODITO F. ROSEL

FACTS:

The case involves a loan agreement between Norma Rosel and Natalia and Ismael Bustamante. Rosel borrowed P100,000 from the Bustamantes, with a 2-year payment period and an 18% interest rate. A 70-square meter portion of a parcel of land owned by the Bustamantes was offered as collateral. The loan agreement allowed the Bustamantes to purchase the collateral for P200,000 if Rosel fails to pay. When the loan was about to mature, Rosel proposed to purchase the collateral at the agreed price, but the Bustamantes refused and offered another lot as payment. Rosel refused the offer and tendered payment on the maturity date, but the Bustamantes refused to accept it without her signing a deed of absolute sale. Rosel filed a complaint for specific performance with consignation, while the Bustamantes filed a petition for consignation. The trial court ruled in favor of Rosel, denying the deed of sale but ordering the Bustamantes to pay the loan with interest. The Court of Appeals reversed the trial court's decision and ordered the Bustamantes to accept the payment deposited by Rosel.

ISSUES:

  1. Whether petitioner failed to pay the loan at its maturity date.

  2. Whether the stipulation in the loan contract was valid and enforceable.

RULING:

  1. Petitioner did not fail to pay the loan. The loan was due for payment on March 1, 1989, and petitioner tendered payment, which respondents refused to accept.

  2. The stipulation in the loan contract is not valid and enforceable. The stipulation resembles a pactum commissorium, which is prohibited by law under Article 1306 of the Civil Code.

PRINCIPLES:

  • Contracts have the force of law between the contracting parties but must not be contrary to law, morals, good customs, public order, or public policy (Article 1306, Civil Code).

  • Pactum commissorium is proscribed by law and contains two elements: (1) a property mortgaged as security for payment of the principal obligation, and (2) a stipulation for automatic appropriation of the mortgaged property by the creditor if the principal obligation is not paid (Article 2088, Civil Code).