Case Digest (G.R. No. 198780)
Facts:
Petitioner Ruby Shelter Builders and Realty Development Corporation obtained a loan from respondents Romeo Y. Tan and Roberto L. Obiedo secured by real estate mortgages over five parcels in Naga City; a Memorandum of Agreement dated March 17, 2005 (MOA) provided for condonation of interests, an opportunity to pay by December 31, 2005, and execution of Deeds of Absolute Sale dated January 3, 2006 as dacion en pago if defaulted. Ruby Shelter sued to annul the deeds alleging pactum commissorium; the RTC dismissed the complaint and declared the MOA and deeds valid, the Court of Appeals initially reversed but later, in an Amended Decision, affirmed the RTC, and Ruby Shelter filed a Rule 45 petition.
Issues:
- Did the parties novate the real estate mortgage and effect an extinctive *dacion en pago* under the MOA?
- Is the MOA void for being a pactum commissorium?
- Were the liquidated damages of PHP 10,000,000 under paragraph 7 of the MOA unconscionable and subject to reduction?
Ruling:
The petition was denied. The Court affirmed the CA's February 18, 2015 Amended Decision insofar as it held that the MOA operated to extinguish Ruby Shelter’s obligation by way of dacion en pago in the event of default and that the MOA was not void for pactum commissorium. The Court also upheld the award of liquidated damages of PHP 10,000,000 and ordered Ruby Shelter to pay that amount with six percent per annum interest from finality.
Ratio:
The Court found that the MOA manifested the parties’ consent to treat the executed Deeds of Absolute Sale as payment upon failure to satisfy the modified obligation, and that the requisites of dacion en pago under Article 1245 were present—consent, an aliud pro alio, and a sale-like transaction with a certain purchase price—thus effecting extinctive novation in the contingency provided. The prohibition against pactum commissorium targets automatic appropriation by a mortgagee where title vests without a true sale; here the transfer was the result of a voluntary deed of sale and the parties’ clear intention, so the MOA did not constitute an unlawful pactum commissorium. As to liquidated damages, the Court applied Article 2226 and pertinent precedents and found the agreed PHP 10,000,000 not iniquitous given the circumstances and the parties’ consent, warranting enforcement with interest.
Doctrine:
- Novation requires consent of all parties and may be extinctive or modificatory depending on whether the old obligation is wholly extinguished.
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