Case Summary (G.R. No. 125055)
Facts of the Case
The case arises from a loan agreement where petitioner A. Francisco Realty and Development Corporation (A. Francisco Realty) lent P7.5 million to the respondents, spouses Romulo and Erlinda Javillonar. In consideration of this loan, the respondents executed a promissory note and a deed of mortgage over their property. They also signed an undated deed of sale granting A. Francisco Realty ownership of the property upon default. The agreement stipulated payment of interest in advance and monthly installments, with certain penalties for non-payment.
Procedural Background
Respondents defaulted on their payments, prompting A. Francisco Realty to register the deed of sale and obtain a new title for the property. In response, the Javillonars contested this registration, claiming the deed was only security for their loan. They further argued that the trial court lacked jurisdiction and that the deed was void under Article 2088 of the Civil Code, which prohibits "pactum commissorium," a clause that allows a creditor to automatically gain ownership of the mortgaged property upon default.
Court of Appeals Decision
The Court of Appeals reversed the Regional Trial Court's ruling, determining that the trial court had no jurisdiction as the matter fell under the classification of unlawful detainer. The appellate court further ruled that the deed of sale was void as it constituted a pactum commissorium, hence affording the respondents relief.
Issues Presented
The primary issues to be resolved include:
- Whether the Court of Appeals erred in ruling that the Regional Trial Court lacked jurisdiction over A. Francisco Realty's complaint.
- Whether the contractual documents in question constituted a pactum commissorium as defined under Article 2088 of the Civil Code.
Jurisdictional Analysis
Regarding jurisdiction, the appellate court classified the complaint as an unlawful detainer, particularly noting that the action was filed within the one-year period following the respondents' failure to vacate. The appellate court cited relevant jurisprudence to underscore that such matters fall under the exclusive jurisdiction of municipal trial courts.
Ownership and Possession
The Supreme Court concurred with the appellate court's conclusion that the nature of A. Francisco Realty's claims extended beyond mere possession, raising significant issues about the ownership and validity of the property transfer. The contractual relationship between the parties necessitated an examination of their rights and obligations under the respective documents executed in connection with the loan.
Pactum Commissorium Determination
On the issue of whether the arrangement constitutes a pactum commissorium, the Scrum Court affirmed the appellate court's ruling. It articulated that any provision allowing a creditor to automatica
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Case Citation
- 358 Phil. 833
- G.R. No. 125055
- Date of Decision: October 30, 1998
- Court: Second Division
Parties Involved
- Petitioner: A. Francisco Realty and Development Corporation
- Respondents: Spouses Romulo S.A. Javillonar and Erlinda P. Javillonar
Background of the Case
- The case arises from a petition for review on certiorari challenging the decision of the Court of Appeals dated February 29, 1996, which reversed the decision of the Regional Trial Court of Pasig City in Civil Case No. 62290.
- The petitioner granted a loan of P7.5 Million to the respondents, secured by a promissory note, a deed of mortgage, and an undated deed of sale of the mortgaged property.
Loan Agreement Details
- Promissory Note: Dated November 27, 1991, with an interest charge of 4% per month for six months.
- Payment Terms: Interest was to be paid in four installments, with half of the total amount (P900,000.00) deducted from the proceeds of the loan.
- Consequences of Non-Payment: The promissory note stipulated that failure to pay interest without prior arrangement would lead to the transfer of full possession of the property and registration of the deed of sale.
Events Leading to the Dispute
- The respondents allegedly failed to pay the interest, prompting the petitioner to register the sale of the land in its favor on February 21, 1992, which led to the cancellation of TCT No. 58748 and the issuance of TCT No. PT-85569 in favor of the petitioner.
- An additional loan of P2.5 Million was obtained by the respondents on March 13, 1992, under similar terms as the first loan.
Legal Proceedings
- The petitioner filed for possession of the mortgaged property after the respondents refused to vacate.
- The respondents admitted liability but claimed that the deed of sale was merely security for their loan and contended that they were n