G.R. No. 126800 - Bustamante vs. Spouses Rosel

Case Summary (G.R. No. 126800)

Petitioner, Respondent, and Property Details

Petitioner was the lender in the March 8, 1987 loan agreement; respondents were the borrowers and owners of the property identified as a 423-square-meter parcel, of which a 70-square-meter portion (including an apartment) was pledged as collateral. The loan principal was P100,000.00, with interest at 18% per annum for two years; the agreement provided that, upon borrower default, the lender had the option to purchase the collateral for P200,000.00 (inclusive of principal and interest).

Key Dates

Loan execution: March 8, 1987 (interest counted from March 1, 1987). Maturity: March 1, 1989. Respondents’ demand to buy at P200,000.00: prior to maturity and again March 4, 1990. Tender by petitioner: March 1, 1989 (refused by respondents). Complaint filed by respondents (specific performance with consignation): February 28, 1990. Petitioner’s consignation petition filed: March 5, 1990; deposit of P153,000.00 with city treasurer: August 10, 1990. RTC decision: November 10, 1992. Court of Appeals decision: July 8, 1996. Supreme Court resolution denying petition: February 9, 1998; motion for reconsideration granted and final Supreme Court disposition reversing the Court of Appeals: November 29, 1999. Applicable constitution: 1987 Constitution (decision date is 1999).

Applicable Law and Legal Principles

Primary applicable law invoked in the decision includes: the Civil Code provisions on conditional obligations and contract stipulations (Articles 1159, 1181, 1306, 2088, and 2208 as discussed in the decision). The Court also applied established jurisprudential principles regarding pactum commissorium (the prohibition on automatic appropriation of mortgaged or pledged property by the creditor), and the contractual principle that contracts are binding between parties, subject to the prohibitions under Article 1306.

Factual Background and Procedural Posture

Respondents proposed to exercise the contractual option to purchase the collateral at the pre‑fixed price when the loan neared maturity. Petitioner refused to execute the deed of sale and instead tendered payment and sought extension of time or offered an alternative lot as down payment. Respondents refused to accept tender and insisted on seller’s execution of a prepared deed of absolute sale. Petitioner then consigned payment with the court (depositing P153,000.00 with the city treasurer), while respondents deposited P47,500.00 with the trial court calculated as the balance due after offsetting their deposit against principal and accrued interest. The trial court ordered repayment of the loan (denying plaintiffs’ request for execution of deed of sale), the Court of Appeals reversed, ordering defendants to accept respondents’ deposited amount and to execute a deed of sale conveying the 70-square-meter portion. The Supreme Court ultimately reconsidered and addressed whether non‑payment occurred and whether the option clause was valid.

Issues Presented

Whether petitioner failed to pay the loan at its maturity so as to justify respondents’ demand to acquire the collateral under the contractual option; and 2) Whether the stipulation granting respondents the option to acquire the collateral at a pre‑fixed price in the event of non‑payment was valid and enforceable or whether it constituted an unlawful pactum commissorium.

Supreme Court’s Findings on Payment and Consignment

The Court found that petitioner tendered payment on the due date (March 1, 1989) and that respondents refused to accept payment, insisting instead on execution of a deed of sale. Because the creditor refused tender, petitioner properly resorted to consignation and deposited the required amount with the appropriate public office and later with the trial court. The Court therefore concluded that petitioner did not fail to pay the obligation; the tender and subsequent consignation satisfied the debtor’s obligations and precluded respondents from asserting a default to justify appropriation of the collateral.

Legal Doctrine Applied: Pactum Commissorium and Public Policy Constraints

The Court emphasized the doctrine prohibiting pactum commissorium—any stipulation that permits the creditor to appropriate or automatically acquire mortgaged or pledged property in case of debtor default is void (Article 2088 of the Civil Code). The decision explained that while parties are generally free to stipulate terms under Article 1306, such freedom does not extend to clauses contrary to law, morals, good customs, public order or public policy. A pactum commissorium has two essential elements: (1) a property given as security for an obligation, and (2) a stipulation for automatic appropriation by the creditor upon debtor’s non‑payment. The Court cited prior jurisprudence and doc

Case Syllabus (G.R. No. 126800)

Nature of the Case and Relief Sought

Petition for review on certiorari under Rule 45, 1964 Revised Rules of Court, seeking to annul the decision of the Court of Appeals (CA-G.R. CV No. 40193, promulgated July 8, 1996) which reversed and set aside the decision of the Regional Trial Court (Civil Case No. Q-90-481 / Q-90-4813, RTC, Quezon City, Branch 84, Judge Teodoro P. Regino) in an action for specific performance with consignation.
Petitioner sought review of the Court of Appeals’ order directing the execution of a deed of sale of a 70-square-meter portion of a titled parcel as provided for in the parties’ loan agreement.

Contract Terms (Loan Agreement - March 8, 1987)

Borrowers: Norma Rosel (respondent). Lenders: Natalia Bustamante (petitioner) and her late husband Ismael C. Bustamante.
Collateral: Borrowers represented they were registered owners of a parcel evidenced by TRANSFER CERTIFICATE OF TITLE No. 80667, area 423 square meters, situated along Congressional Avenue.
Loan amount and term: Borrowers desired to borrow ONE HUNDRED THOUSAND PESOS (P100,000.00) from the lender for two (2) years, counted from March 1, 1987, with interest at EIGHTEEN PERCENT (18%) per annum.
Collateral description and purchase option: To guaranty payment, a SEVENTY (70) SQUARE METERS portion, inclusive of the apartment therein, of the above parcel was put as collateral; however, in the event the borrowers failed to pay, the lender had the option to buy or purchase the collateral for a total consideration of TWO HUNDRED THOUSAND PESOS (P200,000.00), inclusive of the borrowed amount and interest.
Parties’ acknowledgment: The lender manifested agreement and conformity to the preceding paragraph while the borrowers confessed receipt of the borrowed amount (Exhibit "A", RTC Record, p. 142).

Chronology of Events and Key Facts

March 1, 1989: Loan maturity date as counted from March 1, 1987. Respondents proposed to buy the 70-square-meter collateral at the pre-set price of P200,000.00 upon maturity.
Petitioner’s responses: Petitioner refused to sell, requested extension of time to pay the loan, and offered to sell another residential lot (Road 20, Project 8, Quezon City) and apply the principal plus interest as down payment.
Respondents’ refusal: Respondents refused extension and the Road 20 lot because it was occupied by squatters and petitioner (and her husband) were not the owners but land developers entitled to subdivision shares or commissions under development conditions.
March 1, 1989 tender: Petitioner tendered payment of the loan to respondents on the maturity date; respondents refused to accept, insisting petitioner sign a prepared deed of absolute sale of the collateral.
Feb. 28, 1990: Respondents filed with the RTC, Quezon City, Branch 84, a complaint for specific performance with consignation (Civil Case No. Q-90-4813).
March 4, 1990: Respondents sent a demand letter asking petitioner to sell the collateral pursuant to the option to buy in the loan agreement.
March 5, 1990: Petitioner filed in the RTC a petition for consignation.
August 10, 1990: Petitioner deposited the amount of P153,000.00 with the City Treasurer of Quezon City (Official Receipt No. 0116548; Exhibit "2", RTC Record, p. 182).
Respondents’ consignation: When petitioner refused to sell and barangay conciliation failed, respondents consigned the amount of P47,500.00 with the trial court (Official Receipt No. 0719847 dated February 28, 1990, issued by the City Treasurer, Quezon City, with the Clerk of Court, RTC, as payee, RTC Record, p. 162).

Calculation of Amounts Tendered and Consigned

Interest computation as presented in the record: (P100,000.00 x 18%) for 2 years and 11 months (March 8, 1987 up to February 9, 1990) = P18,000 x 2 years and 11 months = P52,500.00 (Rollo, p. 41-45).
Principal plus interest: P100,000.00 + P52,500.00 = P152,500.00, leaving a balance of P47,500.00 (respondents considered the principal and interest to arrive at amount deposited).
Deposits on record: Petitioner’s deposit P153,000.00 with City Treasurer (OR No. 0116548); respondents’ deposit/consignation with Clerk of Court P47,500.00 (OR No. 0719847).

Trial Court (RTC) Ruling — November 10, 1992

Court: Regional Trial Court, Quezon City, Branch 84. Judge: Teodoro P. Regino.
Dispositive orders:
- Denied the plaintiff’s prayer for the defendants’ execution of the Deed of Sale to convey the collateral in plaintiffs’ favor.
- Ordered the defendants to pay the loan of P100,000.00 with interest at 18% per annum commencing on March 2, 1989 up to and until August 10, 1990, when defendants deposited the amount with the City Treasurer under OR No. 0116548 (Exhibit "2").
- Ordered payment of Attorney’s Fees in the amount of P5,000.00, plus costs of suit.
Result: The RTC denied plaintiffs’ (respondents’) claim for specific performance to convey the collateral and instead ordered payment by defendants in accordance with the terms stated by the court (RTC Decision, Rollo, pp. 30-39).

Court of Appeals Decision — July 8, 1996 (CA-G.R. CV No. 40193)

Action: The Court of Appeals reversed and set aside the RTC decision.
Dispositive portion (as rendered by the Court of Appeals):
- Ordered the defendants to accept the amount of P47,000.00 deposited with the Clerk of Court of the RTC under OR No. 0719847, and for defendants to execute the necessary Deed of Sale in favor of the plaintiffs over the 70-square-meter portion and the apartment standing thereon being occupied by the plaintiffs and covered by TCT No. 80667 within fifteen (15) days from finality.
- Allowed defendants to withdraw the amount of P153,000.00 deposited by them under OR No. 0116548 of the City Treasurer’s Office of Quezon City.
- Dismissed all other claims and counterclaims for lack of sufficient basis.
- No costs awarded by the Court of Appeals.
Effect: The CA compelled execution of th