Case Summary (G.R. No. 217368)
Antecedents
Ruby Shelter obtained a substantial loan from Tan and Obiedo, which was secured by a Real Estate Mortgage covering five parcels of land. As of March 2005, the outstanding debt stood at PHP 95,700,620. To secure an extension for loan repayment, the parties entered into a Memorandum of Agreement (MOA) on March 17, 2005, which contained various stipulations regarding the condonation of interests and penalties, with provisions allowing for the sale of the mortgaged properties (dacion en pago) should Ruby Shelter fail to meet its obligations.
Initial Agreements and Actions
Ruby Shelter subsequently executed Deeds of Absolute Sale on January 3, 2006, transferring the mortgaged properties to Tan and Obiedo. However, after expressing an intention to redeem the properties and negotiating on the issue of interest and penalties, Ruby Shelter claimed that the deeds of sale were notarized prematurely by Atty. Reyes without proper consent from its president, leading to a complaint for annulment of the deeds.
Ruling of the Regional Trial Court (RTC)
The RTC dismissed the complaint, determining that the MOA effectively novated the original mortgage through the executed deeds of sale, thereby extinguishing the indebtedness. The RTC found no pactum commissorium as Ruby Shelter willingly offered the properties as payment for the debt.
Court of Appeals' (CA) Decision
On appeal, the CA initially reversed the RTC ruling, declaring parts of the MOA void concerning automatic appropriation of properties due to non-payment, which was deemed a pactum commissorium. However, upon reconsideration, the CA reinstated the RTC's decision asserting that the terms of the MOA constituted valid modifications of the original obligation, concluding that there was no unlawful pactum commissorium present since the transaction represented a voluntary dation en pago rather than an automatic transfer of ownership.
Issues Raised by the Parties
Ruby Shelter contended that the MOA did not novate the original obligation but merely modified the payment terms. The respondents countered that the evidence demonstrated a clear intent for dation in payment and that Ruby Shelter was barred from contesting the sale due to the completion of the transfer process.
Supreme Court's Ruling
The Supreme Court denied Ruby Shelter’s petition, holding that the CA rightly concluded that the parties intended a novation of the original loan through dation in payment. The Court noted that the agreements clearly outlined the potential for debt extinction through the sale, thereby allowing Tan and Obiedo to attain ownership upon Ruby Shelter’s failure to remit the adjusted payment.
Pactum Commissorium Analysis
The Court clarified that pactum commissorium does not apply where both parties mutually agree on a sale to extinguish debt, differentiating it from situations where automatic appropriation is stipulated as a consequence of default. Here, the voluntary execution of the deeds of absolute sale by Ruby Shelter indicated an intention to fulfill its obligation via
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Background and Case Origin
- Ruby Shelter Builders and Realty Development Corporation (Ruby Shelter), represented by its president Ruben Sia, obtained a loan from Romeo Y. Tan and Roberto L. Obiedo (Tan and Obiedo).
- The loan was secured by a Real Estate Mortgage over five parcels of land in Naga City.
- Ruby Shelter's debt as of March 2005 was PHP 95,700,620.00.
- To secure an extension for repayment, the parties executed a Memorandum of Agreement (MOA) on March 17, 2005.
- MOA included condonation of interests, penalties, and surcharges and provided for execution of deeds of absolute sale by Ruby Shelter as dacion en pago.
- Dispute arose when Ruby Shelter contested the validity of the deeds of absolute sale, alleging the transaction was an unlawful pactum commissorium.
Nature of the Dispute
- Ruby Shelter filed a complaint for annulment of the deeds of absolute sale and questioned the MOA's legality.
- Respondents Tan, Obiedo, and Atty. Reyes denied the pactum commissorium claim and argued that the MOA constituted a novation, specifically a dacion en pago.
Lower Courts' Decisions
- The Regional Trial Court (RTC) ruled the MOA effectively novated the loan agreement and upheld the deeds of absolute sale as valid dacion en pago, dismissing Ruby Shelter's complaint.
- The Court of Appeals (CA) initially reversed the RTC decision, declaring the MOA partially void as pactum commissorium and annulling the deeds of sale.
- After motions for reconsideration, the CA reversed its earlier judgment and affirmed the RTC decision, ruling the MOA novated the loan agreement and the deeds of sale constitute a valid dacion en pago.
Issues Presented
- Whether the parties novated the real estate mortgage and entered into a dacion en pago.
- Whether the MOA is void for constituting a pactum commissorium.
- Whether the liquidated damages clause in the MOA is unconscionable and unenforceable.
Petitioner’s Arguments
- The MOA did not alter the essence of the original loan but only modified payment terms.
- The MOA's provision allowing ownership transfer upon default is a prohibited pactum commissorium.
- Condoned interest and penalties are already included in the total obligation, affecting computation.
- Liquidated damages of PHP 10,000,000.00 are unjust and violate the right to access courts.
Respondents’ Arguments
- The petition should be dismissed as it raises factual