Title
Tong vs. Court of Appeals
Case
G.R. No. 77465
Decision Date
May 21, 1988
Spouses defaulted on vehicle payments, transferred apartment rights via deed to Bayanihan, refused to vacate; SC upheld deed's validity, denied appeal.
pactum commissorium
unpaid obligations
defendants
A

Case Summary (G.R. No. 77465)

Key Dates (as reflected in the record)

Purchase of motor vehicles and related written agreement: February 1969.
Deed of Assignment executed by the spouses: May 27, 1972.
Receipt acknowledging payment application: August 21, 1971.
Court of First Instance judgment in Civil Case No. 80420 (ordering payment and, on default, execution of deed of sale/assignment): cited in the record.
Decision in recovery of possession case (Civil Case No. 121532) by the CFI: March 17, 1981.
Court of Appeals affirmation: October 2, 1984; denial of reconsideration: February 11, 1987.

Applicable Law and Legal Rules

  • Civil Code Article 2088 (prohibition of pactum commissorium): the creditor cannot appropriate pledged or mortgaged things; any stipulation to the contrary is null. This provision requires (a) the existence of a pledge or mortgage and (b) a stipulation for automatic appropriation by the creditor upon default.
  • Section 8, Rule 8 of the Revised Rules of Court: a party’s failure to specifically and under oath deny the genuineness and due execution of a written instrument alleged in the complaint operates as an admission of that instrument’s authenticity.
  • Standard of review on questions of fact: appellate and supreme courts generally defer to trial court findings where questions of fact are involved and are supported by evidence.

Factual Background

The spouses purchased seven motor vehicles from Bayanihan for P47,700, to be paid in three installments per a written agreement that included a clause providing that if the buyers failed to pay, the vendor would “become automatically the owner” of Apartment No. 307 (and would only have to pay P3,535 to the vendee), and that the vendee shall execute a deed of absolute sale and/or assignment of leasehold rights. After a downpayment of P7,700, the spouses failed to pay the remaining installments. Bayanihan sued for specific performance (Civil Case No. 80420). A judgment (as described in the record) ordered payment of the balance and, if not paid within a fixed period, required the defendants to execute a deed of absolute sale or assignment of leasehold rights upon payment by plaintiff of P3,535. An execution pending appeal was ordered; the spouses executed a deed of assignment (dated May 27, 1972) conveying the apartment and leasehold rights to Bayanihan and acknowledged receipt of approximately P3,000. The spouses remained in possession and were allowed to stay as lessees for a stipulated period; when they failed to vacate, Bayanihan filed ejectment and later recovery of possession actions. The trial court granted possession and related relief in favor of Bayanihan, and the Court of Appeals affirmed; the spouses petitioned to the Supreme Court.

Issues Presented

  1. Whether the original agreement or the deed of assignment amounted to a pactum commissorium and is therefore void.
  2. Whether the spouses’ failure to deny under oath the genuineness and due execution of the deed of assignment precluded them from contesting it.
  3. Whether Bayanihan complied with the condition precedent in the judgment (payment of P3,535) so as to render the deed of assignment enforceable.
  4. Whether the spouses were justified in refusing to vacate possession despite the deed of assignment and judgments ordering turnover.

Court’s Analysis — Pactum Commissorium

The Court examined whether Article 2088’s prohibition on pactum commissorium applied. It identified the two elements required by that provision: (1) existence of a pledge or mortgage, and (2) a stipulation for automatic appropriation by the creditor upon default. The Court found neither element present in the operative transaction. The underlying agreement was for the sale of motor vehicles, not a pledge or mortgage of the apartment or leasehold as security. Moreover, there was no absolute automatic vesting of title upon default; rather, Bayanihan invoked judicial relief (an action for specific performance) and secured a court judgment. Title did not vest automatically by private stipulation; the enforcement arose by judicial process. The Supreme Court relied on prior precedent (Northern Motors, Inc. v. Herrera) for the proposition that automatic appropriation without judicial intervention is antithetical to the concept of pactum commissorium. Even if an original agreement bore elements suggestive of pactum commissorium, the deed of assignment executed pursuant to a valid court judgment and under order of execution pending appeal was not itself rendered void by that original taint.

Court’s Analysis — Genuineness and Due Execution (Admission by Silence)

The Court addressed the procedural effect of the spouses’ pleadings in the recovery of possession case, which was founded on the deed of assignment. The spouses did not specifically and under oath deny the genuineness and due execution of the deed in their answer. Under Section 8, Rule 8 of the Rules of Court, that omission operates as an admission. The spouses moreover admitted elsewhere in the record that the contract was duly executed and genuine. Because the deed’s genuineness and execution were deemed admitted, the spouses could not now contest those matters in the action based on that instrument.

Court’s Analysis — Enforceability and Compliance with Judgment Condition

The spouses asserted that Bayanihan had not fully complied with the judgment’s condition to pay P3,535 and produced a receipt showing only P3,000 applied to prior rentals, arguing a P535 shortfall that rendered the deed unenforceable. The Supreme Court treated this as a factual dispute thoroughly considered by the trial court and affirmed by the Court of Appeals. The lower courts found, on the evidence, that Bayanihan had complied with its obligation and that the spouses accepted or acquiesced in the payments, evidenced by the receipt and joint manifestations filed in court indicating compliance. The Supreme Court emphasized that resolution of this factual issue was within the purview of the trial court and the appellate court’s factual findings were supported by the record; therefore, the Supreme Court would not disturb those findings.

Court’s Analysis — Right to Possession and Refusal to Vacate

The Court addressed the spouses’ continued occupation despit

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