Prohibition against pactum commissorium.

(1) Stipulation null and void. — A stipulation whereby the

thing pledged or mortgaged or under antichresis (Art. 2137.)

shall automatically become the property of the creditor in the

event of nonpayment of the debt within the term fi xed is known

as pactum commissorium or pacto commisorio which is forbidden

by law and declared null and void. (Art. 2088; see Vda. de Reyes

vs. De Leon, 20 SCRA 369 [1967]; Hechanova vs. Adil, 144 SCRA

450 [1986].) By such a stipulation, the creditor would be able to

acquire ownership of the property given as security without

need of public sale or foreclosure required by law.

“This forfeiture clause has traditionally been outlawed

because it is contrary to good morals and public policy.” (Report

of the Code Commission, p. 156.) The reason for the prohibition

is that the amount of the loan is ordinarily much less than the

real value of the thing pledged or mortgaged.

(2) Requisites. — There are two requisites or elements for

pactum commissorium to exist, namely:

(a) There should be a pledge, mortgage, or antichresis of

property by way of security for the payment of the principal

obligation; and

(b) There should be a stipulation for an automatic

appropriation by the creditor of the property in the event of

nonpayment of the obligation within the stipulated period.

(Uy Tong vs. Court of Appeals, 161 SCRA 383 [1988].)

It is immaterial that the questioned stipulation was voluntarily and freely entered into, pactum
commissorium being void

for being prohibited by law. (Ong vs. Roban Lending Corporation, 557 SCRA 516 [2008].)

Art. 2088 PLEDGE

Provisions Common to Pledge and Mortgage

COMMENTS AND CASES ON CREDIT

TRANSACTIONS

332

(3) Stipulation presupposes existence of security contact. —

Pactum commissorium referred to in Articles 2088 and 2137,

therefore, presupposes the existence of mortgage or pledge or

that of an antichresis. Thus, it has been held that there was no

pactum commissorium where pursuant to the contract of sale, the

sums already paid by the vendee were forfeited for his failure to

pay the stipulated installments in due time considering that the

person to whom the property was forfeited (vendor) was the real

and equitable owner of the same because title would not pass until

payment of the last installment. (see Caridad Estate vs. Santero,

71 Phil. 144 [1940].) There is also no pactum commissorium where

the alienation of the subject property was by way of security and

not by way of satisfying or extinguishing the debt of the debtor.

(Ong vs. Roban Lending Corp., supra.)

(4) Effect on security contract. — The vice of nullity which

vitiates such a stipulation does not affect substantially the

principal contract of pledge, mortgage, or antichresis with regard

to its validity and effi cacy for the reason that the contract, having

been perfected, can subsist although the contracting parties

have not agreed as to manner the creditor can recover his credit

inasmuch as the law has expressly established the procedure in

order that he may recover the same, in case the debtor does not

comply with his obligation.

In short, the security contract remains valid; only the

prohibited stipulation is void. (Mahoney vs. Tuason, 39 Phil. 952

[1919].)