ONG v.
ROBAN LENDING CORPORATION (ARCE)
July 9, 2008 | CARPIO MORALES, J.. | G.R. No. 172592
Real Security
PETITIONER: SPOUSES WILFREDO N. ONG and EDNA SHEILA
PAGUIO-ONG
RESPONDENTS: ROBAN LENDING CORPORATION
SUMMARY
FACTS: The spouses Ong had multiple loans from Roban Lending Corp.
amounting to P4,000,000 and secured by a real estate mortgage on the
spouses’ parcels of land in Tarlac City. The loans were founded on
promissory notes with 3.5% monthly interest, 5% penalty per month on
the total, 25% attorney’s fees on the total.
They entered into a Memorandum of Agreement whereby the loans
would be restructured and consolidated to the amount of P5,916,117.50.
The MOA also provided that the spouses’ failure to pay within 1 year from
the date thereof would result in an automatic Dation in Payment using the
properties which were the subject of the REM without the need for notice
or foreclosure proceedings.
More than a year later, the spouses filed a Complaint with the RTC
seeking to have the MOA and the Dation in Payment declared void for
being pactum commissorium. They also contended that the interest rates
and other fees were illegal, iniquitous, and unconscionable.
The RTC eventually ruled “on the basis of the pleadings” (which the CA
held was actually a summary judgment) that there was no pactum
commissorium and dismissed the complaint. The CA affirmed this finding
with the modification as regards the nomenclature of the ruling “on the
basis of the pleadings.”
ISSUE: W/N the MOA and the Dation in Payment were void for being
pactum commissorium? YES
RULING: The Court ruled that the MOA and the Dation were void for
being pactum commissorium. The Court emphasized that the MOA did
not contain any provisions for foreclosure proceedings nor for
redemption.
The Court refuted the respondent’s argument that the stipulations in the
MOA provided for a valid Dation as the respondent automatically
acquires ownership of the properties upon petitioners' failure to pay their
debt within the stipulated period in the said MOA.
In an ordinary dation in payment, the assignment of property extinguishes
the monetary debt. However, in the case at bar, the alienation of the
properties was by way of security, and not by way of satisfying the debt.
Nor did the “dation” extinguish the spouses’ obligation.
DOCTRINE: The elements of pactum commissorium, which enables the
mortgagee to acquire ownership of the mortgaged property without the
need of any foreclosure proceedings, are:
(1) there should be a property mortgaged by way of security for the
payment of the principal obligation, and
(2) there should be a stipulation for automatic appropriation by the
creditor of the thing mortgaged in case of non-payment of the
principal obligation within the stipulated period.
FACTS:
1. From July 14, 1999 to March 20, 2000, the Spouses Ong obtained
several loans from Roban Lending Corporation in the total
amount of P4,000,000.
2. These loans provided for a uniform 3.5% monthly interest, 5%
monthly penalty on the total amount due and demandable, 25%
attorney’s fees on the total, and certain sums denominated as
“EVAT/AR.”
3. The loans were also secured by a Real Estate Mortgage on the
spouses’ parcels of land in Binauganan, Tarlac City.
4. On February 21, 2001, the parties executed an Amendment to the
Real Estate Mortgage consolidating their loans and inclusive of
charges thereon which totaled P5,916,117.50.
5. In relation thereto, they executed a Memorandum of Agreement and
a Dation in Payment Agreement.
 a. The terms of the MOA and Dation in Payment Agreement
are that the spouses were to pay the consolidated
amount of their loans within 1 year from the execution of
the Agreements.
b. Failure to do so would result in a Dation in Payment
utilizing the parcels of land which were the subject of
the original REM.
6. In April 2002, the Spouses filed a Complaint with the RTC of
Tarlac for the declaration of mortgage contract as abandoned,
annulment of deeds, illegal exaction, unjust enrichment,
accounting, and damages, alleging that the MOA and the Dation
in Payment executed are void for being pactum commissorium.
7. The Spouses also alleged that the rates and additional fees and
charges are ilegal, iniquitous, unconscionable, and revolting to
the conscience.
8. For their part, Roban Lending Corporation asserted that the
stipulation for Dation in Payment was valid as a special form of
payment, and that the interest and other charges were
reasonable considering that the amount due for a principal
amount of P4,000,000 after 2 years was still just P5,916,117.50.
9. After some delays on the motion of both parties, the RTC eventually
held in favor of Roban Lending Corporation and dismissed the
complaint of the spouses. The RTC ruled “on the basis of the
pleadings” that there was no pactum commissorium and
dismissed the complaint.
10. The CA affirmed the ruling of the RTC but clarified that the RTC
actually rendered was a summary judgment as a judgment on
the pleadings would not have been proper in this case as the
answer tendered an issue, i.e. the validity of the MOA and DPA.
On the other hand, a summary judgment may be rendered by the
court if the pleadings, supporting affidavits, and other documents
show that, except as to the amount of damages, there is no genuine
issue as to any material fact.23
11. Hence this petition before the SC.
ISSUE/s:
1. W/N the MOA and the Dation in Payment were void for being
pactum commissorium? YES
2. W/N the stipulated interest rates and fees are valid? NO
3. W/N a summary judgement was proper? NO
RULING: WHEREFORE, the challenged Court of Appeals Decision is
REVERSED and SET ASIDE. The Memorandum of Agreement and the
Dacion in Payment executed by petitioner- spouses Wilfredo N. Ong
and Edna Sheila Paguio-Ong and respondent Roban Lending
Corporation on February 12, 2001 are declared NULL AND VOID for
being pactum commissorium.
In line with the foregoing findings, the following terms of the loan
contracts between the parties are MODIFIED as follows:
1. The monthly interest rate of 3.5%, or 42% per annum, is reduced to
12% per annum;
2. The monthly penalty fee of 5% of the total amount due and
demandable is reduced to 12% per annum, to be computed from the
time of demand; and
3. The attorney’s fees are reduced to 25% of the principal amount only.
Civil Case No. 9322 is REMANDED to the court of origin only for the
purpose of receiving evidence on petitioners’ prayer for accounting.
RATIO:
First issue
1. The Court found that the Memorandum of Agreement and
Dation in Payment constitute pactum commissorium, which is
prohibited under Article 2088 of the Civil Code.
2. The elements of pactum commissorium, which enables the
mortgagee to acquire ownership of the mortgaged property
without the need of any foreclosure proceedings, are:
(1) there should be a property mortgaged by way of security for
the payment of the principal obligation, and
(2) there should be a stipulation for automatic appropriation by
the creditor of the thing mortgaged in case of non-payment of
 the principal obligation within the stipulated period.
3. In the case at bar, the Memorandum of Agreement and the Dation
in Payment contain no provisions for foreclosure proceedings
nor redemption. Under the Memorandum of Agreement, the
failure by the petitioners to pay their debt within the one-year
period gives respondent the right to enforce the Dation in
Payment transferring to it ownership of the properties.
4. Respondent Roban Lending Corporation, in effect,
automatically acquires ownership of the properties upon
petitioners' failure to pay their debt within the stipulated period.
5. Nor can the respondent’s argument that the stipulations are a
valid form of Dation in Payment be countenanced.
6. In an ordinary dation in payment, the assignment of property
extinguishes the monetary debt.
7. In the case at bar, the alienation of the properties was by way of
security, and not by way of satisfying the debt. Nor did the
“dation” extinguish the spouses’ obligation to the respondent.
8. Lastly, the argument that the contracts were freely and
voluntarily entered into has no merit, as pactum commissorium
is expressly prohibited by law.
Second issue
1. The Court reiterated its authority to reduce interest rates, penalty
charges, and attorney's fees if they are iniquitous or unconscionable.
2. In the case at hand, the Court found the stipulation for 42% interest
to per annum to be unconscionable and thus reduces it to 12% per
annum
3. It found the same for the penalty, which was 60% per annum and
reduces it to a yearly rate of 12% of the amount due, to be computed
from the time of demand
4. Lastly, it held similarly for attorney’s fees which included in its
computation not only the principal amount, but also the interest and
other fees.
Third issue
1. The Court ruled that a trial court and the Court of Appeals erred in
holding that a summary judgment is proper.
2. A summary judgment is permitted only if there is no genuine issue as
to any material fact and a moving party is entitled to a judgment as a
matter of law.46 A summary judgment is proper if, while the
pleadings on their face appear to raise issues, the affidavits,
depositions, and admissions presented by the moving party show
that such issues are not genuine.
3. A genuine issue, as opposed to a fictitious or contrived one, is an
issue of fact that requires the presentation of evidence.48 As
mentioned above, petitioners’ prayer for accounting requires the
presentation of evidence on the issue of partial payment.
4. But neither is a judgment on the pleadings proper. A judgment on the
pleadings may be rendered only when an answer fails to tender an
issue or otherwise admits the material allegations of the adverse
party’s pleadings.
5. In the case at bar, respondent’s Answer with Counterclaim disputed
petitioners’ claims that the Memorandum of Agreement and Dation in
Payment are illegal and that the extra charges on the loans are
unconscionable. Respondent disputed too petitioners’ allegation of
bad faith.
RELEVANT LAWS/Doctrines:
1. Article 2088, NCC
The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null
and void.