Ruby Shelter Builders v. Tan
REITERATIONFacts
The Antecedents: Petitioner Ruby Shelter Builders and Realty Development Corporation (Ruby Shelter) obtained a loan from respondents Romeo Y. Tan and Roberto L. Obiedo (Tan and Obiedo), secured by a Real Estate Mortgage over five parcels of land. As of March 2005, the outstanding debt was PHP 95,700,620.00. To secure an extension for repayment, the parties executed a Memorandum of Agreement (MOA) dated March 17, 2005. Under the MOA, Tan and Obiedo agreed to condone interests, penalties, and surcharges amounting to PHP 74,678,647.00, and Ruby Shelter agreed to execute deeds of absolute sale over the mortgaged properties by January 2, 2006, by way of dacion en pago. The MOA also stipulated that if Ruby Shelter could redeem any property, the deed of sale would be nullified; otherwise, if Ruby Shelter failed to pay, Tan and Obiedo could register the deeds of absolute sale. An alternative was also provided for Ruby Shelter to sell the lands for PHP 5,000,000.00, constituting full payment. Ruby Shelter executed separate Deeds of Absolute Sale dated January 3, 2006. Ruby Shelter later expressed intent to redeem but failed to agree on the final computation of the debt. Ruby Shelter alleged premature notarization of the deeds of sale by respondent Atty. Tomas A. Reyes. Procedural History: Ruby Shelter filed a complaint to annul the deeds of sale, averring they were void for being pactum commissorium. Tan et al. argued that the MOA constituted a voluntary offer to sell for additional time and condonation of charges. The RTC dismissed the complaint, holding that the mortgage was novated by dacion en pago and that the MOA did not constitute pactum commissorium. The RTC initially ordered Tan and Obiedo to pay PHP 5,000,000.00 but later deleted this order. The CA, in its initial decision, declared the MOA partially void regarding automatic appropriation, annulled the deeds of sale, and held Ruby Shelter liable for the principal and condoned interest, plus liquidated damages, and ordered foreclosure. Subsequently, in an Amended Decision, the CA reversed its earlier ruling, affirming the RTC's decision in toto, holding that the MOA novated the loan agreement into a dacion en pago and that pactum commissorium was not present. Ruby Shelter appealed to the Supreme Court. The Petition: Ruby Shelter argued that the MOA did not alter the essence of the obligation but merely modified payment terms, that it constituted pactum commissorium, that the condoned interest was already included in the principal, and that liquidated damages were unconscionable.
Issue(s)
Whether the Court of Appeals erred in ruling that the parties novated the real estate mortgage and entered into a dacion en pago. Whether the Memorandum of Agreement is void for being a pactum commissorium. Whether the imposition of liquidated damages is proper and reasonable.
Ruling
The petition is denied. The Amended Decision of the Court of Appeals is affirmed with modification. Ruby Shelter Builders and Realty Development Corporation is ordered to pay liquidated damages in the amount of PHP 10,000,000.00 with 6% interest per annum from the date of finality of this Decision until its full satisfaction.
Ratio Decidendi
On the issue of novation and dacion en pago: The Court held that the MOA constituted an extinctive novation of the original loan agreement, resulting in the extinguishment of the obligation through dacion en pago. The Court found that the MOA contemplated two scenarios for debt extinguishment: payment by Ruby Shelter or sale of the mortgaged properties to Tan and Obiedo. The latter scenario, involving the execution of deeds of absolute sale upon failure to pay, was deemed a valid dacion en pago, as it involved the delivery and transmission of ownership of the properties as an accepted equivalent of payment. The Court distinguished this from cases where extensions of time negated dacion en pago, noting that the extension granted to Ruby Shelter pertained to the modified obligation, not the original loan. On the issue of pactum commissorium: The Court ruled that the MOA was not void for being pactum commissorium. It clarified that pactum commissorium prohibits automatic appropriation by the creditor of mortgaged property upon default, but does not prohibit a mutual agreement where the debtor sells the mortgaged property to the creditor to extinguish the obligation. The Court emphasized that Ruby Shelter voluntarily executed deeds of absolute sale as dacion en pago, and there was no automatic transfer of ownership. The Court also noted that Ruby Shelter and its president, Ruben Sia, could not be considered hapless borrowers, and there was no evidence of disadvantage or coercion. Furthermore, Ruby Shelter's conduct, including alleged attempts to prevent notarization and the filing of a disbarment case, indicated an awareness of the consequences of its offer and a lack of genuine intent to satisfy the debt. On the issue of liquidated damages: The Court found the imposition of PHP 10,000,000.00 in liquidated damages to be neither iniquitous nor unconscionable, especially since it included attorney's fees and costs. The Court noted that this amount was approximately 10% of the outstanding obligation and that Ruby Shelter had freely agreed to it in the MOA. The Court also considered Ruby Shelter's alleged delaying tactics and frivolous filing of a disbarment case as reasons for not exonerating it from paying liquidated damages. The Court affirmed the imposition of 6% interest per annum on the liquidated damages from the finality of the decision until full satisfaction.
Main Doctrine
Not all instances of alienation of mortgaged property by the debtor in favor of the creditor in the event of failure to timely pay the obligation will be declared void for being pactum commissorium. The prohibition does not extend to a mutual agreement between the debtor and the creditor that the property subject of the mortgage is sold to the latter to extinguish the obligation.