Automatic seizure of mortgaged lot in non-payment of loan illegal

Automatic seizure of mortgaged lot in non-payment of loan illegal "I obtained an P800,000-loan from one of my closest friends.  We agreed that the amount will be payable in 40 equal installments.  As a security in the fulfillment of my obligation, one of the stipulations in our agreement provided that the ownership of my lot located in Cavite shall be automatically transferred to my friend in case of my default.  Thus, I reluctantly delivered the duplicate of the Transfer Certificate of Title of my property in Cavite. Unfortunately, I failed to pay my last two monthly installments because of the pandemic. I was surprised when my friend told me that the ownership of my lot had already been transferred to her name because I did not pay my loan in time.  Is the transfer of ownership valid?Gil Dear Gil,No, the transfer was not valid.  Under Article 2088 of the New Civil Code of the Philippines, it is stated that: “Article 2088. 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.”Thus, under Article 2088 of the said Code, your friend who is your creditor cannot appropriate the lot you have given as a security and any stipulation to the contrary is null and void.  The arrangement that you and your friend made wherein the lot you own was encumbered by way of security for the payment of your debt and its automatic appropriation in case of non-payment is also called pactum commissorium. In the case of A. Francisco Realty and Development Corp. vs. Court of Appeals (GR 125055 Oct. 30, 1998 Ponente: Associate Justice Vicente Mendoza), the Supreme Court provided the elements for pactum commissorium to exist to wit: (a) that there should be a pledge or mortgage wherein property is pledged or mortgaged by way of security for the payment of the principal obligation and (b) that there should be a stipulation for an automatic appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of the principal obligation within the stipulated period.In your situation, the first element was present considering that your lot was mortgaged by way of security for the payment of your obligation. Moreover, the second element was also present when you agreed to the stipulation that the ownership of your lot shall be automatically transferred to your friend upon default of payment. Clearly, the transfer of ownership of your property to your friend when you failed to pay makes it in the nature of pactum commissorium, which is prohibited under the law hence, null and void.We hope that we were able to answer your queries. Please be reminded that this advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net" - https://www.affordablecebu.com/