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Pactum commissorium not allowed by law...

Pactum commissorium not allowed by law
"My wife recently pledged a set of diamond ring, earrings and necklace to her friend for the hospital and medical expenses of our son amounting to P170,000. My wife was made to sign an agreement that if she fails to pay her friend within three months, the ownership of the jewelry will be transferred to her friend. Was the written agreement executed by my wife’s friend legal and in accordance with our laws?Jasper Dear Jasper,To answer your question, we shall refer to the provision of the Civil Code of the Philippines, to wit: “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.” (Emphases supplied)The Supreme Court, in the case of Philnico Industrial Corp. vs Privatization and Management Office (GR 199420, Aug. 27, 2014), through Chief Justice Teresita Leonardo-de Castro, elucidated: “Pactum commissorium is among the contractual stipulations that are deemed contrary to law. It is defined as “a stipulation empowering the creditor to appropriate the thing given as guaranty for the fulfillment of the obligation in the event the obligor fails to live up to his undertakings, without further formality, such as foreclosure proceedings, and a public sale. It is explicitly prohibited under Article 2088 of the Civil Code xxx“There are two elements for pactum commissorium to exist: that there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the payment of the principal obligation and that there should be a stipulation for an automatic appropriation by the creditor of the thing pledged or mortgaged in the event of nonpayment of the principal obligation within the stipulated period.” (Emphases supplied) Applying the aforementioned law in your situation, the stipulation made by your wife’s friend in their agreement for the automatic appropriation of your wife’s jewelry upon her failure to pay her loan is a pactum commissorium, which is null and void. An automatic appropriation by your wife’s friend of the thing pledged in the event of non-payment of the principal obligation within the stipulated period is contrary to our law. Thus, your wife’s friend cannot automatically own the set of jewelry pledged by your wife, but has the option to purchase it in a foreclosure sale in the event that your wife will fail to pay her loan.We hope that we were able to answer your queries. 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"

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"Pactum commissorium not allowed by law" was written by Mary under the Legal Advice category. It has been read 104 times and generated 0 comments. The article was created on and updated on 15 September 2021.
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