"x x x.
Prohibition on pactum commissorium
Garcia claims that the stipulation appointing Villar, the mortgagee, as the mortgagor’s attorney-in-fact, to sell the property in case of default in the payment of the loan, is in violation of the prohibition onpactum commissorium, as stated under Article 2088 of the Civil Code, viz:
Art. 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.
The power of attorney provision in the Deed of Real Estate Mortgage reads:
5. Power of Attorney of MORTGAGEE. – Effective upon the breach of any condition of this Mortgage, and in addition to the remedies herein stipulated, the MORTGAGEE is likewise appointed attorney-in-fact of the MORTGAGOR with full power and authority to take actual possession of the mortgaged properties, to sell, lease any of the mortgaged properties, to collect rents, to execute deeds of sale, lease, or agreement that may be deemed convenient, to make repairs or improvements on the mortgaged properties and to pay the same, and perform any other act which the MORTGAGEE may deem convenient for the proper administration of the mortgaged properties. The payment of any expenses advanced by the MORTGAGEE in connection with the purpose indicated herein is also secured by this Mortgage. Any amount received from the sale, disposal or administration abovementioned maybe applied by assessments and other incidental expenses and obligations and to the payment of original indebtedness including interest and penalties thereon. The power herein granted shall not be revoked during the life of this Mortgage and all acts which may be executed by the MORTGAGEE by virtue of said power are hereby ratified.[38]
The following are the elements of pactum commissorium:
(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.[39]
Villar’s purchase of the subject property did not violate the prohibition on pactum commissorium. The power of attorney provision above did not provide that the ownership over the subject property would automatically pass to Villar upon Galas’s failure to pay the loan on time. What it granted was the mere appointment of Villar as attorney-in-fact, with authority to sell or otherwise dispose of the subject property, and to apply the proceeds to the payment of the loan.[40] This provision is customary in mortgage contracts, and is in conformity with Article 2087 of the Civil Code, which reads:
Art. 2087. It is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor.
Galas’s decision to eventually sell the subject property to Villar for an additional P1,500,000.00 was well within the scope of her rights as the owner of the subject property. The subject property was transferred to Villar by virtue of another and separate contract, which is the Deed of Sale. Garcia never alleged that the transfer of the subject property to Villar was automatic upon Galas’s failure to discharge her debt, or that the sale was simulated to cover up such automatic transfer.
x x x."
