Dear Atty,
Pinapirma po ang tatay at nanay ko ng open deed of sale sa aming titulado na lupa nuong nanghiram sila ng pera at napakataas po ng interest 10% per month. Sabi po nung nag-pahiram na kapag di mabayaran sa due date ay kanila na ang lupa gamit ang open deed of sale. Valid po ba to? May mga remedy po ba kami?
Chris
Dear Chris.
The transaction entered by your parents is quite precarious and they may be possibly victims of a land grabbing modus known as the “open deed of sale scheme”.
The transaction executed is clearly a loan and mortgage of the land. The land is
encumbered by way of security for the payment of the loan, and its automatic transmission of ownership in case of default and with the use of “open deed of sale” is called pactum commissorium, which is prohibited under Article 2088 of the Civil Code which states:
“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.”
While pactum commissorium is null and void, it does not mean that the loan obligation is already extinguished. The loan agreement still exists, and your parents must still pay the principal loan.
The interest of 10% per month is unconscionable and may be struck down by the court to 6% per annum for loan and forbearance of money.
For your remedy, if the loan obligation is still existing, which means that the title has not yet been transferred to creditor through the open deed of sale, your parents can file a case in court for reformation of contract so that the true intention of the parties will be expressed – which in your case, is a loan and mortgage agreement.
If the title has been transferred to the name of the creditor, the remedy of your parents would be to file an action for nullity of title as the same was acquired through pactum commissorium and to declare the sale transaction as equitable mortgage
The Highest Court ruled in ARTURO A. DACQUEL versus SPOUSES ERNESTO SOTELO ET. AL. G.R. No. 203946, August 4, 2021:
“As the transaction between the parties herein was demonstrated to be one of equitable mortgage, petitioner did not become owner of the subject property but a mere mortgagee thereof. As such, petitioner was bound by the prohibition against pactum commissorium as embodied in Article 2088 of the Civil Code: 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 mortgagee’s consolidation of ownership of the mortgaged property upon the mortgagor’s mere failure to pay the obligation is the essence of pactum commissorium.
The mortgagor’s default does not operate to automatically vest on the mortgagee the ownership of the encumbered property. This Court has repeatedly declared such arrangements as contrary to morals and public policy and thus void.”
