Pledge:
PIC and PMO
Philnico vs. PMO
FACTS:
The Development Bank of the Philippines and the
Philippine National Bank, by virtue of foreclosure
proceedings, became the holders of all the shares of
stocks in PPC (Philnico Processing Corp). The banks
transferred their stocks to PMO (Privatization and
Management Office) in 1987. On May 1996, PMO, PIC,
and PPC executed a contract, denominated as the
Amended and Restated Definitive Agreement (ARDA),
which laid down the terms and conditions of the
purchases and acquisition by PIC from PMO and wherein
PIC agreed to pay PMO US $333,762,000.00 as purchase
price, payable in installments and in accordance with the
schedule set.
In 1999, PMO, PIC, and PPC, executed an Amended
Agreement which provided for the restructuring of the
payment terms of the entire obligation under the ARDA.
Three years later, in 2002, PMO notified PIC that they
had defaulted in the payment of its obligations and
demand that they settle its unpaid amortizations within
90 days. PIC replied in January 2003, requesting PMO to
set aside its notice of default; to not rescind the sale of
PPC shares of stock; and to give PIC an opportunity to
conclude its fund-raising efforts for its business. PMO
thereafter indicated in a letter their intention to enforce
the automatic reversion of the PPC shares of stock.
Before the deadline for payment set by PMO, PIC file
before the RTC a Complaint for Prohibition against
Reversion of Shares with Prayer for Writ of Preliminary
Injunction and/or Temporary Restraining Order,
Suspension of Payment and Fixing of Period of Payment,
against PMO, PPC, and PPC Corporate Secretary. After
the summary hearing, the RTC issued a TRO effective for
20 days, restraining PMO, PIC, and PIC Corp Sec from
effecting the reversion of the PPC shares of stock. PMO
filed a Motion for Reconsideration and a Motion to
Dismiss which were both denied. When the parties failed
to arrive at an amicable settlement, the RTC issued its
Pre-trial Order in which it enumerated the respective
issues for resolution submitted by the parties. The
parties filed their different Motions on the Issues for
resolution and the RTC ruled in favor of PIC. PMO
assailed the RTC Order and filed a Petition for Certiorary
before the Court of Appeals. In its decision the CA
disagrees with the RTC with the finding of a pactum
commissorium but affirmed the RTC denial.
both filed another set of motions which were both
denied.
ISSUE:
1. Whether or not the automatic reversion of the
PPC shares of stock to PMO in case of default by
PIC constitutes pactum commissorium.
2. Whether or not there is no valid Pledge
Agreement since PIC is not yet the absolute
owner of the said shares
HELD:
The court GRANTS the petition for review of PIC by
declaring the automatic reversion of the PPC shares of
stock constitutes pactum commissorium. DENIES the
petition for review of PMO.
RULING:
1. 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 fulfilment 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. 2
Elements: (1) that there should be a pledge or
mortgage wherein a property is pledge or
mortgage by way of security for the payment of
an obligation; and (2) that there should be
stipulation for an automatic appropriation by the
creditor of the thing pledged or mortgage in the
event of nonpayment of the principal obligation
within the stipulated period. Both elements are
present in the case (1) The Pledge Agreement
and (2) there is automatic appropriation in the
event of default.
2. Among the requirements of a contract of pledge
is that the pledgor is the absolute owner of the
thing pledge. PMO has transferred to PIC all the
rights, title, and interest in and to the PPC shares
of stock, and delivered to PIC the certificates for
said shares for cancellation and replacement of
new certificates already in the name of PIC.

G.R. No. 204412, September 20, 2017
VICENTE L. LUNTAO AND NANETTE L. LUNTAO vs. BAP
CREDIT
GUARANTY CORPORATION AND EFREN M. PINEDA
LEONEN, J.:
FACTS:
This case involves the validity of the real estate mortgage
of petitioner Vicente L. Luntao's (Vicente) property in
favor of respondent BAP. The mortgage was executed by
petitioner Nanette L. Luntao by virtue of a Special Power
of Attorney that Vicente issued in her favor. Vicente was
the owner of a real property and he executed a Special
Power of Attorney in favor of his sister Nanette. Nanette
applied for a loan with BAP and used Vicente's property
as collateral. The loan was for the improvement of the
facilities of her business, the Holy Infant Medical Clinic.
According to Nanette, she was introduced to the lending
institution by her sister Eleanor Luntao, who allegedly
had a personal loan with it and whose office was located
in the same building where BAP's office was.
Upon approval of the loan, the amount of P900,000.00,
representing the loan proceeds, was ordered to be
released to the clinic through Security Bank. When the
loan obligation became due, BAP sent demand letters. In
a letter, Nanette and Eleanor's brother Jesus Luntao
(Jesus) wrote BAP, asking for additional time to settle his
sisters’ accounts. He cited cash leakages and pending
accreditation with life insurers as reasons for the clinic’s
substantial losses.
However, Nanette's loan was still left unpaid. As a result,
BAP applied for Extra-Judicial Foreclosure of Vicente's
property. RTC issued a Notice of Foreclosure and a Notice
of Extrajudicial Sale. Vicente and Nanette filed a
Complaint for Declaration of Nullity of Real Estate
Mortgage with a prayer for the issuance of a Temporary
Restraining Order and Writ of Preliminary Injunction
against BAP.
Vicente and Nanette claimed that Eleanor's alleged debt
with BAP was separate from Nanette's debt and was not
secured by Vicente's property, which should not be
foreclosed if Eleanor failed to pay her alleged debt.
Petitioners argue that they did not receive any amount
from the allegedly approved loan application, thus they
should not be held liable for its payment.
They contend that it was respondent BAP's negligence
that caused the release of the loan proceeds to a person
not authorized by petitioners. Petitioners add that
neither of them gave authorization for BAP to release the
loan proceeds through Security Bank. There was also no
evidence showing that the power and authority to
receive the loan proceeds under the Special Power of
Attorney were delegate to Eleanor.
According to petitioners, the contract was not
consummated since they did not receive the loan
proceeds, and therefore, null and void. The principal
contract being void, the accessory contract of mortgage
was also null and void. Petitioners add that the mortgage
contract also contained a pactum commissorium
provision.
BAP counters that the loan proceeds "were duly
received, credited and transferred to the Holy Infant
Medical Clinic/Nanette L. Luntao/Eleonor L. Luntao
under Security Bank and Trust Company Account.
Respondent BAP also maintains that Eleanor has no
separate personal loan with them.
Respondent BAP contends that the assailed mortgage
provision is not pactum commissorium since it does not
"automatically allow the mortgagee to appropriate or
own the mortgage property without the need of ...
foreclosure proceedings.”
ISSUE: Whether or not the Real Estate Mortgage
executed by Vicente L. Luntao and Nanette L. Luntao
should be nullified.
HELD:
As an accessory contract, a mortgage contract's validity
depends on the loan contract's validity.