Dear PAO,

Someone mortgaged her land to me four years ago. She promised me that if she is not able to pay off her debt in just two years, the mortgaged land will automatically be mine. It’s been four years, but the debt has never been paid. Is the land mine now? Can I already sell it to pay off the debt as the new owner of the property?

Veronica

Dear Veronica,

Please be informed of the provision of Article 2088 of the New Civil Code, which states that:

“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.”

Based on the above-stated law, a creditor is prohibited from appropriating or disposing of the thing pledged or mortgaged to him or her. Any stipulation to the contrary on this matter is considered as null and void because this arrangement is in the nature of a pactum commissorium, which is prohibited by our law.

Further, in the case of Annaliza Singson vs. Spouses Nar Christian and Cecilia Carpio (GR 238714, Aug. 30, 2023), the Supreme Court, through Chief Justice Alexander Gesmundo, held that “Art. 2088 of the New Civil Code provides that a creditor cannot appropriate or consolidate ownership over a mortgaged property merely upon failure of the mortgagor to pay a debt obligation.The essence of pactum commissorium is that ownership of the security will pass to the creditor by the mere default of the debtor. Incidentally, the only right of a mortgagee, in case of nonpayment of debt secured by mortgage, would be to foreclose the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness. The mortgagor’s default does not operate to automatically vest in the mortgagee the ownership of the encumbered property, for any such effect is against public policy.”

To answer your query, you are prohibited from appropriating the things given to you by way of mortgage, or from disposing of the same even if the mortgagor-owner defaults in payment of the debt owed to you. Considering that the ownership of the mortgaged property was not transferred to you upon the default of payment of the aforementioned debt, you may not sell the same.

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 on.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to [email protected]