G.R. No. 172592. July 9, 2008.

SPOUSES WILFREDO N. ONG and EDNA SHEILA PAGUIO-

ONG, petitioners, vs. ROBAN LENDING CORPORATION,
respondent.

Civil Law; Contracts; Loans; Pactum Commissorium; Court finds that

the Memorandum of Agreement and Dation in Payment constitute pactum
commissorium, which is prohibited under Article 2088 of the Civil Code.—
This Court finds that the Memorandum of Agreement and Dation in
Payment constitute pactum commissorium, which is prohibited under Article
2088 of the Civil Code which provides: 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.
Same; Same; Same; Elements of Pactum Commissorium.—The
elements of pactum commissorium, which enables the mortgagee to acquire
ownership of the mortgaged property without the need of any foreclosure
proceedings, are: (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.
Same; Same; Same; Dation In Payment; Dacion En Pago; In a true
dacion en pago, the assignment of the property extinguishes the monetary
debt.—Respondent argues that the law recognizes dacion en pago as a
special form of payment whereby the debtor alienates property to the
creditor in satisfaction of a monetary obligation. This does not persuade. In
a true dacion en pago, the assignment of the property extinguishes the
monetary debt. In the case at bar, the alienation of the properties was by way
of security, and not by way of satisfying the debt. The Dacion in Payment
did not extinguish petitioners’ obligation to respondent. On the contrary,
under the Memorandum of Agreement executed on the same day as the
Dacion in Payment, petitioners had to execute a promissory note for
P5,916,117.50 which they were to pay within one year.

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* SECOND DIVISION.
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Ong vs. Roban Lending Corporation

Same; Same; Same; Same; The questioned contracts were freely and
voluntarily executed by petitioners and respondent is of no moment, pactum
commissorium being void for being prohibited by law.—Respondent cites
Solid Homes, Inc. v. Court of Appeals, 271 SCRA 157 (1997), where this
Court upheld a Memorandum of Agreement/Dacion en Pago. That case did
not involve the issue of pactum commissorium. That the questioned
contracts were freely and voluntarily executed by petitioners and respondent
is of no moment, pactum commissorium being void for being prohibited by
law.
Same; Same; Interests; Courts may reduce interest rates, penalty
charges and attorney’s fees if they are iniquitous   or unconscionable.—
Respecting the charges on the loans, courts may reduce interest rates,
penalty charges, and attorney’s fees if they are iniquitous or unconscionable.
Remedial Law; Summary Judgments; Genuine Issues; A summary
judgment is permitted only if there is no genuine issue as to any material
fact and moving party is entitled to a judgment as a matter of law; A
genuine issue, as opposed to a fictitious or contrived one, is an issue of fact
that requires the presentation of evidence.—Prescinding from the above
disquisition, the trial court and the Court of Appeals erred in holding that a
summary judgment is proper. A summary judgment is permitted only if
there is no genuine issue as to any material fact and a moving party is
entitled to a judgment as a matter of law. A summary judgment is proper if,
while the pleadings on their face appear to raise issues, the affidavits,
depositions, and admissions presented by the moving party show that such
issues are not genuine. A genuine issue, as opposed to a fictitious or
contrived one, is an issue of fact that requires the presentation of evidence.
As mentioned above, petitioners’ prayer for accounting requires the
presentation of evidence on the issue of partial payment.
Same; Judgment on the Pleadings; A judgment on the pleadings may be
rendered only when an answer fails to tender an issue or otherwise admits
the material allegations of the adverse party’s pleadings.—But neither is a
judgment on the pleadings proper. A judgment on the pleadings may be
rendered only when an answer fails to tender an issue or otherwise admits
the material allegations of the adverse party’s pleadings. In the case at bar,
respondent’s

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518 SUPREME COURT REPORTS ANNOTATED

Ong vs. Roban Lending Corporation

Answer with Counterclaim disputed petitioners’ claims that the

Memorandum of Agreement and Dation in Payment are illegal and that the
extra charges on the loans are unconscionable. Respondent disputed too
petitioners’ allegation of bad faith.

PETITION for review on certiorari of the decision of the Court of

Appeals.
   The facts are stated in the opinion of the Court.
  Jesus A. Concepcion for petitioners.
  Eric V. Mendoza for respondent.

CARPIO-MORALES, J.:
On different dates from July 14, 1999 to March 20, 2000,
petitioner-spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong
obtained several loans from Roban Lending Corporation
(respondent) in the total amount of P4,000,000.00. These loans were
secured by a real estate mortgage on petitioners’ parcels of land
located in Binauganan, Tarlac City and covered by TCT No.
297840.1
On February 12, 2001, petitioners and respondent executed an
Amendment to Amended Real Estate Mortgage2 consolidating their
loans inclusive of charges thereon which totaled P5,916,117.50. On
even date, the parties executed a Dacion in Payment Agreement3
wherein petitioners assigned the properties covered by TCT No.
297840 to respondent in settlement of their total obligation, and a
Memorandum of Agreement4 reading:

“That the FIRST PARTY [Roban Lending Corporation] and the

SECOND PARTY [the petitioners] agreed to consolidate and restructure all
aforementioned loans, which have been all past due and

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1 Records, pp. 11-16.

2 Id., at p. 37.
3 Id., at p. 40.
4 Id., at pp. 38-39.

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Ong vs. Roban Lending Corporation

delinquent since April 19, 2000, and outstanding obligations totaling

P5,916,117.50. The SECOND PARTY hereby sign [sic] another promissory
note in the amount of P5,916,117.50 (a copy of which is hereto attached and
forms x x x an integral part of this document), with a promise to pay the
FIRST PARTY in full within one year from the date of the consolidation
and restructuring, otherwise the SECOND PARTY agree to have their
“DACION IN PAYMENT” agreement, which they have executed and
signed today in favor of the FIRST PARTY be enforced[.]”5

In April 2002 (the day is illegible), petitioners filed a Complaint,6

docketed as Civil Case No. 9322, before the Regional Trial Court
(RTC) of Tarlac City, for declaration of mortgage contract as
abandoned, annulment of deeds, illegal exaction, unjust enrichment,
accounting, and damages, alleging that the Memorandum of
Agreement and the Dacion in Payment executed are void for being
pactum commissorium.7
Petitioners alleged that the loans extended to them from July 14,
1999 to March 20, 2000 were founded on several uniform
promissory notes, which provided for 3.5% monthly interest rates,
5% penalty per month on the total amount due and demandable, and
a further sum of 25% attorney’s fees thereon,8 and in addition,
respondent exacted certain sums denominated as “EVAT/AR.”9
Petitioners decried these additional charges as “illegal, iniquitous,
unconscionable, and revolting to the conscience as they hardly allow
any borrower any chance of survival in case of default.”10
Petitioners further alleged that they had previously made
payments on their loan accounts, but because of the illegal

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5  Id., at pp. 38-39.

6  Id., at pp. 1-5.
7  Id., at p. 2.
8  Id., at pp. 2-3. Vide id., at p. 20.
9  Id., at p. 21.
10 Id., at p. 3.

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520 SUPREME COURT REPORTS ANNOTATED

Ong vs. Roban Lending Corporation

exactions thereon, the total balance appears not to have moved at all,
hence, accounting was in order.11
Petitioners thus prayed for judgment:
a) Declaring the Real Estate Mortgage Contract and its
amendments x x x as null and void and without legal force and effect
for having been renounced, abandoned, and given up;
b) Declaring the “Memorandum of Agreement” x x x and
“Dacion in Payment” x x x as null and void for being pactum
commissorium;
c) Declaring the interests, penalties, Evat [sic] and attorney’s
fees assessed and loaded into the loan accounts of the plaintiffs with
defendant as unjust, iniquitous, unconscionable and illegal and
therefore, stricken out or set aside;
d) Ordering an accounting on plaintiffs’ loan accounts to
determine the true and correct balances on their obligation against
legal charges only; and
e) Ordering defendant to [pay] to the plaintiffs: --
e.1 Moral damages in an amount not less than
P100,000.00 and exemplary damages of P50,000.00;
e.2 Attorney’s fees in the amount of P50,000.00 plus
P1,000.00 appearance fee per hearing; and
e.3 The cost of suit.12
as well as other just and equitable reliefs.
In its Answer with Counterclaim,13 respondent maintained the
legality of its transactions with petitioners, alleging that:

“x x x x
If the voluntary execution of the Memorandum of Agreement and
Dacion in Payment Agreement novated the Real Estate Mortgage then the
allegation of Pactum Commissorium has no more legal leg to stand on;

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11 Id., at p. 3.
12 Id., at p. 4.
13 Id., at pp. 51-54.

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Ong vs. Roban Lending Corporation

The Dacion in Payment Agreement is lawful and valid as it is recognized

x x x under Art. 1245 of the Civil Code as a special form of payment
whereby the debtor-Plaintiffs alienates their property to the creditor-
Defendant in satisfaction of their monetary obligation;
The accumulated interest and other charges which were computed for
more than two (2) years would stand reasonable and valid taking into
consideration [that] the principal loan is P4,000,000 and if indeed it became
beyond the Plaintiffs’ capacity to pay then the fault is attributed to them and
not the Defendant[.]”14

After pre-trial, the initial hearing of the case, originally set on

December 11, 2002, was reset several times due to, among other
things, the parties’ efforts to settle the case amicably.15
During the scheduled initial hearing of May 7, 2003, the RTC
issued the following order:
“Considering that the plaintiff Wilfredo Ong is not around on the ground
that he is in Manila and he is attending to a very sick relative, without
objection on the part of the defendant’s counsel, the initial hearing of this
case is reset to June 18, 2003 at 10:00 o’clock in the morning.
Just in case [plaintiff’s counsel] Atty. Concepcion cannot present his
witness in the person of Mr. Wilfredo Ong in the next scheduled hearing, the
counsel manifested that he will submit the case for summary judgment.”16
(Italics supplied)

It appears that the June 18, 2003 setting was eventually

rescheduled to February 11, 2004 at which both counsels were
present17 and the RTC issued the following order:

“The counsel[s] agreed to reset this case on April 14, 2004, at 10:00
o’clock in the morning. However, the counsels are directed to be ready with
their memorand[a] together with all the exhibits or evidence needed to
support their respective positions which should be

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14 Id., at pp. 52-53.

15 Id., at pp. 127-128, 138-143, 147-153.
16 Id., at p. 141.
17 Id., at p. 154.

522

522 SUPREME COURT REPORTS ANNOTATED

Ong vs. Roban Lending Corporation

the basis for the judgment on the pleadings if the parties fail to settle the
case in the next scheduled setting.
x x x x”18 (Italics supplied)

At the scheduled April 14, 2004 hearing, both counsels appeared

but only the counsel of respondent filed a memorandum.19
By Decision of April 21, 2004, Branch 64 of the Tarlac City
RTC, finding on the basis of the pleadings that there was no pactum
commissorium, dismissed the complaint.20
On appeal,21 the Court of Appeals22 noted that

“x x x [W]hile the trial court in its decision stated that it was rendering
judgment on the pleadings, x x x what it actually rendered was a summary
judgment. A judgment on the pleadings is proper when the answer fails to
tender an issue, or otherwise admits the material allegations of the adverse
party’s pleading. However, a judgment on the pleadings would not have
been proper in this case as the answer tendered an issue, i.e. the validity of
the MOA and DPA. On the other hand, a summary judgment may be
rendered by the court if the pleadings, supporting affidavits, and other
documents show that, except as to the amount of damages, there is no
genuine issue as to any material fact.”23

Nevertheless, finding the error in nomenclature “to be mere

semantics with no bearing on the merits of the case,”24

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18 Id., at p. 155.
19 Id., at pp. 156-164, 204.
20 Id., at pp. 205-206.
21 Id., at p. 207.
22 Decision of November 30, 2005, penned by Court of Appeals Associate Justice
Portia Aliño-Hormachuelos, with the concurrences of Associate Justices Mariano C.
Del Castillo and Magdangal M. de Leon. CA Rollo, pp. 35-45.
23 CA Rollo, pp. 40-41.
24 Id., at p. 41.

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Ong vs. Roban Lending Corporation

the Court of Appeals upheld the RTC decision that there was no
pactum commissorium.25
Their Motion for Reconsideration26 having been denied,27
petitioners filed the instant Petition for Review on Certiorari,28
faulting the Court of Appeals for having committed a clear and
reversible error

I. . . . WHEN IT FAILED AND REFUSED TO APPLY

PROCEDURAL REQUISITES WHICH WOULD WARRANT THE
SETTING ASIDE OF THE SUMMARY JUDGMENT IN VIOLATION OF
APPELLANTS’ RIGHT TO DUE PROCESS;
II. . . . WHEN IT FAILED TO CONSIDER THAT TRIAL IN THIS
CASE IS NECESSARY BECAUSE THE FACTS ARE VERY MUCH IN
DISPUTE;
III. . . . WHEN IT FAILED AND REFUSED TO HOLD THAT THE
MEMORANDUM OF AGREEMENT (MOA) AND THE DACION EN
PAGO AGREEMENT (DPA) WERE DESIGNED TO CIRCUMVENT
THE LAW AGAINST PACTUM COMMISSORIUM; and
IV. . . . WHEN IT FAILED TO CONSIDER THAT THE
MEMORANDUM OF AGREEMENT (MOA) AND THE DACION EN
PAGO (DPA) ARE NULL AND VOID FOR BEING CONTRARY TO
LAW AND PUBLIC POLICY.29

The petition is meritorious.

Both parties admit the execution and contents of the
Memorandum of Agreement and Dation in Payment. They differ,
however, on whether both contracts constitute pactum
commissorium or dacion en pago.
This Court finds that the Memorandum of Agreement and Dation
in Payment constitute pactum commissorium, which is

_______________

25 Id., at pp. 41-43.

26 Id., at pp. 48-53.
27 Id., at pp. 65-66.
28 Id. at pp. 8-25.
29 Rollo, p. 15.

524

524 SUPREME COURT REPORTS ANNOTATED

Ong vs. Roban Lending Corporation

prohibited under Article 2088 of the Civil Code which provides:

“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 elements of pactum commissorium, which enables the

mortgagee to acquire ownership of the mortgaged property without
the need of any foreclosure proceedings,30 are: (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.31
In the case at bar, the Memorandum of Agreement and the Dation
in Payment contain no provisions for foreclosure proceedings nor
redemption. Under the Memorandum of Agreement, the failure by
the petitioners to pay their debt within the one-year period gives
respondent the right to enforce the Dation in Payment transferring to
it ownership of the properties covered by TCT No. 297840.
Respondent, in effect, automatically acquires ownership of the
properties upon petitioners’ failure to pay their debt within the
stipulated period.
Respondent argues that the law recognizes dacion en pago as a
special form of payment whereby the debtor alienates property to the
creditor in satisfaction of a monetary obligation.32 This does not
persuade. In a true dacion en pago, the assignment of the property
extinguishes the monetary debt.33

_______________
30 Vide Lumayag v. Heirs of Jacinto Nemeño, G.R. No. 162112, July 3, 2007, 526
SCRA 315, 328.
31 Development Bank of the Philippines v. Court of Appeals, 348 Phil. 15, 31; 284
SCRA 14, 26 (1998).
32 Records, p. 53. Vide Civil Code, Article 1245.
33 Vide Civil Code, Article 1245; Development Bank of the Philippines v. Court of
Appeals, 348 Phil. 15, 30; 284 SCRA 14, 25 (1998).

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Ong vs. Roban Lending Corporation

In the case at bar, the alienation of the properties was by way of

security, and not by way of satisfying the debt.34 The Dacion in
Payment did not extinguish petitioners’ obligation to respondent. On
the contrary, under the Memorandum of Agreement executed on the
same day as the Dacion in Payment, petitioners had to execute a
promissory note for P5,916,117.50 which they were to pay within
one year.35
Respondent cites Solid Homes, Inc. v. Court of Appeals36 where
this Court upheld a Memorandum of Agreement/Dacion en Pago.37
That case did not involve the issue of pactum commissorium.38
That the questioned contracts were freely and voluntarily
executed by petitioners and respondent is of no moment, pactum
commissorium being void for being prohibited by law.39
Respecting the charges on the loans, courts may reduce interest
rates, penalty charges, and attorney’s fees if they are iniquitous or
unconscionable.40
This Court, based on existing jurisprudence,41 finds the monthly
interest rate of 3.5%, or 42% per annum unconscionable and thus
reduces it to 12% per annum. This Court finds

_______________

34 Vide Development Bank of the Philippines v. Court of Appeals, ibid.

35 Records, p. 38.
36 341 Phil. 261; 271 SCRA 157 (1997).
37 Records, p. 160.
38 Solid Homes, Inc. v. Court of Appeals, supra note 37 at pp.  274-280.
39 Vide Civil Code, Articles 1409 and 2088.
40  Vide Civil Code, Articles 1229 and 2227; United Coconut Planters Bank v.
Beluso, G.R. No. 159912, August 17, 2007; 530 SCRA 567, 590; Poltan v. BPI
Family Savings Bank, Inc., G.R. No. 164307, March 5, 2007, 517 SCRA 430, 444-
446; Radiowealth Finance Co., Inc. v. International Corporate Bank, G.R. Nos.
77042-43, February 28, 1990, 182 SCRA 862, 868-869.
41  Vide Poltan v. BPI Family Savings Bank, Inc., G.R. No. 164307, March 5,
2007, 517 SCRA 430, 444-446.
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526 SUPREME COURT REPORTS ANNOTATED

Ong vs. Roban Lending Corporation

too the penalty fee at the monthly rate of 5% (60% per annum) of
the total amount due and demandable—principal plus interest, with
interest not paid when due added to and becoming part of the
principal and likewise bearing interest at the same rate, compounded
monthly42—unconscionable and reduces it to a yearly rate of 12% of
the amount due, to be computed from the time of demand.43 This
Court finds the attorney’s fees of 25% of the principal, interests and
interests thereon, and the penalty fees unconscionable, and thus
reduces the attorney’s fees to 25% of the principal amount only.44
The prayer for accounting in petitioners’ complaint requires
presentation of evidence, they claiming to have made partial
payments on their loans, vis-à-vis respondent’s denial thereof.45 A
remand of the case is thus in order.
Prescinding from the above disquisition, the trial court and the
Court of Appeals erred in holding that a summary judgment is
proper. A summary judgment is permitted only if there is no genuine
issue as to any material fact and a moving party is entitled to a
judgment as a matter of law.46 A summary judgment is proper if,
while the pleadings on their face appear to raise issues, the
affidavits, depositions, and admissions presented by the moving
party show that such issues are not genuine.47 A genuine issue, as
opposed to a fictitious or contrived one, is an issue of fact that
requires the presenta-

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42 Records, p. 41.
43 Vide United Coconut Planters Bank v. Beluso, G.R. No. 159912, August 17,
2007, 530 SCRA 567, 590, 604-605.
44 Vide Titan Construction Corporation v. Uni-Field Enterprises, Inc., G.R. No.
153874, March 1, 2007, 517 SCRA 180, 190.
45 Vide records, pp. 3, 51-52.
46 Rules of Court, Rule 35, Section 3; Pineda v. Heirs of Eliseo Guevarra, G.R.
No. 143188, February 14, 2007, 515 SCRA 627, 638.
47  Vide Marcelo v. Sandiganbayan, G.R. No. 156605, August 28, 2007, 531
SCRA 385, 398.

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Ong vs. Roban Lending Corporation
tion of evidence.48 As mentioned above, petitioners’ prayer for
accounting requires the presentation of evidence on the issue of
partial payment.
But neither is a judgment on the pleadings proper. A judgment on
the pleadings may be rendered only when an answer fails to tender
an issue or otherwise admits the material allegations of the adverse
party’s pleadings.49 In the case at bar, respondent’s Answer with
Counterclaim disputed petitioners’ claims that the Memorandum of
Agreement and Dation in Payment are illegal and that the extra
charges on the loans are unconscionable.50 Respondent disputed too
petitioners’ allegation of bad faith.51
WHEREFORE, the challenged Court of Appeals Decision is
REVERSED and SET ASIDE. The Memorandum of Agreement
and the Dacion in Payment executed by petitioner-spouses Wilfredo
N. Ong and Edna Sheila Paguio-Ong and respondent Roban Lending
Corporation on February 12, 2001 are declared NULL AND VOID
for being pactum commissorium.
In line with the foregoing findings, the following terms of the
loan contracts between the parties are MODIFIED as follows:
1. The monthly interest rate of 3.5%, or 42% per annum, is
reduced to 12% per annum;
2. The monthly penalty fee of 5% of the total amount due and
demandable is reduced to 12% per annum, to be computed from the
time of demand; and
3. The attorney’s fees are reduced to 25% of the principal
amount only.

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48 Ibid.
49 Rules of Court, Rule 34, Section 1.
50 Records, pp. 53.
51 Id., at p. 51.

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