Spouses Roberto v. Spouses Santos

Summary

The Julian spouses borrowed money from the Pen spouses and mortgaged their property as security. Upon default, a deed of sale was executed transferring the property to the creditors. The Julian spouses challenged the validity of this sale, claiming they only signed a blank deed simultaneously with the mortgage. All three court levels declared the deed of sale void, with the Supreme Court affirming the Court of Appeals' finding that it constituted a prohibited pactum commissorium rather than a valid sale. The arrangement allowed automatic appropriation of the mortgaged property upon default, violating Article 2088 of the Civil Code. The Court rejected the creditors' defense that it was a valid dacion en pago since the debt subsisted despite the property transfer. The Supreme Court modified the interest computation to reflect current legal rates, ordering 12% per annum until June 2013, then 6% per annum thereafter until full payment of the outstanding obligation.