Tan Chun Tic v. West Coast Life Insurance Co.

Summary

This landmark 1930 Supreme Court case established the prohibition against pactum commissorium clauses in mortgage contracts. Tan Chun Tic sought to cancel a preliminary attachment on property he claimed to own through assignment of mortgage rights containing a clause allowing automatic transfer of ownership upon default. The Supreme Court reversed the trial court, holding that such clauses violate Civil Code Articles 1859 and 1884, which prohibit creditors from appropriating mortgaged property without proper foreclosure proceedings. The Court distinguished between prohibited creditor appropriation and valid debtor promises to sell, emphasizing that mortgage creditors must follow legal foreclosure procedures rather than automatic ownership transfer. This decision reinforced fundamental mortgage law principles protecting debtor rights and ensuring proper judicial oversight of property transfers in default situations.