SOLID HOMES V CA

In June 4,1979, Solid Homes executed a real estate mortgage in favor of Sate Financing two of its properties in Pasig City for an amount of 10M which eventually increased to 14M. When the loan payments fell due, Solid Homes, despite State Financing’s repeated demands, failed to pay.

State Financing filed a petition for extrajudicial foreclosure but before the scheduled public auction sale, the two parties agreed on a different payment condition. They executed a DACION EN PAGO. Among other agreements, the two parties agreed that the 14M shall be paid in 180 days; if 60% of 14M is not paid in 180 days, document will operate to be an instrument of dacion en pago whereby Solid Homes

obligates  itself to transfer, convey and assign to (State Financing), by way of dacion en pago, its heirs, successors and assigns, and (State Financing) does hereby accept the conveyance and transfer of the above-described real properties, including all the improvements thereon, free from all liens and encumbrances, in full payment of the outstanding indebtedness of (Solid Homes) to (State Financing). SH was also given ten (10) months counted from and after the one hundred eighty (180) days from date of signing hereof to repurchase the property.

When SH failed to pay, SF registered the dacion en pago with RD and the latter cancelled the TCTs under SH’s name and issued new TCTs in SF’s name without annotating the right of repurchase.

A new payment scheme was agreed upon by the parties which includes the 30% per annum interest on the redemption price but on June 16, 1984, SH filed an action against SF seeking the annulment of dacion en pago and consequent restatement of the mortgages.

The TC ruled among others that Dacion en Pago was valid but held that the issuance of the new TCTs without annotation of the right to repurchase rendered it null & Void.

CA ruled that SF was not legally bound to make the annotation, and SH could have taken steps to protect its own interests.

ISSUE: WON the 30% interest per annum as part of redemption price is incontravention of 1616?

SC RULING: The court ruled in the negative. It held that Art 1616 is not restrictive or exlclusive. 1616 must be construed with 1601 which provides that

“Art. 1601. Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of article 1616 and other stipulations which may have been agreed upon.

It is clear, therefore, that the provisions of Art. 1601 require petitioner to “comply with x x x the other stipulations” of the Memorandum of Agreement/Dacion en Pago it freely entered into with private respondent. 

Contracts have the force of law between the contracting parties who may establish such stipulations, clauses, terms and conditions as they may want, subject only to the limitation that their agreements are not contrary to law, morals, customs, public policy or public order [30] -- and the above-quoted provision of the Memorandum does not appear to be so.

Petitioner, however, is right in its observation that the Court of Appeal’s inclusion of “registration fees, real estate and documentary stamp taxes and other incidental expenses incurred by State Financing in the transfer and registration of its ownership (of the subject properties) via dacion en pago” was vague, if not erroneous, considering that such transfer and issuance of the new titles were null and void.  Thus, the redemption price shall include only those expenses relating to the registration of the dacion en pago, but not the registration and other expenses incurred in the issuance of new certificates of title in the name of State Financing.

ALSO, SF MUST TAKE POSSESSION PENDING REDEMPTION