Sale of mortgaged property to creditor per se is not prohibited
Dear PAO,Henry obtained a loan from me and furnished his house and lot as security for his debt. We also agreed that if he cannot pay his debt, we will execute a deed of absolute sale where he will sell his property to me, with his outstanding debt and interest forming part of the price. I would then pay him the difference if the fair market value of the property exceeded his debt. Henry defaulted on payment, and I have already demanded payment in writing.
5, 2024, where the Supreme Court, speaking through Chief Justice Alexander Gesmundo, stated:'Verily, pactum commissorium does not extend to a mutual agreement between the debtor and the creditor that the property subject of the mortgage is sold to the latter to extinguish the obligation. When the parties entered into a separate Deed of Absolute Sale, it proves that there was no automatic transfer of ownership, and therefore, no pactum commissorium.
Of Mortgaged Property To Creditor Per Se Is Not Prohibited
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