G.R. No. 158891 June 27, 2012PABLO P. GARCIA, Petitioner, vs. YOLANDA VALDEZ VILLAR, Respondent.F!"#$ Lourdes V. Galas (Galas) was theoriginal owner of a pieceofproperty (subject property), which she ortgaged to !olanda Valde" Villar(Villar) as security for a loan. Galas subse#uently ortgaged the sae subject property to PabloP. Garcia (Garcia) to secure another loan. $oth ortgages were annotatedon the subject property%s &'&. Galas thereafter sold the subject property to Villar. &he (eed of )alewas registered and, conse#uently, a new &'& was issued in the nae ofVillar. $oth Villar%s and Garcia%s ortgages were carried over andannotated on Villar%s new &'&. Garcia*ledaPetitionfor Mandamus with(aagesagainst Villarbefore the R&'. Garcia subse#uently aended his petition to a 'oplaintfor+oreclosureofReal ,state -ortgagewith (aagesandalleged thatwhen Villar purchased the subject property, she acted in bad faith as she.nowingly and willfully disregarded the laws on judicialand e/trajudicialforeclosure of ortgaged property. &he R&' ruled in favor of Garcia and ordered Villar to pay the forerthe su of P0.1- (the aount of the loan secured by the ortgage) pluslegal interest. &he R&' declared that the direct sale of the subject propertyto Villar, the *rst ortgagee, could not operate to deprive Garcia of hisright as a second ortgagee. &he R&' further e/plained that upon Galas%sfailuretopayher obligation, Villar shouldhaveforeclosedthesubjectproperty to provide junior ortgagees li.e Garcia the opportunity to satisfytheir clais fro the residue, if any, of the foreclosure sale proceeds. Villar appealed and contendedthat the second ortgage is a voidand ine/istent contract. &he 'ourt of 2ppeals reversed the R&'%s decisionand declared that Galas was free to ortgage the subject property evenwithout Villar%s consent as the restriction that the ortgagees consent wasnecessary in case of a subse#uent encubrance was absent in the (eedof Real ,state -ortgage. 3owever, the 'ourt of 2ppeals held that the #%eo& "'e #u()e!" *+o*e+", "o V-%%+ .# /%-0 # -" &oun0 no"'-n1 -n"'e +e!o+0# "'" .ou%0 #'o. "'" G%# /-o%"e0 "'e Dee0 o& Re%E#""e 2o+"11e *+-o+ "o "'e #%e. CPG 7.14.2015Garcia appealed to the )upree 'ourt, with the sae arguents heposited before the lower courts, but added that the Dee0 o& Re% E#""e2o+"11e !on"-ne0#"-*u%"-on, .'-!' -# /-o%"-/e o& "'e*+o'-(-"-on on pactum commissorium.I##ue (relating to pactum commissorium)45hether or not thesaleof thesubject propertytoVillar wasinviolation of the prohibition on pactum commissoriumRu%-n1$6o. &he sale of the subject property does not violate the prohibitionon pactum commissorium.R"-o$Garcia clais that the stipulation appointing Villar, theortgagee, as the ortgagor%s attorney7in7fact, to sell the propertyin case of default in the payent of the loan, is in violation of theprohibition on pactum commissorium, as stated under 2rticle 8911of the 'ivil 'ode. &he following are the eleents of pactum commissorium4(0) &hereshouldbeapropertyortgagedbywayof securityfor thepayent of the principal obligation: and (8)&hereshouldbeastipulationforu"o3"-!**+o*+-"-onbythecreditor of the thing ortgaged in case of non7payent of the principalobligation within the stipulated period. Villar%s purchase of the subject property did not violate theprohibition on pactumcommissorium. &he power of attorney provisionabove did not provide that the ownership over the subject property wouldautoatically pass to Villar upon Galas%s failure to pay the loan ontie. 5hat it granted was the ere appointent of Villar as attorney7in7fact, withauthoritytosellor otherwisedispose ofthesubject property,and to apply the proceeds to the payent of the loan. &his provision iscustoary in ortgage contracts, and is in confority with 2rticle 891; ofthe 'ivil 'ode, which reads4 A+". 2087.