DBP v CA and Lydia Cuba | 1998 Davide, Jr., J. 1.

Cuba was granted a Fishpont Lease Agreement (2083) from the government; 2. She obtained loans from DBP and executed PNs for it; As security, she executed two deeds of assignment of her leasehold rights; 3. Later, she failed to pay the loan; Without foreclosure proceedings, DPB appropriated the leasehold rights; Thereafter, DBP executed a deed of conditional sale (of the LRs) in favour of Cuba; 4. Cuba then sought to repurchase the LRs, which offer was accepted by DBP; 5. After the deed of conditional sale was executed, a new Fishpond Lease Agreement (2083-A) was issued by the Ministry of Agriculture and Food in favour of Cuba; 6. Cuba later failed to pay the amortizations stipulated in the Deed of Conditional sale; She sought to defer rescission by DBP but later, she still failed to pay so DBP sought to rescind the Deed of Conditional Sale; After notice of rescission, DBP took possession of the LRs; 7. DBP conducted a public bidding to dispose of the property; Caperal was highest bidder; Thereafter, Caperal was awarded the FL Agreement (2083-A) 8. TC favoured Cuba: Parties intent to treat the Assignment of LRs as a mortgage was unmistakeable; 9. CA reversed TC: TC erred in declaring the deed of assignment null and void; Not cession (1255) since it presupposes plurality of debts and creditors; Act of assignment voluntary act of Cuba and amounted to a novation of the PNs; Cuba estopped from questioning the assignment of the LRs since she agreed to repurchase the said rights under a deed of conditional sale; Condition 12 of deed of assignment was express authority from Cuba to DBP to sell whatever right she had over the fishpond; W/N

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the act of DBP in appropriating to itself CUBA's leasehold rights over the fishpond in question without foreclosure proceedings was contrary to Article 2088 of the Civil Code and, therefore, invalid. Yes, invalid. 1. Assignment of LRs was a mortgage contract; - In the PNs, mortgage was used; - Simultaneous with the execution of the notes was the execution of the

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assignments of leasehold rights (where Cuba assigned her interests and rights on a 33 hectare fishpond); - As pointed out by CUBA, the deeds of assignment constantly referred to the assignor (CUBA) as "borrower"; the assigned rights, as mortgaged properties; and the instrument itself, as mortgage contract; that upon failure to comply with the terms and conditions of any loan will make the rest due and demandable and all mortgages shall be foreclosed; - Also, parties admit that the assignment was by way of security for the payment of the loans; an assignment to guarantee an obligation is in effect a mortgage (Peoples Ban v Odom); No novation: - The assignment merely complemented/supplemented the notes; former accessory to the latter; Not cession: - Article 1255 contemplates the existence of two or more creditors and involves the assignment of all the debtor's property; Not dation: - Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law on sales." It bears stressing that the assignment, being in its essence a mortgage, was but a security and not a satisfaction of indebtedness; Condition 12 did not constitute pactum commissorium: - Condition no. 12 did not provide that the ownership over the leasehold rights would automatically pass to DBP upon CUBA's failure to pay the loan on time. It merely provided for the appointment of DBP as attorney-in-fact with authority, among other things, to sell or otherwise dispose of the said real rights, in case of default by CUBA, and to apply the proceeds to the payment of the loan; - Provision a standard condition in mortgage contracts; BUT DBP exceeded its authority in condition 12;

Without foreclosure proceedings, it appropriated the LRs; - Contention that it limited itself to administration belied by deed of conditional sale where it said it acquired all the rights and interest over the property; - An assignment to guarantee an obligation, as in the present case, is virtually a mortgage and not an absolute conveyance of title which confers ownership on the assignee - DBP's act of appropriating CUBA's leasehold rights was violative of Article 2088 of the Civil Code, which forbids a credit or from appropriating, or disposing of, the thing given as security for the payment of a debt 7. Cuba not in estoppel: - Estoppel cannot give validity to an act that is prohibited by law or against public policy; CA reversed.