UP Law BGC Eve 2024 DBP v.

CA
Oblicon NCC: Art. 1245, 2088 1998 Davide, Jr.
SUMMARY DOCTRINE
Petitioner Cuba obtained loans from DBP and, as a security, executed Deeds The creditor cannot appropriate the
of Assignment of her Leasehold Rights to a fishpond. Failing to pay the loan, things given by way of mortgage, or
DBP appropriated the Rights without foreclosure proceedings. Cuba filed a dispose of them. Any stipulation to the
complaint seeking nullity of the appropriation because the Deed of contrary is null and void. Also, it
Assignment was not a payment for DBP to appropriate, but a security. It was cannot be considered as dation in
not also a Dation in Payment because it was clear that the execution of Deed payment if it is clear that mortgage
was for mortgage. was intended.

FACTS
 Lydia Cuba obtained from Development Bank of the Philippines (DBP) three loans, each of which was covered by a
promissory note. As a security for the loans, she executed Deeds of Assignment of her Leasehold Rights over a 44-
hectare fishpond. But she failed to pay her loans, so DBP appropriated her Leasehold Rights over the fishpond
with0ut foreclosure proceedings.
 Subsequently, she offered and agreed to repurchase the leasehold rights from DBP. A Deed of Conditional Sale was
executed. (In a way, a second leasehold right arises.) Still, she failed to pay the amortizations stipulated in the
conditional sale. Because of this, DBP took possession of the (new) leasehold right and sold the same to Agripina
Capera.
 RTC: Cuba filed complaint seeking declaration of nullity of DBP’s appropriation of her (original) leasehold rights
without the foreclosure proceedings which is contrary to Art. 2088*. RTC invalidated the Deed of Assignment for
being a clear case of pactum commissorium*.
 CA: reversed RTC’s decision and declared that the Deed of Assignment was an express authority from Cuba for DBP
to sell whatever right she had over the fishpond. It also held that the deed of assignment amounted to a novation of
the promissory note.
 Hence, the petition:
o Cuba contends that the Deed of Assignment was pactum commissorium contrary to Art. 2088.
o That the Deed of Assignment is not a novation of the promissory notes.
o Other issues which are not part of the topic Dation in Payment in syllabus.

RATIO
W/N the appropriation of DBP of the leasehold rights of Cuba was valid?
No. The Court agrees that the assignment of leasehold rights was mortgage contract.
 In the original promissory notes, there is a provision that: “In the event of foreclosure of the mortgage securing
this notes, I/We further bind myself/ourselves, jointly and severally, to pay the deficiency, if any.” Condition No. 22
also provide that “failure to comply with the terms and condition of any of the loans shall cause all other loans to
become due and demandable and all mortgages shall be foreclosed.” There is not shred of doubt that a
mortgage was intended.
 Besides, in their stipulation of facts, the parties admitted that the assignment was by way of security for the payment
of the loans. There is no merit that DBP’s contention that the assignment novated the promissory notes in that the
obligation to pay a sum of money the loans was substituted by the assignment of the rights over the fishpond. The
said assignment merely complemented or supplemented the notes. The obligation to pay a sum of money remained,
and the assignment merely served as security for the loans covered by the promissory note.
 Nor did the assignment constitute dation in payment under Article 1245 of the Civil Code. It bears
stressing that the assignment, being in its essence a mortgage, was but a security and not a
satisfaction of indebtedness.
 However, the condition in the promissory note is not pactum commissorium because it did not provide that the
ownership of the leasehold rights would automatically pass to DBP upon failure to pay the loan on time.
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 Digest Notes by Third: The main issue here is that DBP treated the Deed of Assignment as payment, and not as a
security/mortgage. Because it is merely a mortgage, DBP cannot appropriate the leasehold rights because ownership
was not supposed to be transferred to DBP. It was not also a Dation in Payment because, again, it is merely a
mortgage, which is obviously indicated in the promissory notes.

FALLO
WHEREFORE, the Decision of the Court of Appeals is hereby REVERSED. The Decision of the Regional Trial Court is
MODIFIED setting aside the finding that condition no. 12 of the deed of assignment constituted pactum commissorium.

 Art. 1245: “Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall
be governed by the law of sales.”
 Art. 2088: “The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void.
 Pactum commissorium (prohibited by law): The elements of pactum commissorium are as follows: (1) there
should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should
be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the
principal obligation within the stipulated period.
 Novation: substitution of a new contract in place of an old one.