Development Bank of the Philippines vs.

Court of Appeals(284 SCRA 14)Facts:

Private respondent Lydia Cuba is a grantee of a fishpond lease agreement from the Government.She
later obtained a loan from DBP in the amounts of P109, 000, P109, 000, and P98, 700 under the terms
stated in the three promissory notes. As a security for the said loan Cuba executed atwo Deed of
Assignment of her Leasehold Rights. Then she failed to pay her loan when it became due in accordance
with the terms of the promissory notes. DBP in turn appropriated theleasehold rights of Cuba over the
fishpond, without foreclosure proceedings, whether judicial or extrajudicial. After appropriating the said
leasehold rights DBP executed a Deed of ConditionalSale of the Leasehold Rights in favor of
respondent Cuba over the same fishpond, to which Cubaagreed. Respondent Cuba failed to pay the
amortizations stipulated in the Deed of ConditionalSale, however she was able enter with DBP a
temporary arrangement with DBP for theDeferment Notarial Rescission of Deed of
Conditional Sale. However, a Notice of Rescissionthru Notarial Act was sent the DBP to Cuba, then it
took possession of the fishpond in question.After it took possession of the said fishpond, DBP disposed
the property in favor of AgripinaCaperal through a deed of conditional sale. Then a new fishpond lease
agreement was awarded by the Government to Caperal.Lydia Cuba filed an action with the Regional
Trial Court of Pangasinan for the declaration of
nullity of DBPs appropriation of her leaseholds over the subject fishpond, for the annulment of
the Deed of Conditional Sal
e executed in her favor by DBP, the annulment of DBPs sale of the
fishpond to Caperal, and the restoration of her rights over the said fishpond and for damages. The
RTC ruled in favor of Cuba, declaring that DBPs taking possession and ownership of the s
ubject property without foreclosure was violative of Art. 2088 of the Civil Code, and that condition No.12
of the Assignment of the Leasehold Rights was void for being a clear case of
pactumcommissorium.
Both Cuba and DBP elevated the case to the CA, with Cuba seeking an increase in the amount
of damages, while DBP questioned the findings of fact and law of the RTC. The CA reversed theruling of
the RTC with regards to the validity of the acts of DBP.

Issues:
1.

Whether or not the two Deed of Assignment executed by Cuba in favor of DBP wouldoperate as a
mortgage or some other contract.2.

Whether or not condition No. 12 of the Assignment of the Leasehold Rights wouldoperate as case of
pactum commissorium3.

Whether the act of DBP in appropriating to itself

Cubas leasehold rights over the
fishpond in question without foreclosure proceeding was contrary to Article 2088 of theCivil Code, and
therefore, invalid.
Held:
1.

Lydia executed the 2 Deeds of Assignment as a security for the loans that she obtainedfrom DBP,
according the case of
Peoples Bank and Trust Co. vs. Odom

an assignmentto guaranty an obligation is in effect a mortgage.

And it was also indicated in
the provisions of the promissory note executed by Cuba, that the her assigned leaseholdrights were
referred to as mortgaged properties and the instrument itself a mortgagecontract.2&3. The act of DBP
under condition No. 12 of the Assignment of Leasehold Rights did not
constitute as a case of pactum commissorium, when appropriated for itself Cubas
leaseholdrights over the subject fishpond, because condition No. 12 only gave DBP the authority tosell
the said property and use the proceeds of the sale
to satisfy Cubas obligation, it did not
operate as an automatic transfer of ownership of the said property to DBP.However, DBP exceeded its
authority granted under condition No. 12, when it appropriatedfor itself such rights without judicial or
extrajudicial foreclosure, thereby making his actsviolative of Article 2088 of the Civil Code, which forbids
a creditor from appropriating, or disposing of, the thing given as security for the payment of a debt.
 Natalia Bustamante vs Rodito and Norma Rosel
Concept:
Article 1245. 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.
Facts:
March 8, 1987. Norma Rosel entered in a loan agreement with Natalia Bustamante with the
conditions:
1. That the borrowers are the registered owners of a parcel of land, evidenced by TRANSFER
CERTIFICATE OF TITLE No. 80667, containing an area of FOUR HUNDRED TWENTY THREE (423)
SQUARE Meters, more or less, situated along Congressional Avenue.
2. That the borrowers were desirous to borrow the sum of ONE HUNDRED THOUSAND
(P100,000.00) PESOS from the LENDER, for a period of two (2) years, counted from March 1, 1987,
with an interest of EIGHTEEN (18%) PERCENT per annum, and to guaranty the payment thereof, they
are putting as a collateral SEVENTY (70) SQUARE METERS portion, inclusive of the apartment therein,
of the aforestated parcel of land, however, in the event the borrowers fail to pay, the lender has the
option to buy or purchase the collateral for a total consideration of TWO HUNDRED THOUSAND
(P200,000.00) PESOS, inclusive of the borrowed amount and interest therein;
3. That the lender do hereby manifest her agreement and conformity to the preceding paragraph,
while the borrowers do hereby confess receipt of the borrowed amount.

When the loan was about to mature the respondent proposed to buy the land for P200,000 but the petitioner
refused and offered another residential lot at road. 20 project 8, quezon city. Respondent accepted the
lot. The Respondents were not the owner but entitled as Land developers
March 1, 1989. Petitioner tendered payment for the loan but the respondent refused insisting that the
former sign the document as deed of absolute sale of the collateral
Respondent filed a complaint and sent a letter asking the petitioner to sell the collateral pursuant to
the loan agreement
March 5, 1990. Petitioner filed a petition for consignation and deposited the amount of P153,000 with
the City Treasurer of Quezon City. Petitioner refused the sell the collateral and the respondent cosigned
the amount of P47,500 with the trial court. In arriving at the amount deposited, respondents considered
the principal loan of P100,000.00 and 18% interest per annum thereon, which amounted to P52,500.00.
The principal loan and the interest taken together amounted to P152,500.00, leaving a balance of
P47,500.00
The trial court ruled in favor of the petitioner and denied the prayer of the respondents in the
execution of the deed of sale
Court of Appeals reversed the decision of the trial court
The SC found no error in the decision of the trial court, petitioner asked for a reconsideration.
Respondent filed an opposition against petitioners motion for reconsideration. They contend that the
agreement between the parties was not a sale with right of re-purchase, but a loan with interest at 18%
per annum for a period of two years and if petitioner fails to pay, the respondent was given the right to
purchase the property or apartment for P200,000.00, which is not contrary to law, morals, good customs,
public order or public policy.

Issue: W/ON the petitioner failed to pay the loan at its maturity and is the stipulation in the loan contract
valid

Held: No. The respondents refused to accept payment, petitioner consigned the amount with the trial
court. We note the eagerness of respondents to acquire the property given as collateral to guarantee the
loan. The sale of the collateral is an obligation with a suspensive condition. It is dependent upon the
happening of an event, without which the obligation to sell does not arise. Since the event did not occur,
respondents do not have the right to demand fulfillment of petitioners obligation, especially where the
same would not only be disadvantageous to petitioner but would also unjustly enrich respondents
considering the inadequate consideration (P200,000.00) for a 70 square meter property situated at
Congressional Avenue, Quezon City.

No, The SC said that the stipulation is void. the intent of the creditor appears to be evident,for the debtor
is obliged to dispose of the collateral at the preagreed consideration amounting to practically the same
amount
as the loan. In effect, the creditor acquires the collateral in the event of non-payment of the loan. This is
within the concept of pactum commissorium. Such stipulation is void.