DBP vs.

CA
DAVIDE, JR., January 5, 1998
NATURE
Consoladated petition for review of the decision of the Court of Appeals
FACTS
-Plaintiff CUBA is a grantee of aFishpond Lease Agreement from theGovernment;- CUBA obtained
from DBP threeseparate loans totalling P335,000,each of which was covered by apromissory note
and as security forsaid loans, CUBA executed two Deedsof Assignment of her LeaseholdRights;Plaintiff failed to pay her loan on thescheduled dates in accordance withthe terms of the
Promissory Notes;Without foreclosure proceedings
,whether judicial or extra-judicial,defendant
DBP appropriated theleasehold Rights of plaintiff CUBA over the fishpond in question
; thenexecuted a Deed of Conditional Saleof the Leasehold Rights in favor of plaintiff CUBA over
the same fishpond;-In the negotiation for repurchase,plaintiff CUBA addressed two letters(offers
to repurchase the fishpond) tothe Manager DBP, which DBPaccepted;-After the Deed of
Conditional Salewas executed in favor of plaintiff CUBA, a new Fishpond LeaseAgreement was
issued by the Ministryof Agriculture and Food in favor of plaintiff CUBA but CUBA failed to paythe
amortizations stipulated in theDeed of Conditional Sale and enteredwith the DBP a
temporaryarrangement whereby inconsideration for the deferment of theNotarial Rescission of
Deed of Conditional Sale, plaintiff CUBApromised to make certain paymentsas stated in
temporary Arrangement;-Defendant DBP thereafter sent aNotice of Rescission thru Notarial
Actwhich CUBA received,a and thereafter,defendant DBP took possession of theLeasehold Rights
of the fishpond inquestion, advertised the publicbidding to dispose of the property;and thereafter
executed a Deed of Conditional Sale in favor of defendantAgripina Caperal; defendant
Caperalwas awarded Fishpond LeaseAgreement by the Ministry of Agriculture and Food.-CUBA
filed complaint against DBP andCaperalRTC
: sided with CUBA, holding that(1) DBP's taking possession andownership of the property
withoutforeclosure was plainly violative of Article 2088 of the Civil Code; (2)condition no. 12 of
the Assignment of Leasehold Rights is void for being aclear case of pactum
commissoriumexpressly prohibited and declared nulland void by Article 2088 of the CivilCode; (3)
the Deed of Conditional Salein favor of CUBA, the notarialrescission of such sale, and the Deedof
Conditional Sale in favor of defendant Caperal, as well as theAssignment of Leasehold
Rightsexecuted by Caperal in favor of DBP,were also void and ineffective;awarding
P1,067,500.00 for actualdamages.; P100,000.00as moraldamages; P50,000.00 for
exemplarydamages;P100,000.00 for attorney's fees; andordering DBP to reimburse and pay
todefendant Agripina CaperalP1,532,610.75 representing theamounts paid by defendant
AgripinaCaperal to defendant DevelopmentBank of the Philippines under theirDeed of
Conditional Sale;-

CA
: declared valid the ff: (1) the actof DBP in appropriating Cuba'sleasehold rights and interest
underFishpond Lease Agreement No. 2083;(2) the deeds of assignment executedby Cuba in favor
of DBP; (3) the deedof conditional sale between CUBA andDBP; and (4) the deed of
conditionalsale between DBP and Caperal, theFishpond Lease Agreement in favor of Caperal, and
the assignment of leasehold rights executed by Caperalin favor of DBP. It then ordered DBP
toturn over possession of the propertyto Caperal as lawful holder of theleasehold rights and to
pay CUBA thefollowing amounts: (a) P1,067,500 asactual damages; P50,000 as moraldamages;
and P50,000 as attorney'sfees.
ISSUE
1. WON the assignment of leaseholdrights was a mortgage contract, notamounting to novation,
cession underArt. 1255 of Civil Code, nor a Dationunder Art. 12542. WON condition no. 12 of the
deedof assignment constituted pactumcommissionrum, as was held by thetrial court3. WON the
act of DBP of appropriating CUBAs leasehold rightswas violative of Art. 2088 of the CivilCode,
and that DBP should have justconducted a foreclosure proceeding,so that the execution of the
Deed of Conditional Sale in favor of Caperalwas void4. WON CUBA is estopped fromquestioning
DBPs act of appropriation5. WON the award for the damageswere correctly awarded5.1 WON the
award for actualdamages was correctly awarded5.2 WON the award for moraldamages was
correctly awarded,and therefore the awarding of exemplary damages and attorneysfees
HELD1. YES, the assignment of leasehold rights was a mortgagecontract
Ratio
An assignment to guarantee anobligation is in effect a mortgage, andbeing in its essence a
mortgage, is buta security and not a satisfaction of indebtedness.
Reasoning
The stipulations of thedeeds of assignment constantlyreferred to the contract as a
mortgagecontract. The parties admitted thatthe assignment was by way of security for the
payment of the loans.-on NOVATION: the said assignmentmerely complemented orsupplemented
the notes; both couldstand together. The obligation to paya sum of money remained, and
theassignment merely served as securityfor the loans covered by thepromissory notes.-on
CESSION: Article 1255contemplates the existence of two ormore creditors and involves
theassignment of all the debtor'sproperty, but in the case only DBP isthe creditor-on DATION: The
assignment, being inits essence a mortgage, was but asecurity and not a satisfaction of
indebtedness so not Dation as definedin Article 1254
2. NO
Ratio
To have a pactumcommissiorum, the following elementsmust be present: (1) there should be
aproperty mortgaged by way of security for the payment of theprincipal obligation, and (2)
thereshould be a stipulation for automaticappropriation by the creditor of thething mortgaged in
case of non-payment of the principal obligationwithin the stipulated period.
Reasoning

Condition no. 12 merelyprovided for the appointment of DBPas attorney-in-fact with

authority,among other things, to sell orotherwise dispose of the said realrights, in case of default
by CUBA, andto apply the proceeds to the paymentof the loan.-The provision is a standard
conditionin mortgage contracts and is inconformity with Article 2087 of theCivil Code, which
authorizes themortgagee to foreclose the mortgageand alienate the mortgaged propertyfor the
payment of the principalobligation.
3. YES
Ratio
Even in cases where foreclosureproceedings were had, this Court hadnot hesitated to nullify the
consequentauction sale for failure to comply withthe requirements laid down by law,such as Act
No. 3135, as amended. 15With more reason that the sale of property given as security for
thepayment of a debt be set aside if there was no prior foreclosureproceeding.
Reasoning
Article 2088 of the CivilCode forbids a creditor fromappropriating, or disposing of, thething given
as security for thepayment of a debt.- DBP knew that foreclosureproceedings were necessary,
howeverit did not conduct any. In view of the
false representation of DBP that it hadalready foreclosed the mortgage, theBureau of Fisheries
canceled CUBA'soriginal lease permit, approved thedeed of conditional sale, and issued anew
permit in favor of CUBA. Said actswhich were predicated on such falserepresentation, as well as
thesubsequent acts emanating fromDBP's appropriation of the leaseholdrights, should therefore
be set aside. To validate these acts would open thefloodgates to circumvention of Article2088 of
the Civil Code.

4. NO
Ratio
Estoppel cannot give validity toan act that is prohibited by law oragainst public policy
Reasoning
The appropriation of theleasehold rights, being contrary toArticle 2088 of the Civil Code and
topublic policy, cannot be deemedvalidated by estoppel.
5.5.1 NO
Ratio
Actual or compensatorydamages cannot be presumed, but
must be proved with reasonabledegree of certainty.Reasoning
Other than the testimonyof CUBA and her caretaker, there wasno proof as to the existence of
thoseitems which were allegedly damagedbefore DBP took over the fishpond inquestion (no
inventory, receiptspresented).- Such claim for "losses of property,"having been made before
knowledgeof the alleged actual loss, wastherefore speculative. The alleged losscould have been

a mere afterthoughtor subterfuge to justify her claim foractual damages.- From 1979 until after
the filing of hercomplaint in court in May 1985, CUBAdid not bring to the attention of DBPthe
alleged loss, and CUBA evenadmitted that the loss was due to thefraudulent acts of her
fishpondworkers.
5.2 YES, but reduced
Reasoning
DBP's act of appropriatingCUBA's leasehold rights which wascontrary to law and public policy,
aswell as its false representation to thethen Ministry of Agriculture andNatural Resources that it
had"foreclosed the mortgage," an awardof
moral damages
in the amount of P50,000 is in order.Exemplary or correctivedamages
in the amount of P25,000should likewise be awarded by way of example or correction for the
publicgood. There being an award of exemplary damages,
attorney's fees
are also recoverable.
Dispositive
WHEREFORE, the 25 May1994 Decision of the Court of Appealsin CA-G.R. CV No. 26535 is
herebyREVERSED, except as to the award of P50,000 as moral damages, which ishereby
sustained. The 31 January1990 Decision of the Regional TrialCourt of Pangasinan, Branch 54,
inCivil Case No. A-1574 is MODIFIEDsetting aside the finding that conditionno. 12 of the deed of
assignmentconstituted pactum commissoriumand the award of actual damages; andby reducing
the amounts of moraldamages from P100,000 to P50,000;the exemplary damages, fromP50,000
to P25,000; and theattorney's fees, from P100,000 toP20,000. The Development Bank of the
Philippines is hereby ordered torender an accounting of the incomederived from the operation of
thefishpond in question.Let this case be REMANDED to thetrial court for the reception of
theincome statement of DBP, as well asthe statement of the account of LydiaP. Cuba, and for the
determination of each party's financial obligation to oneanother.SO ORDERED.

G.R.No. 118367 January 5, 1998

Lessons Applicable: Certainty (Torts and Damages)
Laws Applicable: Article 1245, Article 1255, Article 2087, Art. 2088 of the Civil Code

FACTS:

Lydia P. Cuba is a grantee of a Fishpond Lease Agreement from the Government

Cuba obtained loans from DBP stated under promissory notes dated September 6, 1974; August
11, 1975; and April 4, 1977 executing 2 Deeds of Assignment of her Leasehold Rights as security
Upon failure to pay, without foreclosure proceedings it was appropriated and DBP executed in
turn a Deed of Conditional Sale of the Leasehold Rights in her favor
Her offer to repurchase was accepted and a new Fishpond Lease Agreement was issued by the
Ministry of Agriculture and Food in her favor alone excluding her husband
Failing to pay her amortizations, she entered into a temporary agreement with DBP
Soon, she was sent a Notice of Rescission and DBP took possession of the Leasehold Rights of
the fishpond
After the public bidding, DBP executed a Deed of Conditional Sale in favor of defendant Agripina
Caperal
Cuba filed against DBP since no foreclosure proceedings was done thus, contrary to Article 2088
of the Civil Code
RTC: favored Cuba, it being a pactum commissorium
return leasehold rights to Cuba
entitling P1,067,500 actual damages, P100,000 moral and P50,000 exemplary damages and
P100,000 attorneys fees
CA: leasehold rights to Caperal as valid but same damages
ISSUE: W/N Cuba should be awarded with actual and compensatory damages

HELD: NO. CA reversed except the P50,000 as moral damages. REMANDED to the trial court for
the reception of the income statement of DBP, as well as the statement of the account of Lydia P.
Cuba, and for the determination of each partys financial obligation to one another

assignment of leasehold rights was a mortgage contract (Article 2087)

not novated, cession (Article 1255 of the Civil Code), dation in payment (Article 1245 of the civil
Code), pactum commissorium
condition no. 12 did not provide that CUBAs default would operate to vest in DBP ownership of
the said rights
The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did not estop
her from questioning DBPs act of appropriation.
estoppel cannot give validity to an act that is prohibited by law or against public policy
alleged loss of personal belongings and equipment was not proved by clear evidence. Other than
the testimony of CUBA and her caretaker, there was no proof as to the existence of those items
before DBP took over the fishpond in question. Neither was a single receipt or record of
acquisition presented.
dated 17 May 1985, CUBA included losses of property as among the damages resulting from
DBPs take-over of the fishpond. Yet, it was only in September 1985 when her son and a
caretaker went to the fishpond and the adjoining house that she came to know of the alleged
loss of several articles
bangus which died also not duly proved nor was it expressed in her later 7 months after DBP took
over
The award of actual damages should, therefore, be struck down for lack of sufficient basis
Exemplary or corrective damages in the amount of P25,000 should likewise be awarded by way
of example or correction for the public good. There being an award of exemplary damages,
attorneys fees are also recoverable