Topic: Dation in Payment (DBP v CA)

Facts:

Lydia P. Cuba obtained loans from the Development Bank of the Philippines under the terms stated
in the Promissory Notes.

As security for said loans, Lydia P. Cuba executed two Deeds of Assignment of her Leasehold Rights.
Cuba failed to pay her loan. Without foreclosure proceedings, whether judicial or extra-judicial,
defendant DBP appropriated the Leasehold Rights of Cuba over the fishpond in question. DBP
executed a Deed of Conditional Sale of the Leasehold Rights in favor of Cuba over the same fishpond
in question. Cuba accepted the offer to repurchase. Lydia Cuba failed to pay the amortizations
stipulated in the Deed of Conditional Sale. Defendant DBP thereafter sent a Notice of Rescission.
After the Notice of Rescission, DBP took possession of the Leasehold Rights of the fishpond in
question; That after DBP took possession of the Leasehold Rights over the fishpond in question, DBP
advertised in the SUNDAY PUNCH the public bidding dated June 24, 1984, to dispose of the property.
The DBP thereafter executed a Deed of Conditional Sale in favor of Agripina Caperal on August 16,
1984. Thereafter, Caperal was awarded Fishpond Lease Agreement on December 28, 1984 by the
Ministry of Agriculture and Food.

Cuba filed a complaint and sought the declaration of nullity of DBPs appropriation of CUBAs rights,
title, and interests over the fishpond for being violative of Article 2088 of the Civil Code.

DBP asserts that they were merely exercising their contractual rights.

Issue: 1. WON the act of DBP in appropriating to itself Cubas leasehold rights over the fishpond in
question without foreclosure proceedings was contrary to Article 2088 of the Civil Code and,
therefore, invalid.

Held:

ART. 2088 of the NCC provides: 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. Also Article 1245 of
the NCC, which reads: 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.

The Court held that the obligation to pay a sum of money remained, and the assignment merely
served as security for the loans. It bears stressing that the assignment, being in its essence a
mortgage, was but a security and not a satisfaction of indebtedness. The Court then ordered DBP to
render an accounting of the income derived from the operation of the fishpond in question.
Petition is Denied.