FACTS:

Lydia Cuba filed a complaint against the Development Bank of the Philippines (DBP) and Agripina Caperal seeking the nullity of DBP's appropriation of her rights, title, and interests over a fishpond in Bolinao, Pangasinan. The parties agreed during the pre-trial that Cuba was a grantee of a Fishpond Lease Agreement, she obtained loans from DBP and executed Deeds of Assignment of her Leasehold Rights as security, but failed to pay the loans on time. DBP eventually rescinded the Deed of Conditional Sale and took possession of the fishpond. DBP advertised a public bidding to dispose of the property and executed a Deed of Conditional Sale in favor of Caperal.

The principal issue in the trial was whether DBP's appropriation of Cuba's leasehold rights without foreclosure proceedings violated Article 2088 of the Civil Code. The trial court ruled in favor of Cuba, stating that DBP's actions violated Article 2088 and declared a certain condition of the Assignment of Leasehold Rights null and void.

In another case, Gloria Fajardo-Cuba acquired leasehold rights over a fishpond, which she assigned to DBP. The trial court declared the assignment and subsequent deeds of conditional sale as void. DBP unjustly ejected Cuba from the fishpond area and the adjacent house, resulting in the loss of her personal belongings and fish stock. The trial court awarded Cuba damages and the Court of Appeals ruled in favor of DBP, stating that the assignment was valid.

In a related case, DBP executed deeds of assignment with Edith Cuba and entered into conditional sale agreements with her and Caperal. The Court of Appeals ordered DBP to transfer possession of the property to Caperal and pay Cuba damages and attorney's fees. DBP filed a petition challenging the award of damages, while Cuba argued that the deed of assignment was a pactum commissorium and that the Court of Appeals erred in holding that it effected a novation of the promissory notes.

ISSUES:

1. Whether the assignment of leasehold rights was a mortgage contract.

2. Whether the assignment novated the promissory notes.

3. Whether the assignment amounted to payment by cession or dation in payment.

4. Whether condition no. 12 of the deed of assignment constituted pactum commissorium.

5. • Whether DBP had the authority to appropriate the leasehold rights of CUBA without foreclosure proceedings
6. • Whether CUBA's offer to repurchase her leasehold rights estops her from questioning DBP's act of appropriation

7. Whether the payment of a debt can be set aside if there was no prior foreclosure proceeding.

8. Whether the alleged loss of personal belongings and equipment was duly proved.

9. Whether the claim for the value of the alleged lost 230,000 pieces of bangus was duly proved and not unreasonably delayed.

RULING:

1. The assignment of leasehold rights was determined to be a mortgage contract.

2. The assignment did not novate the promissory notes as the assignment merely complemented or supplemented the notes, serving as security for the loans covered by the promissory notes.

3. The assignment did not amount to payment by cession or dation in payment as there was only one creditor, the DBP, and the assignment was a security and not a satisfaction of indebtedness.

4. Condition no. 12 of the deed of assignment did not constitute pactum commissorium.

5. • DBP exceeded its authority by appropriating CUBA's leasehold rights without foreclosure proceedings, which is violative of Article 2088 of the Civil Code.
6. • CUBA's offer to repurchase her leasehold rights does not estop her from questioning DBP's act of appropriation.
7. • DBP should have foreclosed the mortgage as stipulated in the deed of assignment, rather than appropriating the leasehold rights.

8. No, the payment of a debt cannot be set aside solely because there was no prior foreclosure proceeding.

9. No, the alleged loss of personal belongings and equipment was not duly proved. There was no clear evidence of the existence of those items before the bank took over the fishpond.

10. No, the claim for the value of the alleged lost 230,000 pieces of bangus was not duly proved and was unreasonably delayed.

PRINCIPLES:

• An assignment to guarantee an obligation is in effect a mortgage.

• An assignment can exist alongside promissory notes, with the former serving as security for the loans covered by the latter.

• Payment by cession under Article 1255 of the Civil Code contemplates the existence of two or more creditors and involves the assignment of all the debtor's property.

• Dation in payment, under Article 1245 of the Civil Code, involves the alienation of property to the creditor in satisfaction of a debt in money, and is governed by the law on sales.

• Pactum commissorium refers to a stipulation in a contract that allows the creditor to automatically appropriate the mortgaged property in case of breach of the conditions of the contract.

• An assignment to guarantee an obligation is virtually a mortgage and does not confer ownership on the assignee.

• A creditor cannot appropriate or dispose of the thing given as security for the payment of a debt, as prohibited by Article 2088 of the Civil Code.

• Estoppel cannot validate an act that is prohibited by law or against public policy.

• Foreclosure proceedings must be conducted before the sale of property given as security for the payment of a debt.

• Actual or compensatory damages cannot be presumed and must be proved with a reasonable degree of certainty.

• A court cannot rely on speculations, conjectures, or guesswork in determining the fact and amount of damages; it must depend upon competent proof.

• Claims for damages should be based on specific facts that provide a basis for measuring the compensatory or actual damages suffered.

• Moral damages can be awarded when there is a wrongful act that violates a person's rights and causes him/her damage and distress.

• Exemplary or corrective damages can be awarded by way of example or correction for the public good.

• Attorney's fees can be awarded when exemplary damages are awarded.

• The party in possession of a property acquired by way of foreclosure must render an accounting of the income derived from the operation of the property.