FACTS:
Plaintiff Lydia P. Cuba is a
grantee of a Fishpond Lease Agreement No. 2083 (new) dated May 13, 1974 from
the Government; Cuba obtained loans from the Development Bank of the
Philippines in the amounts of P109,000.00; P109,000.00; and P98,700.00 under
the terms stated in the Promissory Notes dated September 6, 1974; August 11,
1975; and April 4, 1977; As security for said loans, plaintiff Lydia P. Cuba
executed two Deeds of Assignment of her Leasehold Rights; Plaintiff failed to
pay her loan on the scheduled dates thereof in accordance with the terms of the
Promissory Notes; Without foreclosure proceedings, whether judicial or
extra-judicial, defendant DBP appropriated the leasehold Rights of plaintiff
Lydia Cuba over the fishpond in question; After defendant DBP has appropriated
the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question,
defendant DBP, in turn, executed a Deed of Conditional Sale of the Leasehold
Rights in favor of plaintiff Lydia Cuba over the same fishpond in question; In
the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters to
the Manager DBP, Dagupan City dated November 6, 1979 and December 20, 1979. DBP
thereafter accepted the offer to repurchase in a letter addressed to plaintiff
dated February 1, 1982; After the Deed of Conditional Sale was executed in
favor of plaintiff Lydia Cuba, a new Fishpond Lease Agreement No. 2083-A dated
March 24, 1980 was issued by the Ministry of Agriculture and Food in favor of
plaintiff Lydia Cuba only, excluding her husband; Plaintiff Lydia Cuba failed
to pay the amortizations stipulated in the Deed of Conditional Sale; After
plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of
Conditional Sale, she entered with the DBP a temporary arrangement whereby in
consideration for the deferment of the Notarial Rescission of Deed of
Conditional Sale, plaintiff Lydia Cuba promised to make certain payments as
stated in temporary Arrangement dated February 23, 1982; Defendant DBP
thereafter sent a Notice of Rescission thru Notarial Act dated March 13, 1984,
and which was received by plaintiff Lydia Cuba; After the Notice of Rescission,
defendant DBP took possession of the Leasehold Rights of the fishpond in
question; That after defendant 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; That the DBP thereafter
executed a Deed of Conditional Sale in favor of defendant Agripina Caperal on
August 6, 1984; Thereafter, defendant Caperal was awarded Fishpond Lease
Agreement No. 2083-A on December 28, 1984 by the Ministry of Agriculture and
Food.
ISSUE: Whether the act of DBP in appropriating to itself CUBA's
leasehold rights over the fishpond in question without foreclosure proceedings
was contrary to Article 2088 of the Civil Code and, therefore, invalid.
AN ASSIGNMENT TO GUARANTEE AN
OBLIGATION IS VIRTUALLY A MORTGAGE;
HELD: We agree with CUBA
that the assignment of leasehold rights was a mortgage contract. Simultaneous
with the execution of the notes was the execution "Assignments of
Leasehold Rights" where CUBA
assigned her leasehold rights and interest on a 44-hectare fishpond, together
with the improvements thereon. As pointed out by CUBA, the deeds of assignment
constantly referred to the assignor (CUBA) as "borrower"; the
assigned rights, as mortgaged properties; and the instrument itself, as mortgage
contract. Moreover, under condition No. 22 of the deed, it was provided 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." And, condition No. 33 provided that if "foreclosure is
actually accomplished, the usual 10% attorney's fees and 10% liquidated damages
of the total obligation shall be imposed." There is, therefore, no shred
of doubt that a mortgage was intended. In People's Bank & Trust Co. vs.
Odom, this Court had the occasion to rule that an assignment to guarantee an
obligation is in effect as mortgage.
