118342 Online

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The Supreme Court had to determine if the "Assignment of Leasehold Rights" was a legal transfer of ownership or merely a mortgage. If it were a mortgage, DBP's automatic takeover would constitute pactum commissorium —an agreement allowing a creditor to automatically own the collateral upon the debtor's default, which is strictly prohibited under Article 2088 of the Civil Code of the Philippines. 118342

The dispute centered on whether a creditor could automatically take ownership of a property used as collateral without a formal foreclosure proceeding. AI responses may include mistakes

Lydia Cuba, a fishpond leaseholder, obtained loans from the Development Bank of the Philippines (DBP) . As security, she executed an "Assignment of Leasehold Rights." When she defaulted on her payments, DBP unilaterally appropriated her leasehold rights without a public auction or judicial foreclosure, then sold them to a third party. If it were a mortgage, DBP's automatic takeover