Florita Liam vs.

United Coconut Planters Bank

G.R. No. 194664 June 15, 2016
Reyes, J.

DOCTRINE: The crucial distinction between assignment and subrogation actually deals with the
necessity of the consent of the debtor in the original transaction. In an assignment of credit, the
consent of the debtor is not necessary in order that the assignment may fully produce legal
effects. What the law requires in an assignment of credit is not the consent of the debtor but
merely notice to him as the assignment takes effect only from the time he has knowledge
thereof. A creditor may, therefore, validly assign his credit and its accessories without the
debtor's consent.

Meanwhile, subrogation requires an agreement among the three parties concerned - the
original creditor, the debtor, and the new creditor. lt is a new contractual relation based on the
mutual agreement among all the necessary parties.

FACTS:

Liam entered into a contract to sell with developer Primetown Property Group, Inc. (PPGI) for
the purchase of Condominium Unit No. 603 of the latter's Makati Prime City (MPC)
condominium project. The parties also stipulated that the unit would be delivered not later than
35 months from the start of actual construction.

To finance the construction o f the condominium project, PPGI obtained a loan from UCPB. PPGI
thereafter partially settled its loan by transferring to UCPB its right to collect all receivables from
condominium buyers, including Liam. PPGI notified Liam of the sale of its receivables to UCPB.
PPGI directed her to remit any remaining balance of the condominium unit's purchase price to
UCPB. Liam wrote UCPB asking for the deferment of her amortization payments until such time
that the unit is ready for delivery. Liam also complained about the delayed delivery of the unit.
Liam demanded for the refund of all the payments she made for PPGI's failure to deliver the
unit on the stipulated date. Liam filed a Complaint for specific performance before the HLURB
against PPGI and UCPB.

PPGI denied receiving any demand from Liam and averred that she is already estopped from
making any claims against PPGI because she agreed to the substitution of PPGI by UCPB. UCPB
maintained that it is merely a creditor of PPGI. UCPB explained that it only acquired PPGI's right
to collect its receivables from Liam and other condominium buyers. UCPB denied giving a
specific date for the completion of Liam's unit because such matter was beyond its control but
rather devolved upon PPGI as the developer.

HLURB Arbiter ruled in favor of Liam. HLURB Board of Commissioners affirmed the Arbiter’s
Decision. The appeal before the Office of the President was dismissed. However, the CA
reversed the decision and ruled in favor of UCPB.

ISSUE: Whether the transaction between UCPB and PPGI was an assignment of credit and not
subrogation.
RULING:

YES.

The terms of the MOA and Deed of Sale/Assignment between PPGI and UCPB unequivocally
show that the parties intended an assignment of PPGl's credit in favor of UCPB. Section 1 of the
MOA is explicit that as partial settlement of its loan, PPGI sold in favor of UCPB its unsold
condominium units in MPC as well as its outstanding receivables from the 539 units covered by
Contracts to Sell.

"The primary consideration in determining the true nature of a contract is the intention of the
parties. If the words of a contract appear to contravene the evident intention of the parties, the
latter shall prevail. Such intention is determined not only from the express terms of their
agreement, but also from the contemporaneous and subsequent acts of the parties." However,
if the terms of a contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control.

The provisions of the foregoing agreements between PPGI and UCPB are clear, explicit and
unambiguous as to leave no doubt about their objective of executing an assignment of credit
instead of subrogation. The MOA and the Deed of Sale/Assignment clearly state that UCPB
became an assignee of UCPB's outstanding receivables of its condominium buyers. The Court
perceives no proviso or any extraneous factor that incites a contrary interpretation. Even the
simultaneous and subsequent acts of the parties accentuate their intention to treat their
agreements as assignment of credit.

The absence of Liam's consent to the transactions between PPGI and UCPB affirms their nature
as assignment of credit. As already mentioned, the consent of the debtor is not essential in
assignment of credit. What the law requires is merely notice to him.

WHEREFORE, premises considered, the petition is DENIED. The Decision dated September 24,
2010 of the Court of Appeals in CA-G.R. SP No. 112195 is hereby AFFIRMED.
LO V. KJS ECO-FORMWORK SYSTEM PHIL INC Jose, JM
G.R. NO 149420 (2003)

FACTS: Respondent KJS Eco-Formwork System is a corporation engaged in the sale of

steel scaffoldings, while petitioner Sonny Lo, doing business under the name of San’s
Enterprises, is a building contractor.

In February 1990, petitioner ordered scaffolding equipments from the respondent

amounting to P540, 425.80. He paid a down payment of P150,000 and the balance was
to be paid in 10 monthly installments However, Lo was only able to pay the first 2
monthly installments due to financial difficulties despite demands from the respondent

In October 1990, petitioner and respondent executed a deed of assignment whereby

petitioner assigned to respondent his receivables of P335,462.14 from Jomero Realty
Corp. When respondent tried to collect the said credit from Jomero Realty Corp, the
latter refused to honor the deed of assignment because it claimed that the petitioner
was also indebted to it. As such, KJS sent Lo a demand letter but the latter refused to
pay, claiming that his obligation had been extinguished when they executed the deed of
assignment. Subsequently, respondent filed an action for recovery of sum of money
against petitioner.

Petitioner argued that his obligation was extinguished with the execution of the deed of
assignment of credit. Respondent alleged that Jomero Realty Corp refused to honor the
deed of assignment because it claimed that the petitioner had outstanding
indebtedness to it

The trial court dismissed the complaint on the ground that the assignment of credit
extinguished the bligation

Upon appeal, CA reversed the trial court decision and held in favor of KJS. CA held that
a. Petitioner failed to comply with his warranty under the deed
b. The object of the deed did not exist at the time of the transaction, rendering
it void under Art 1409 NCC
c. Petitioner violated the terms of the deed of assignment when he failed to
execute and do all acts necessary to effectually enable the respondent to
recover the collectibles

ISSUE: WON the deed of assignment extinguished the petitioner’s obligation

HELD: No, the petitioner’s obligation was not extinguished with the execution of the
deed of assignment.
An assignment of credit is an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor, transfers his credit and accessory
rights to another, known as the assignee, who acquires the power to enforce it to the
same extent as the assignor could enforce it against the debtor.
Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers
another thing to the creditor who accepts it as equivalent of payment of an outstanding
debt. In order that there be a valid dation in payment, the following are the requisites:
(1) There must be the performance of the prestation in lieu of payment (animo
solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit
against the third person; (2) There must be some difference between the prestation due
and that which is given in substitution (aliud pro alio); (3) There must be an agreement
between the creditor and debtor that the obligation is immediately extinguished by
reason of the performance of a prestation different from that due. The undertaking
really partakes in one sense of the nature of sale, that is, the creditor is really buying
the thing or property of the debtor, payment for which is to be charged against the
debtor’s debt. As such, the vendor in good faith shall be responsible, for the existence
and legality of the credit at the time of the sale but not for the solvency of the debtor,
in specified circumstances.
Hence, it may well be that the assignment of credit, which is in the nature of a sale of
personal property, produced the effects of a dation in payment which may extinguish
the obligation. However, as in any other contract of sale, the vendor or assignor is
bound by certain warranties. More specifically, the first paragraph of Article 1628 of
the Civil Code provides:
The vendor in good faith shall be responsible for the existence and legality of the credit
at the time of the sale, unless it should have been sold as doubtful; but not for the
solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency
was prior to the sale and of common knowledge.
From the above provision, petitioner, as vendor or assignor, is bound to warrant the
existence and legality of the credit at the time of the sale or assignment. When Jomero
claimed that it was no longer indebted to petitioner since the latter also had an unpaid
obligation to it, it essentially meant that its obligation to petitioner has been
extinguished by compensation. In other words, respondent alleged the non-existence of
the credit and asserted its claim to petitioner’s warranty under the assignment.
Therefore, it necessary for the petitioner to make good its warranty and pay the
obligation.
Furthermore, the petitioner breached his obligation under the Deed of Assignment, to
execute and do all such further acts and deeds as shall be reasonably necessary to
effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in
accordance with the true intent and meaning of these presents
Indeed, by warranting the existence of the credit, petitioner should be deemed to have
ensured the performance thereof in case the same is later found to be inexistent. He
should be held liable to pay to respondent the amount of his indebtedness.

SALES (11/27)
> "barter" definition - instead of paying price of money, you give another thing
> how do we perfect barter? - meeting of minds upon the things promised by each
party
> when is ownership transferred in barter? - mutual delivery of the things promised
> barter is a mutual sale where each party is the vendee and vendor - law on sales is
applicable to barter
> what if the giver is not the owner of the thing? - aggrieved party cannot be compelled
to deliver the thing and is entitled to damages
> effect of eviction in barter - art.1640
> does it mean that the other warranties applicable to sale are not applicable to barter?
- art.1641
> what is assignment? what is credit?
what is incorporeal rights (also distinguished with corporeal rights)?
> example of incorporeal right (aside from heriditary right): right of way, licenses,
copyright
> is assignment a sale? - only similar to a sale; not exactly the same
> difference between the Contract of Sale and Assignment of Credits - sale is always
onerous BUT assignment may be onerous or gratuitously
> how is Assignment of Credit different from Subrogation
> Liam vs UCPB
> how is delivery effected? (modes to transfer ownership by constructive delivery)
> quasi-delivery?
> formal requirements for assignment to be valid - art.1625
> must be at least duly notarized (public document) if personal property
> registered in Registry of Property if real property
> can there be an oral assignment? valid but not enforceable against third parties
> statute of frauds applicable to assignment of credits? take note of 1403; "things in
action" what does it mean?
> art.1403(d) - "things in action" - the right to bring a lawsuit to recover money, chattel,
or a debt - assignment is included within Statute of Frauds
> verbal deed of assignment is valid but not enforceable if not reduced in writing
> even if verbally made but if already executed, then already enforceable
> consent of debtor not needed;
-purpose of the notice
> extent of the assignment of credit
> warranty of an assignor –
4 warranties in the contract of sale: hidden defects, eviction, fitness/merchantability,
and title of vendor to the thing; the 5th one is the implied warranty in the
legality/existence of the credit in assignment of credit
> Sonny Lo case - violation of warranty of petitioner in this case
> does an assignor warrant the debtor's solvency? NOT necessarily; depends if there is a
stipulation or insolvent prior to assignment and of common knowledge
> duration of assignor's liability
> warranty in the assignment of hereditary rights - only warrant the fact that vendor is
an heir (6th implied warranty)
> 1631
> 1634 - requisites for the exercise of the right of legal redemption > "in litigation" = if
the defendant filed an answer to the summons of the court; without answer there is no
pending litigation
> remember Legal Redemption