G.R. No. 209370, March 25, 2015 Fort Bonifacio Development Corporation, Petitioner, V. Valentin L. FONG, Respondent

G.R. No.
209370, March 25, 2015

FORT
BONIFACIO
FONG, Respondent.
DEVELOPMENT
CORPORATION, Petitioner, v. VALENTIN
L.
Facts:
Fort Bonifacio Development Corporation (FBDC) and MS Maxco Company Inc.,
entered into a Trade Contract for the execution of the structural and partial architectural
works on one of its projects in Taguig City; under the contract the FBDC had the option to
hire other contractors to rectify errors committed by MS Maxco by reason of its negligence,
omission, act, or default. It was also prohibited from assigning or transferring any of its
rights, obligations or liabilities without the express consent of FBDC. For failure of MS Maxco
comply with the Trade Contract, FBDC had to hire other contractors and perform corrective
works which eventually cost FBDC P11,567,779.12. In April, 2005, FBDC received a letter
dated April 18, 2005 from the counsel of one Valentin Fong, informing it that MS Maxco had
already assigned its receivables from FBDC to him (Valentin), thru a Deed of Assignment,
particularly the amount of P1,577,115.90, to be taken from the retention money with the
FBDC. Replying, FBDC acknowledged the 5% retention money of MS Maxco but asserted
that the same was not yet due and demandable and the subject of garnishment by MS
Maxcos creditors. Despite repeated requests, FBDC refused to release the retention
money. In a letter dated January 31, 2006, FBDC informed Fong that nothing was left of MS
Maxcos retention money after the rectification of the defects in the projects.
Valentin then filed a complaint against FBDC to collect the P1, 577, 115.90 before the
RTC. In its defense, FBDC alleged that MS Maxco incurred delays in the performance of its
obligations under the Trade Agreement, constraining FBDC to hire other contractors to
rectify its works, which cost was deducted from the retention money; the retention money
was already depleted, hence FBDC was not liable to pay it to Fong; FBDC was not bound
under the Deed of Assignment between Fong and MS Maxco, not being a party thereto. Fong
being a mere assignee, was bound to observe the terms of the Trade contract of MS Maxco
with FBDC.
After trial, the RTC ruled in favour of Fong. It held that the case was one of
assignment of credit under Article 1624 of the Civil Code, hence, did not require FBDCs
consent as debtor for its validity and enforceability. What the law requires is not the consent
of the debtor, but merely notice to him, as the assignment takes effect only from the time of
his knowledge thereof. Also, Fong could not be adversely affected by the garnishment of
Maxcos retention money, as he had become the owner of the receivables to the extent of
the amount indicated in the Deed of Assignment. When Maxco assigned the amount to
Fong, he effectively became the owner of the said amount, especially since the garnishment
of the retention money came after FBDC was informed of the Deed of Assignment. Also,
Fong is not bound by the stipulation prohibiting Maxco from assigning its obligations and
credits under the Trade Contract since he did not become automatically a party to it by the
mere expedient of entering into a Deed of Assigment with Maxco.
The Court of Appeals affirmed the RTC decision, hence FBDC elevated its case to the
Supreme Court.
Issue:
Whether or not FBDC was bound by the Deed of Assignment between Fong and MS Maxco;
Whether or not it was liable to pay the amount under the Deed of Assignment.
Ruling:
The petition is meritorious.
Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. 1 As such, the stipulations in contracts are
binding on them unless the contract is contrary to law, morals, good customs, public order
or public policy.2
The same principle on obligatory force applies by extension to the contracting partys
assignees, in turn, by virtue of the principle of relativity of contracts which is fleshed out in
Article 1311 of the Civil Code, viz.:
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in
case where the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent.
x x x x (Emphasis supplied)
The reason that a contracting partys assignees, although seemingly a third party to
the transaction, remain bound by the original partys transaction under the relativity
principle further lies in the concept of subrogation, which inheres in assignment.
Case law states that when a person assigns his credit to another person, the latter is
deemed subrogated to the rights as well as to the obligations of the former. 3 By virtue of the
Deed of Assignment, the assignee is deemed subrogated to the rights and obligations of the
assignor and is bound by exactly the same conditions as those which bound the
assignor.4 Accordingly, an assignee cannot acquire greater rights than those pertaining to
the assignor.5 The general rule is that an assignee of a non-negotiable chose in action
acquires no greater right than what was possessed by his assignor and simply stands into
the shoes of the latter.6
Applying the foregoing, the Court finds that MS Maxco, as the Trade Contractor,
cannot assign or transfer any of its rights, obligations, or liabilities under the Trade Contract
without the written consent of FBDC, the Client, in view of Clause 19.0 on Assignment and
Sub-letting of the Trade Contract between FBDC and MS Maxco which explicitly provides
that:
19.0 ASSIGNMENT AND SUB-LETTING
19.1 The Trade Contractor [Ms Maxco] shall not, without written consent of the Client
[FBDC],assign or transfer any of his rights, obligations or liabilities under this Contract. The
Trade Contractor shall not, without the written consent of the Client, sub-let any portion of
the Works and such consent, if given, shall not relieve the Trade Contractor from any liability
or obligation under this Contract.7 (Emphases supplied)
Fong, as mere assignee of MS Maxcos rights under the Trade Contract it had
previously entered with FBDC, i.e., the right to recover any credit owing to any unutilized
retention money, is equally bound by the foregoing provision and hence, cannot validly
enforce the same without FBDCs consent.
Without any proof showing that FBDC had consented to the assignment, Fong cannot
validly demand from FBDC the delivery of the sum of P1,577,115.90 that was supposedly
assigned to him by MS Maxco as a portion of its retention money with FBDC. The practical
efficacy of the assignment, although valid between Fong and MS Maxco, remains contingent
on FBDCs consent. Without the happening of said condition, only MS Maxco, and not Fong,
can collect on the credit. Note, however, that this finding does not preclude any recourse
that Fong may take against MS Maxco. After all, an assignment of credit for a consideration
and covering a demandable sum of money is considered as a sale of personal property. 8 To
this, Article 1628 of the Civil Code provides:
Art. 1628. 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.
Even in these cases he shall only be liable for the price received and for the expenses
specified in No. 1 of Article 1616.9
The vendor in bad faith shall always be answerable for the payment of all expenses,
and for damages.
WHEREFORE, the petition is GRANTED. The assailed Decision dated May 17, 2013 and the
Resolution dated September 2, 2013 rendered by the Court of Appeals in CA-G.R. CV. No.
93407 are herebyREVERSED and SET ASIDE, and a new one is entered DISMISSING the
instant complaint against petitioner Fort Bonifacio Development Corporation. SO ORDERED.

G.R. No. 209370, March 25, 2015 Fort Bonifacio Development Corporation, Petitioner, V. Valentin L. FONG, Respondent

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G.R. No. 209370, March 25, 2015 Fort Bonifacio Development Corporation, Petitioner, V. Valentin L. FONG, Respondent

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209370, March 25, 2015

CORPORATION, Petitioner, v. VALENTIN

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