G.R. No.

209370

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,

DECISION

PERLAS-BERNABE, J.:

The Facts

On June 5, 2000, FBDC, a domestic corporation engaged in the real estate development
business, entered into a Trade Contract with MS Maxco Company, Inc. (MS Maxco),
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then operating under the name "L&M Maxco, Specialist Engineering Construction," for the
execution of the structural and partial architectural works of one of its condominium
projects in Taguig City, the Bonifacio Ridge Condominium (Project). Records show that
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FBDC had the right to withhold five percent (5%) of the contract price as retention money. 8

Under the Trade Contract, FBDC had the option to hire other contractors to rectify any
errors committed by MS Maxco by reason of its negligence, act, omission, or default, as
well as to deduct or set-off any amount from the contract price in such cases. Hence, 9

when MS Maxco incurred delays and failed to comply with the terms of the Trade Contract,
FBDC took over and hired other contractors to complete the unfinished
construction. Unfortunately, corrective work had to likewise be done on the numerous
10

defects and irregularities caused by MS Maxco, which cost 11,567,779.12. Pursuant to

the Trade Contract, FBDC deducted the said amount from MS Maxco’s retention money. 12

The Trade Contract likewise provided that MS Maxco is prohibited from assigning or
transferring any of its rights, obligations, or liabilities under the said Contract without the
written consent of FBDC. 13

Sometime in April 2005, FBDC received a letter dated April 18, 2005 (April 18, 2005
14

letter) from the counsel of Fong informing it that MS Maxco had already assigned its
receivables from FBDC to him (Fong) by virtue of a notarized Deed of Assignment dated 15

February 28, 2005. Under the Deed of Assignment, MS Maxco assigned the amount of
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1,577,115.90 to Fong as payment of the former’s obligation to the latter, which amount
was to be taken from the retention money with FBDC. In its letter-reply dated October
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11, 2005, FBDC acknowledged the five percent (5%) retention money of MS Maxco, but
asserted that the same was not yet due and demandable and that it was already the
subject of garnishment by MS Maxco’s other creditors.
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Despite Fong’s repeated requests, FBDC refused to deliver to Fong the amount
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assigned by MS Maxco. Finally, in a letter dated January 31, 2006, FBDC informed Fong
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that after the rectification of the defects in the Project, as well as the garnishment made by
MS Maxco’s creditors, nothing was left of its retention money with FBDC from which
Fong’s claims may be satisfied. This prompted Fong, doing business under the name "VF
Industrial Sales" to file the instant civil case, before the RTC, against MS Maxco or FBDC
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for the payment of the sum of 1,577,115.90, with legal interest due, costs of suit, and
litigation expenses.23
In its defense, FBDC reiterated its position that, since MS Maxco incurred delays and
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rendered defective works on the Project, FBDC was constrained to hire other contractors
to repair the defects and complete the work therein, the cost of which it deducted from MS
Maxco’s retention money, pursuant to the express stipulations in the Trade
Contract. Likewise, the said retention money was due only in January 2006, and was
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already garnished in favor of MS Maxco’s other creditors. As a result of the deductions

and the garnishment, no amount due to MS Maxco was left from the retention money; and,
FBDC was, therefore, under no obligation to satisfy Fong’s claim. FBDC likewise
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asserted, inter alia, that it was not bound by the Deed of Assignment between Fong and
MS Maxco, not being a party thereto. However, Fong, being a mere substitute or
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assignee of MS Maxco, was bound to observe the terms and conditions of the Trade
Contract. FBDC also stressed that it paid the creditors of MS Maxco in compliance with
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valid court orders. 30

The Issues Before the Court

The issues for the Court’s resolution are whether or not the CA erred in ruling that FBDC
was bound by the Deed of Assignment between MS Maxco and Fong, and even assuming
that it was, whether or not FBDC was liable to pay Fong the amount of 1,577,115.90,
representing a portion of MS Maxco’s retention money.

The Court’s 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. As such, the stipulations in contracts are
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binding on them unless the contract is contrary to law, morals, good customs, public order
or public policy. 51

The same principle on obligatory force applies by extension to the contracting party’s
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. 1âwphi1

x x x x (Emphasis supplied)

The reason that a contracting party’s assignees, although seemingly a third party to the
transaction, remain bound by the original party’s 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. By virtue of
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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. Accordingly, an assignee cannot acquire greater rights than those pertaining to
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the assignor. The general rule is that an assignee of a non- negotiable chose in action
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acquires no greater right than what was possessed by his assignor and simply stands into
the shoes of the latter.
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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:

19.0ASSIGNMENT AND SUB-LETTING

19.1The 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. (Emphases supplied)
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Fong, as mere assignee of MS Maxco’s 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 FBDC’s consent.

Without any proof showing that FBDC had consented to the assignment, Fong cannot
validly demand from FBDC the delivery of the sum of 1,577,115.90 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 FBDC's 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. To this, Article 1628 of the Civil Code provides:
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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 for and the expenses
specified in No. 1 of Article 1616.
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The vendor in bad faith shall always be answerable for the payment of all expenses,for
and 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 hereby

REVERSED and SET ASIDE, and a new one is entered DISMISSING the instant
complaint against petitioner Fort Bonifacio Development Corporation.

SO ORDERED.
ESTELA M. PERLAS-BERNABE
Associate Justice