Facts:
Lo,
doing business under the name San’s Enterprises, ordered scaffolding equipments
from KJS worth P540,425.80. Lo paid a downpayment of P150,000 and the balance
was to be paid in 10 monthly installments.
KJS
delivered the scaffoldings to Lo, who paid the first two installments. However,
his business encountered financial difficulties and he was unable to settle his
obligation despite oral and written demands.
Lo
and KJS executed a Deed of Assignment, whereby Lo assigned to KJS his
receivables in the amount of P335,462.14 from Jomero Realty Corporation. The
agreement also stipulated: “The ASSIGNOR further agrees and stipulates as
aforesaid that the said ASSIGNOR, his heirs, executors, administrators, or
assigns, shall and will at times hereafter, at the request of said ASSIGNEE,
its successors or assigns, at his cost and expense, 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.”
When KJS tried to
collect the said credit from Jomero, it refused to honor the Deed of Assignment
because it claimed that Lo was also indebted to it. KJS sent a letter to Lo
demanding payment but he refused claiming that his obligation had been
extinguished when they executed the Deed of Assignment.
KJS
filed an action for recovery of a sum of money against Lo with the RTC, which
dismissed the complaint on the ground that the assignment of credit
extinguished the obligation. However, the CA held that the Deed of Assignment
did not extinguish the obligation of Lo.
Issue:
W/N the Deed of Assignment extinguished Lo’s obligation.
Held:
NO, he failed to comply with his warranty. 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. The undertaking
really partakes in one sense of the nature of sale – the creditor is really
buying the thing or property of the debtor, payment for which is to be charged
against the debtor’s debt.
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. Paragraph 1 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.
Lo, as 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 Lo since the
latter also had an unpaid obligation to it, it essentially meant that its obligation
to Lo has been extinguished by compensation. As a result, KJS alleged the
non-existence of the credit and asserted its claim to Lo’s warranty under the
assignment. Lo was therefore required to make good its warranty and pay the
obligation.
Furthermore,
Lo breached his obligation under the Deed of Assignment as he did not “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.” By warranting the existence of the
credit, Lo should have ensured its performance in case it is found to be inexistent.
He should be held liable to pay to KJS the amount of his indebtedness
Judgment Affirmed.
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