Title
Fort Bonifacio Development Corp. vs. Fong
Case
G.R. No. 209370
Decision Date
Mar 25, 2015
FBDC withheld retention money from MS Maxco for defective work. Fong, an assignee of MS Maxco’s receivables, sued FBDC, but the Supreme Court ruled FBDC not liable due to lack of consent for assignment and exhaustion of funds.
real estate development company
written consent
retention money

Case Summary (G.R. No. 209370)

Factual Background

On June 5, 2000, FBDC entered into a Trade Contract with MS Maxco for structural and partial architectural works on the Bonifacio Ridge Condominium project in Taguig City. The Trade Contract allowed FBDC to retain five percent of the contract price as retention money and expressly empowered FBDC to employ other contractors and deduct costs from the contract sum for rectification of defects, negligence, omissions, or defaults by MS Maxco. MS Maxco failed to perform timely and rendered defective work, prompting FBDC to hire others and incur rectification costs totaling PHP 11,567,779.12, which FBDC deducted from MS Maxco’s retention money.

Assignment and Notice

MS Maxco executed a notarized Deed of Assignment dated February 28, 2005, by which it purported to assign to Fong the sum of PHP 1,577,115.90, representing a portion of its retention money with FBDC. Fong informed FBDC of the assignment by a counsel’s letter dated April 18, 2005. FBDC replied on October 11, 2005, acknowledging the retention but asserting that it was not yet due and was subject to garnishment by other creditors of MS Maxco; subsequent correspondence and a January 31, 2006 letter from FBDC informed Fong that after rectification costs and garnishments nothing remained of the retention money to satisfy Fong’s claim.

Procedural History and Claim

On February 13, 2006, Fong, doing business as VF Industrial Sales, filed a complaint against MS Maxco or FBDC for the sum of PHP 1,577,115.90, with legal interest, costs, and litigation expenses. FBDC answered, asserting that the retention money was not yet due, had been applied to rectification costs pursuant to the Trade Contract, and had been garnished in favor of MS Maxco’s other creditors, such that no funds remained to satisfy Fong’s claim; FBDC also denied being bound by the Deed of Assignment, not being a party thereto.

Trial Court Ruling

The Regional Trial Court rendered judgment in favor of Fong in a Decision dated January 28, 2009, ordering FBDC to pay PHP 1,577,115.90 with legal interest from the filing of the complaint. The RTC characterized the transaction as an assignment of credit under Art. 1624 of the Civil Code and held that the debtor’s consent was not required for validity; notice sufficed, and the assignment took effect upon FBDC’s knowledge. The RTC further found the Deed of Assignment to be a public instrument and observed that FBDC did not dispute its genuineness. The RTC concluded that garnishments and payments to MS Maxco’s creditors, effected after FBDC’s receipt of notice, could not prejudice Fong, and that upon notice FBDC effectively paid those creditors out of its own funds. The RTC also held that Fong, as assignee, was not bound to the Trade Contract clause requiring written consent for assignment and that FBDC retained recourse against MS Maxco.

Court of Appeals Ruling

The Court of Appeals affirmed the RTC in a Decision dated May 17, 2013. The CA agreed that the assignment produced legal effects upon FBDC’s receipt of the April 18, 2005 notice and that FBDC’s consent as debtor was not required under the law. The CA noted that the Deed of Assignment was a public instrument and therefore binding upon third persons. On the evidence, the CA found that as of December 6, 2005 sufficient retention remained to satisfy Fong even after deducting rectification costs, and that payments to MS Maxco’s judgment creditors could not prejudice Fong given the valid assignment. The CA denied FBDC’s motion for reconsideration in a Resolution dated September 2, 2013.

Issues Presented to the Supreme Court

The Supreme Court identified the controlling questions as whether the CA erred in holding FBDC bound by the Deed of Assignment between MS Maxco and Fong, and, assuming FBDC was bound, whether FBDC was liable to pay PHP 1,577,115.90, a portion of MS Maxco’s retention money.

Supreme Court’s Legal Analysis — Obligatory Force of Contracts

The Court began from the settled principle that obligations arising from contracts have the force of law between contracting parties and must be complied with in good faith, citing Art. 1159. The principle extends by operation of the relativity of contracts to assigns and heirs under Art. 1311, subject to exceptions where rights or obligations are not transmissible by their nature, stipulation, or provision of law.

Relativity of Contracts and Subrogation in Assignment

The Court analyzed assignment and subrogation doctrine. It observed that when a person assigns a credit, the assignee is deemed subrogated to the rights and obligations of the assignor and is bound by the same conditions. The assignee cannot acquire greater rights than the assignor. The general rule is that an assignee of a non-negotiable chose in action acquires no greater right than the assignor and simply stands in the assignor’s shoes.

Effect of Clause 19.0 on the Assignment

The Court examined Clause 19.0 of the Trade Contract, which provides that the Trade Contractor shall not, without the written consent of the Client, assign or transfer any of his rights, obligations, or liabilities under the Contract. The Court held that because MS Maxco could not validly assign rights under the Trade Contract without FBDC’s written consent, Fong, as assignee and party substituted into MS Maxco’s position, was equally bound by that provision and could not enforce the assigned credit against FBDC in the absence of proof that FBDC had consented to the assignment. The Court concluded that the practical efficacy of the assignment as against FBDC remained contingent upon the happening of that contractual condition; without such consent only MS Maxco, not Fong, could collect the credit from FBDC.

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