Case Summary (G.R. No. 183612)
Background of the Dispute
FBDC and MS Maxco entered into a Trade Contract wherein MS Maxco was to perform structural and partial architectural works for the Bonifacio Ridge Condominium. The contract empowered FBDC to withhold a 5% retention money and to hire other contractors to rectify any defects or delays caused by MS Maxco, with costs deducted from the contract sums. When MS Maxco defaulted, FBDC performed corrective works amounting to over P11 million, deducted from the said retention money.
MS Maxco was contractually prohibited from assigning or transferring any rights or obligations without FBDC’s written consent. Nonetheless, MS Maxco assigned its receivables, amounting to P1,577,115.90 of its retention money, to Fong via a notarized Deed of Assignment. FBDC acknowledged the retention but refused payment to Fong, citing that the retention money was not due and was already garnished by MS Maxco’s creditors.
Procedural History
Fong filed suit before the RTC against FBDC and MS Maxco for payment of the assigned amount, plus interest and costs. FBDC defended on the ground that it was neither obligated to Fong nor any assignee without its consent, and that the retention money was depleted by corrective works and garnishment ordered by courts favoring other creditors.
The RTC ruled in favor of Fong, holding that the assignment was valid and binding upon FBDC because notice was given and the Deed of Assignment was a public instrument. It further held that FBDC’s payments to MS Maxco’s creditors were made at its own expense since the assigned amount no longer belonged to MS Maxco. The RTC also ruled that Fong was not bound by the non-assignment clause of the Trade Contract.
The Court of Appeals affirmed the RTC decision, finding sufficient funds in the retention money at the time of the assignment and reiterating that FBDC’s consent as debtor was not required under Article 1624 of the Civil Code; mere notice sufficed. The CA denied FBDC’s motion for reconsideration, prompting this petition.
Issues Presented
- Whether the Court of Appeals erred in ruling that FBDC was bound by the Deed of Assignment executed between MS Maxco and Fong.
- Whether FBDC was liable to pay Fong the assigned sum from the retention money.
Legal Analysis on Assignments and Contracts
Under Article 1159 of the Civil Code, contracts are binding upon and must be performed in good faith by the parties. Pursuant to Article 1311, contracts take effect only between the parties, their assigns, and heirs, except when rights and obligations are non-transmissible by their nature, stipulation, or law.
Assignment of credits generally transfers both rights and obligations but does not expand rights beyond those of the assignor. The assignee stands in the assignor’s shoes and is bound by the same conditions. The Civil Code recognizes that even if an assignment is valid between assignor and assignee, it will not affect third parties unless their consent is given or notice is properly made.
The Trade Contract clause explicitly prohibited MS Maxco from assigning its rights or obligations without FBDC’s written consent. As such, Fong, the assignee, is likewise bound by this restriction and cannot enforce the assigned rights against FBDC without the latter’s consent.
Application of the Non-Assignment Clause
The Court found that although the assignment between MS Maxco and Fong was valid as a contract between those parties, its enforceability against FBDC required the latter’s written consent as per the Trade Contract provision. Since FBDC did not consent to the assignment, Fong cannot validly demand payment from FBDC out of the retention money.
Consent of the debtor is crucial where the contract specifically restricts assignment, even if the law generally requires only notice. The absence of consent renders the assignment inapplicable vis-à-vis the debtor (FBDC) and thus disables Fong from enforcing the claim directly against FBDC.
Consequences on Payments and Garnishments
FBDC’s payments to MS Maxco’s creditors pursuant to valid court orders, as well as deductions made for rectifications, were legitimate and cannot be challenged by Fong, who lacks enforceable rights against FBDC under the contract terms.
Even if the assignment was valid as a property right transfer between assignor and assignee, such assignment did not alter the contract’s condition preventing enforcement without consent. Therefore, FBDC’s obligation to pay the assigned amount to Fong did not arise.
Recourse Against MS Maxco
The decision clarified that Fong retains remedies against MS Maxco, t
Case Syllabus (G.R. No. 183612)
Case Background and Parties Involved
- Petitioner Fort Bonifacio Development Corporation (FBDC), a domestic real estate development company, entered into a Trade Contract with MS Maxco Company, Inc. (“MS Maxco”), then known as L&M Maxco, Specialist Engineering Construction.
- The Trade Contract concerned the structural and partial architectural works for the Bonifacio Ridge Condominium project in Taguig City.
- Respondent Valentin L. Fong, acting as the proprietor of VF Industrial Sales, claimed to be the assignee of MS Maxco’s receivables from FBDC by virtue of a notarized Deed of Assignment dated February 28, 2005.
- The dispute arose from the assignment of MS Maxco’s retention money held by FBDC, amounting to P1,577,115.90.
Contractual Provisions and Trade Contract Terms
- The Trade Contract allowed FBDC to withhold five percent (5%) of the contract price as retention money.
- The contract contained clauses granting FBDC the right to hire other contractors to rectify MS Maxco’s negligent, defective, or delayed works at MS Maxco’s expense, deductible from the contract price.
- Clause 19.1 explicitly prohibited MS Maxco from assigning or transferring any rights, obligations, or liabilities under the contract without FBDC’s written consent.
- The contract also specified that subletting any part of the works required prior approval from FBDC and did not relieve MS Maxco from its obligations.
Sequence of Events Leading to the Litigation
- MS Maxco incurred delays and defective works, prompting FBDC to hire other contractors to complete the project, costing P11,567,779.12, which FBDC deducted from MS Maxco’s retention money.
- MS Maxco assigned its receivables, including the retention money amounting to P1,577,115.90, to Fong as payment of an obligation.
- FBDC received notice of this assignment through a letter dated April 18, 2005, from Fong’s counsel.
- Despite repeated demands, FBDC refused to recognize the assignment or pay Fong, asserting that the retention money was not due and had been garnished by other creditors of MS Maxco.
- FBDC contended it was not bound by the Deed of Assignment, as it was not a party to it and due to the contract’s prohibition against assigning rights without its consent.
Proceedings and Decisions of the Lower Courts
- Fong filed a civil case before the Regional Trial Court (RTC) of Mandaluyong for the recovery of the amount assigned.
- The RTC ruled in favor of Fong, holding that under Article 1624 of the Civil Code, an assignment of credit is valid without the debtor’s consent and requires only notice.
- The RTC emphasized that the assignment, being embodied in a notarized public instrument, bound FBDC from the time it received notice.
- The Court ruled that the garnishment of retention money by MS Maxco’s creditors after FBDC’s notice of assignment did not affect Fong’s