Title
Fort Bonifacio Development Corporation vs. Manuel Domingo
Case
G.R. No. 218341
Decision Date
Dec 7, 2022
FBDC not liable to Domingo for P804,068.21 due to invalid assignment without consent and exhausted retention funds; claim must be pursued against MS Maxco.
contract
retention money
garnishment

Case Summary (G.R. No. L-44187)

Factual Background: The Trade Contract and the Retention Money

On June 5, 2000, FBDC entered into a Trade Contract with MS Maxco for the execution of the structural and partial architectural works of the Bonifacio Ridge Condominium Project. Under the agreement, FBDC retained a right to withhold retention money amounting to five percent (5%) of the contract price for a period of one year after project completion. The retention money served as a guarantee for corrective works during the defect-liability period, which was the twelve-month period from issuance of practical completion during which MS Maxco was obliged to repair defects at no cost to FBDC. For this project, the defect-liability period commenced in January 2005 and ended in December 2005.

The Trade Contract also prohibited MS Maxco from assigning or transferring any rights, obligations, or liabilities under the Contract without FBDC’s written consent.

The Defect, Termination, and the Garnishment Environment

Because of defects and delay in MS Maxco’s work, FBDC unilaterally terminated the Trade Contract through a letter dated August 24, 2004 and engaged another contractor to complete the unfinished works. Under the contract framework, FBDC deducted expenses incurred for completing the remaining works from the retention money. Even so, FBDC remained obliged to pay MS Maxco a fraction of the contract price corresponding to the works previously completed.

Several garnishment proceedings then affected the receivables of MS Maxco from FBDC. First, on July 30, 2004, FBDC received a Notice of Garnishment issued by the Construction Industry Arbitration Commission (CIAC) in connection with CIAC Case No. 11-2002, where Asia-Con Builders had sought to hold MS Maxco liable for P5,990,927.77. Later, on June 6, 2005, FBDC received another Notice of Garnishment issued by the National Labor Relations Commission (NLRC) in connection with NLRC-NCR Case No. 00-07-05483-2003, where Nicolas Consigna was seeking payment of P181,635.01. A third garnishment, in relation to a case filed by Concrete Masters, Inc., was served on January 26, 2006 by way of an RTC Makati Order of Delivery of Money in Civil Case No. 05-164 for P558,448.27.

FBDC later made payments pursuant to the garnishment orders. The garnishment proceedings required deductions from the retention money amounting in total to P5,850,916.72. Together with rectification costs for defects totaling P1,567,779.12, the total amount deducted from the retention money reached P17,418,695.84.

Domingo’s Deed of Assignment and FBDC’s Refusal

In April 2005, FBDC received a letter dated April 18, 2005 from counsel for Domingo, informing it that MS Maxco had assigned its receivables from FBDC to Domingo by virtue of a Deed of Assignment dated February 28, 2005. The Deed of Assignment allegedly assigned the amount of P804,068.21 to Domingo as payment of MS Maxco’s obligation, with the amount to be taken from the retention money held by FBDC. FBDC acknowledged the existence of the five percent retention money in its October 11, 2005 letter-reply but asserted that the retention money was not yet due and demandable and was already the subject of garnishment by MS Maxco’s creditors.

Domingo, through counsel, responded on October 14, 2005, maintaining his ownership and arguing that the assigned amount could not be garnished to satisfy other obligations of MS Maxco because it had allegedly ceased to be MS Maxco’s property. Domingo presented an endorsement letter dated January 17, 2005 from MS Maxco approving Domingo’s claim against FBDC in the sum of P804,068.21, to be charged against the retention money.

After the completion of garnishment-related deliveries and the advancement of defect rectification costs, FBDC, in a letter dated January 31, 2006, refused Domingo’s claim. FBDC emphasized that by the time multiple garnishment orders had been complied with and the project’s needs addressed, the retention money had already been exhausted, with retention remaining allegedly reduced to P17,237,060.83.

The Trial Court Case: Domingo’s Complaint and FBDC’s Jurisdictional Motion

Domingo then filed a Complaint for Collection of Sum of Money dated February 7, 2006 against both MS Maxco and FBDC before the RTC of Pasay City, Branch 109, docketed as Civil Case No. 06-0200-CFM. Rather than answer, FBDC filed a Motion to Dismiss grounded on lack of jurisdiction over the subject matter and other arguments. The RTC denied the motion and proceeded with a full trial. The jurisdictional issue had effectively been settled by the Court in Fort Bonifacio Development Corporation v. Domingo, where it was held that the RTC, not the CIAC, had jurisdiction over the case.

RTC Disposition and its Credit-Preference Approach

The RTC ruled in favor of Domingo. Its dispositive portion declared Domingo the successful party against MS Maxco and ordered MS Maxco to pay P804,068.21 with legal interest from the filing of the case plus costs. As to FBDC, the RTC directed it to secure the amount of P804,068.21 in the retention money in the name of MS Maxco for and on behalf of Domingo, treating Domingo as a preferred creditor and setting aside the claimed amount. Notably, the RTC refused to treat FBDC as a principal debtor under the rules on preference of credit, reasoning that Domingo was not FBDC’s creditor. Nevertheless, it ordered FBDC to set aside the money for Domingo.

The CA Affirmance and Modification

FBDC appealed to the CA. It argued that the RTC’s directive contradicted the RTC’s own finding that FBDC had no obligation as debtor to Domingo. It further stressed that retention money had already been fully exhausted due to payments to garnishing creditors and the cost of rectification works.

The CA Decision dated November 20, 2014 affirmed the RTC ruling but modified the manner in which the judgment operated. The CA dismissed the appeal for lack of merit and then modified the RTC’s decision to hold FBDC liable to pay Domingo P804,068.21 with legal interest from the date of finality of the CA decision until fully paid as actual or compensatory damages. The CA deleted the pronouncement as against MS Maxco grounded on the absence of proper establishment of the obligation under Article 1628 of the Civil Code.

FBDC’s motion for reconsideration was denied by the CA on May 21, 2015.

Issue Before the Supreme Court

The Supreme Court addressed whether FBDC was liable to Domingo for P804,068.21, representing a portion of the retention money that was allegedly subject of the Deed of Assignment between MS Maxco and Domingo.

Legal Reasoning: Relativity of Contracts and the Effect of the Trade Contract Stipulation

The Supreme Court granted the petition and reversed the CA and RTC rulings. The Court held that the issue on the validity of the Deed of Assignment between MS Maxco and its creditor, insofar as it related to FBDC, had already been settled in Fort Bonifacio Development Corporation v. Fong (FBDC v. Fong). The Court reiterated that obligations arising from contracts have the force of law between the contracting parties and must be performed in good faith. Stipulations in contracts are binding unless they are contrary to law, morals, good customs, public order, or public policy. Under the principle of relativity of contracts, contractual stipulations bind the parties and their assigns and heirs, except where the rights and obligations are not transmissible by their nature, or by stipulation, or by provision of law.

The Court then explained the rationale of assignment by reference to its discussion in FBDC v. Fong. Although an assignee is a third party to the original contract, the assignee is bound through subrogation that inheres in assignment. The assignee stands in the shoes of the assignor and thus cannot acquire greater rights than those held by the assignor. This logic applies where contractual stipulations limit transferability.

Crucially, FBDC v. Fong ruled that MS Maxco could not assign or transfer rights, obligations, or liabilities under the Trade Contract without the Client’s written consent. Without proof that FBDC consented to the assignment, the assignee could not validly demand delivery of money assigned as part of retention money.

The Supreme Court found that the same Trade Contract and the same receivables from FBDC were involved in the present case. The difference lay only in the identity of the assignee: in FBDC v. Fong, the assignee was Fong, whereas here, the assignee was Domingo. Thus, the Court applied the same principles.

The Clause Against Assignment and its Binding Effect on Domingo

Applying the contract’s governing stipulations, the Supreme Court focused on Clause 19.1, which stated that the Trade Contractor (MS Maxco) shall not, without FBDC’s written consent, assign or transfer any rights, obligations, or liabilities under the Contract. The clause similarly provided that consent to subcontracting, if given, would not relieve the Trade Contractor of liability.

The Court held that the stipulation was valid and binding because it was not shown to be contrary to law, morals, good customs, public order, or public policy. As a result, MS Maxco could not assign or transfer its receivables under the Trade Contract without FBDC’s written consent. Since Domingo acquired his asserted rights through assignment, Domingo was likewise bound b

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