Aquintey vs. Tibong

A deed of assignment of credit executed by a debtor in favor of a creditor may constitute dation in payment that extinguishes the obligation pro tanto, provided that the creditor consents to the assignment and the parties intend that the amounts due from the debtor's own debtors shall "make good" the debtor's account. The assignment of credit transfers to the assignee all the rights and remedies of the assignor, and the assignee cannot thereafter collect from both the assignor and the assignor's debtors without violating the principle against unjust enrichment.

Petitioner Agrifina Aquintey and respondent Felicidad Tibong were classmates at the University of Pangasinan, and Felicidad's husband Rico was a distant relative of Agrifina. The parties were engaged in a money-lending arrangement whereby Agrifina would lend money to Felicidad at monthly interest rates of 6% to 7%, and Felicidad would re-lend the amounts to other borrowers at higher interest rates. The dispute arose from this informal lending relationship, which was documented through promissory notes and acknowledgment receipts, and later through deeds of assignment of credits executed by Felicidad in favor of Agrifina covering the loans of Felicidad's own debtors.

Petitioner Agrifina Aquintey and respondent Felicidad Tibong were classmates at the University of Pangasinan, and Felicidad's husband Rico was a distant relative of Agrifina. Upon Felicidad's prodding, Agrifina agreed to lend money to Felicidad, who was engaged in the sale of dry goods at the GP Shopping Arcade. Agrifina lent a total sum of ₱773,000.00 to Felicidad, with each loan transaction covered by either a promissory note or an acknowledgment receipt. The loans bore monthly interest rates of 5% to 7%, with various due dates from August 1989 through January 1990. Agrifina stated that she had lost the receipts for loans of ₱100,000.00, ₱34,000.00, and ₱2,000.00.

Felicidad was able to pay only ₱122,600.00 of her loans. In July 1990, Felicidad gave Agrifina a City Trust Bank Check No. 126804 dated August 25, 1990 in the amount of ₱50,000.00 as partial payment, but the check was dishonored for having been drawn against insufficient funds. Agrifina filed a criminal case against Felicidad for violation of Batas Pambansa Bilang 22, docketed as Criminal Case No. 11181-R, and after trial, the court ordered Felicidad to pay ₱50,000.00, which she did.

Agrifina later learned that Felicidad had re-loaned the amounts to other borrowers. Agrifina sought the assistance of Atty. Torres G. A-ayo, who advised her to require Felicidad to execute deeds of assignment over Felicidad's debtors and to have the debtors execute promissory notes in Agrifina's favor. From August 7, 1990 to October 1990, Felicidad executed deeds of assignment of credits, duly notarized by Atty. A-ayo, transferring and assigning to Agrifina the total amount of ₱546,459.00 due from her debtors. Several of Felicidad's debtors executed promissory notes obliging themselves to pay directly to Agrifina, totaling ₱284,659.00. Agrifina was able to collect the total amount of ₱301,000.00 from Felicidad's debtors.

Felicidad testified that she and Agrifina had been engaged in the money-lending business together, with Agrifina lending her money and she re-lending it at higher interest rates. Their business relationship turned sour when Agrifina started complaining that Felicidad was earning more than her. Felicidad claimed that the lawyer suggested she indorse the accounts of her debtors to Agrifina so that the latter would collect from the debtors and Felicidad would no longer have any obligation to Agrifina. Agrifina, on rebuttal, denied entering into a re-lending business with Felicidad and claimed she agreed to the deeds of assignment to help Felicidad collect from the debtors.

When Felicidad reneged on her promise to pay, Agrifina filed a complaint in the Office of the Barangay Captain for the collection of ₱773,000.00, but no settlement was reached. Agrifina then filed the civil complaint for sum of money and damages before the RTC of Baguio City.

• Error in Ruling on Effect of Deeds of Assignment: Petitioner argued that the Court of Appeals erred in ruling that the deeds of assignment in her favor had the effect of payment of the original obligation, even as it ruled that the original obligation and the assigned credit are distinct and separate and can stand independently from each other.

• Issues Raised for the First Time on Appeal: Petitioner contended that the appellate court erred in passing upon issues raised for the first time on appeal, specifically the issue of whether Felicidad owed her less than ₱773,000.00, which was not raised by respondents during pre-trial or in their appellate brief.

• Deemed Admission of Loan Amount: Petitioner averred that respondents failed to deny, in their verified answer, that they had secured the ₱773,000.00 loan; hence, respondents are deemed to have admitted the allegation in the complaint.

• Improper Deduction of Assigned Amounts: Petitioner maintained that the CA erred in deducting the total amount of ₱585,659.00 covered by the deeds of assignment and promissory notes, and that of the 11 deeds of assignment and promissory notes, only two bore her signature, so she was not bound by the deeds she did not sign.

• Respondents Not Released from Obligation: Petitioner insisted that by assigning the obligation to pay their loan accounts, Felicidad's debtors merely assumed the latter's obligation and became co-debtors, and respondents were not released from their obligation. Citing Magdalena Estates, Inc. vs. Rodriguez and Guerrero vs. Court of Appeals, petitioner argued that the first debtor is not released from responsibility upon reaching an agreement with the creditor, and the creditor can still enforce the obligation against the original debtor.

• Extinguishment of Obligation: Respondents averred that by virtue of Felicidad's execution of the deeds of assignment and the original debtors' execution of promissory notes with petitioner's consent, their loan accounts with petitioner amounting to ₱585,659.00 had been effectively extinguished, in accordance with Article 1291, paragraph 2, of the Civil Code.

• Subrogation of Petitioner as New Creditor: Respondents countered that petitioner had been subrogated to their right to collect the loan accounts of their debtors, and petitioner, as the new creditor, had been able to collect ₱301,000.00 from the debtors.

• No Separate Obligations: Respondents averred that their obligation to petitioner cannot stand or exist separately from the original debtors' obligation to petitioner as the new creditor, and if allowed to collect from both, petitioner would be enriching herself at the expense of respondents.

• No Further Liability: Respondents insisted that under the deeds of assignment and promissory notes, the original debtors' accounts were assigned to petitioner who would be the new creditor, and respondents are no longer liable to petitioner for the balance of their loan account inclusive of interests.

• Loan Amount: Whether respondent Felicidad Tibong borrowed ₱773,000.00 from petitioner.

• Extinguishment of Obligation: Whether the obligation of respondents to pay the balance of their loans, including interest, was partially extinguished by the execution of the deeds of assignment in favor of petitioner, relative to the loans of Edna Papat-iw, Helen Cabang, Antoinette Manuel, and Fely Cirilo in the total amount of ₱371,000.00.

• Loan Amount: Yes. Respondents are deemed to have admitted the ₱773,000.00 loan because their answer failed to make a specific denial as required by Section 10, Rule 8 of the Rules of Civil Procedure, and allegations not specifically denied are deemed admitted under Section 11, Rule 8.

• Extinguishment of Obligation: Yes. The deeds of assignment of credit executed by respondent Felicidad in favor of petitioner constituted dation in payment that extinguished respondents' obligation pro tanto to the extent of ₱585,659.00, and petitioner could not collect from both respondents and their debtors without violating the principle against unjust enrichment.

• Loan Amount: The Court reviewed the respondents' brief as appellants in the CA and found that they had indeed raised the issue of whether they received ₱773,000.00 by way of loans. However, the Court agreed with petitioner that the appellate court erred in reversing the RTC's finding simply because petitioner failed to present documentary evidence for the lost receipts. Under Section 10, Rule 8 of the Rules of Civil Procedure, a defendant must specify each material allegation of fact the truth of which he does not admit, and Section 11, Rule 8 provides that allegations not specifically denied are deemed admitted. The purpose of requiring a specific denial is to make the defendant disclose the matters alleged in the complaint which he intends to disprove at trial. A general denial does not become specific by the use of the word "specifically." In this case, while respondents specifically denied paragraph 2 of the complaint, they merely averred that petitioner and Felicidad entered into an agreement for lending money at a higher interest rate, and failed to declare the exact amount of the loans. They also failed to deny the allegation that Felicidad admitted in her counter-affidavit in I.S. No. 93-334 that she secured loans in the amount of ₱773,000.00. Thus, respondents had admitted the existence of their ₱773,000.00 loan from petitioner.

• Extinguishment of Obligation: The Court found that the CA correctly ruled that respondents' obligation to pay the balance of their account was extinguished pro tanto by the deeds of assignment of credit. An assignment of credit is an agreement by which the owner of a credit transfers his credit and accessory rights to another, who acquires the power to enforce it to the same extent as the assignor could. It may constitute a dation in payment when a debtor, to obtain release from his debt, assigns to his creditor a credit he has against a third person. The requisites for dation in payment are: (1) performance of the prestation in lieu of payment (animo solvendi); (2) some difference between the prestation due and that given in substitution (aliud pro alio); and (3) an agreement between creditor and debtor that the obligation is immediately extinguished. All requisites were present in this case, as Felicidad assigned her credits "to make good" the balance of her obligation, and petitioner and Felicidad agreed to relieve the latter of her obligation to pay the balance and for petitioner to collect from the debtors. The consent of the assigned debtors was not essential for the perfection of the assignment; knowledge thereof affects only the efficaciousness of payments made. The Court noted that since 1990, when the deeds were executed, petitioner no longer attempted to collect from respondents until 1999, and in the meantime had collected ₱301,000.00 from the debtors. The Court distinguished Magdalena Estates because in that case there was no agreement that the first debtor would be released from responsibility, whereas here the parties agreed that the amounts due from the debtors were intended to "make good in part" the account of respondents. The Court computed the balance as ₱773,000.00 less ₱585,659.00 (assigned credits), less ₱103,500.00 (collections from other debtors), less ₱50,000.00 (payment made by respondents), resulting in a balance of ₱33,841.00.

• Specific Denial under Rule 8 — Under Section 10, Rule 8 of the Rules of Civil Procedure, a defendant must specify each material allegation of fact the truth of which he does not admit, and Section 11 provides that material averments not specifically denied are deemed admitted. A general denial does not become specific by the use of the word "specifically," and an alleged lack of information will not be considered a specific denial where the matters are plainly within the defendant's knowledge. The Court applied this doctrine to hold that respondents' failure to specifically deny the ₱773,000.00 loan amount, despite their general denial, resulted in a deemed admission of the allegation.

• Dation in Payment (Dacion en Pago) — Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. Its requisites are: (1) performance of the prestation in lieu of payment (animo solvendi); (2) some difference between the prestation due and that given in substitution (aliud pro alio); and (3) an agreement between creditor and debtor that the obligation is immediately extinguished. The Court applied this doctrine to hold that the deeds of assignment executed by Felicidad in favor of petitioner constituted dation in payment that extinguished the obligation pro tanto.

• Novation — Novation may be extinctive or modificatory, depending on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate, or the acts of the parties must clearly demonstrate their intent to dissolve the old obligation. The four essential requisites are: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. The Court applied this doctrine in distinguishing the present case from Magdalena Estates, finding that the parties here agreed that the assigned credits would "make good" the respondents' account.

• Assignment of Credit — An assignment of credit is an agreement by which the owner of a credit transfers his credit and accessory rights to another, who acquires the power to enforce it to the same extent as the assignor could. The consent of the assigned debtor is not essential for the perfection of the assignment; knowledge thereof affects only the efficaciousness of payments made. The assignee steps into the shoes of the original creditor as subrogee and acquires all the rights and remedies of the assignor at the time of the assignment.

• Unjust Enrichment — A creditor who has accepted an assignment of credits as payment cannot collect from both the assignor and the assignor's debtors without running afoul of the principle against unjust enrichment. The Court applied this principle to bar petitioner from collecting the ₱301,000.00 she had already collected from the debtors and again from respondents.

• "A denial is not made specific simply because it is so qualified by the defendant. A general denial does not become specific by the use of the word 'specifically.' When matters of whether the defendant alleges having no knowledge or information sufficient to form a belief are plainly and necessarily within the defendant's knowledge, an alleged 'ignorance or lack of information' will not be considered as a specific denial." — This passage articulates the standard for specific denial under Rule 8, which the Court applied to find that respondents had admitted the ₱773,000.00 loan amount.

• "Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one." — This passage, quoted from Iloilo Traders Finance, Inc. vs. Heirs of Sps. Oscar Soriano, Jr., states the canonical formulation of extinctive novation and its requisites.

• "An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor." — This passage defines the doctrine of assignment of credit and explains that the consent of the assigned debtor is not required for the perfection of the assignment.

• "The requisites for dacion en pago are: (1) there must be a performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) there must be some difference between the prestation due and that which is given in substitution (aliud pro alio); and (3) there must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due." — This passage enumerates the requisites for dation in payment, which the Court found to be present in the deeds of assignment executed by Felicidad.

• Iloilo Traders Finance, Inc. vs. Heirs of Sps. Oscar Soriano, Jr., 452 Phil. 82 (2003) — Cited as controlling authority for the doctrine of novation, distinguishing extinctive from modificatory novation and enumerating the four essential requisites of extinctive novation.

• Vda. de Jayme vs. Court of Appeals, 439 Phil. 192 (2002) — Cited as controlling authority for the doctrine of dation in payment, defining it as the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation.

• Magdalena Estates, Inc. vs. Rodriguez, No. L-18411, December 17, 1966, 18 SCRA 967 — Distinguished by the Court; in that case, the creditor could still enforce the obligation against the original debtor because there was no agreement that the first debtor would be released from responsibility, unlike in the present case where the parties agreed the assigned credits would "make good" the account.

• Guerrero vs. Court of Appeals, No. L-22366, October 30, 1969, 29 SCRA 791 — Cited by petitioner but not controlling; the Court did not rely on this case in its ruling.

• Philippine National Bank vs. Court of Appeals, G.R. No. 126153, January 14, 2004, 419 SCRA 281 — Cited for the purpose of Rule 8 requiring specific denial and compelling parties to "lay their cards on the table."

• Lo vs. KJS Eco-Formwork System Phil., Inc., 459 Phil. 532 (2003) — Cited for the definition of assignment of credit and the requisites of dation in payment.

• South City Homes, Inc. vs. BA Finance Corporation, 432 Phil. 84 (2001) — Cited for the proposition that the assignee steps into the shoes of the original creditor as subrogee.

• Manila Banking Corporation vs. Teodoro, Jr., G.R. No. 53955, January 13, 1989, 169 SCRA 95 — Cited for the proposition that an assignment of credit may constitute dation in payment when a debtor assigns to his creditor a credit he has against a third person.

• Section 10, Rule 8, Rules of Civil Procedure — Requires a defendant to specify each material allegation of fact the truth of which he does not admit and to set forth the substance of the matters upon which he relies to support his denial. The Court applied this provision to find that respondents' general denial was insufficient to deny the ₱773,000.00 loan allegation.

• Section 11, Rule 8, Rules of Civil Procedure — Provides that material averments in the complaint, other than those as to the amount of unliquidated damages, are deemed admitted when not specifically denied. The Court applied this provision to deem respondents to have admitted the ₱773,000.00 loan.

• Article 1231(b), Civil Code — Enumerates novation as one of the ways by which obligations are extinguished. The Court cited this provision in discussing whether the deeds of assignment operated to extinguish the obligation.

• Article 1291, Civil Code — Provides that obligations may be modified by changing their object or principal creditor or by substituting the person of the debtor. The Court cited this provision in discussing the nature of novation.

• Section 5, Rule 131, Rules of Court — Places the burden of proof on the debtor to prove the defense that an obligation has been extinguished by novation. The Court cited this rule in discussing the burden of proving novation.

• Justice Austria-Martinez
• Justice Chico-Nazario
• Chief Justice Panganiban (retired as of December 7, 2006)
• Justice Ynares-Santiago (working Chairperson)