Fort Bonifacio Development Corporation vs. Fong

An assignee of a non-negotiable chose in action acquires no greater rights than the assignor and is bound by exactly the same conditions of the original contract, including stipulations prohibiting assignment without the debtor's written consent. The assignment, though valid between assignor and assignee, cannot be enforced against the debtor without compliance with such consent requirement.

FBDC is a domestic corporation engaged in real estate development. On June 5, 2000, it entered into a Trade Contract with MS Maxco Company, Inc. (then operating as "L&M Maxco, Specialist Engineering Construction") for the structural and partial architectural works of the Bonifacio Ridge Condominium project in Taguig City. The Trade Contract reserved to FBDC a five percent (5%) retention money and contained, under Clause 19.0, an express prohibition on assignment or transfer of any rights, obligations, or liabilities without FBDC's written consent. MS Maxco subsequently incurred delays and rendered defective work, prompting FBDC to hire other contractors and deduct rectification costs from the retention money. MS Maxco, in turn, had separate financial obligations to Fong, a businessman operating under the name "VF Industrial Sales."

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 in Taguig City. Under the Trade Contract, FBDC had the right to withhold five percent (5%) of the contract price as retention money and the option to hire other contractors to rectify any errors caused by MS Maxco's negligence, default, or omission, and to deduct or set off the corresponding costs from the contract price. The contract likewise prohibited MS Maxco from assigning or transferring any of its rights, obligations, or liabilities without FBDC's written consent.

MS Maxco subsequently incurred delays and failed to comply with the terms of the Trade Contract. FBDC took over the project, hired other contractors to complete the unfinished construction, and incurred ₱11,567,779.12 in corrective work for the numerous defects and irregularities caused by MS Maxco. Pursuant to the Trade Contract, FBDC deducted this amount from MS Maxco's retention money. Separately, MS Maxco had been impleaded in other cases — including CIAC Case No. 11-2002 and Civil Case No. 05-164 — and its retention money with FBDC was subject to garnishment by its other creditors on July 30, 2005 and January 26, 2006.

Sometime in April 2005, FBDC received a letter dated April 18, 2005 from Fong's counsel informing it that MS Maxco had assigned its receivables to Fong by virtue of a notarized Deed of Assignment dated February 28, 2005. Under the Deed of Assignment, MS Maxco assigned the amount of ₱1,577,115.90 to Fong as payment of MS Maxco's obligation to him, which amount was to be taken from the retention money held by FBDC. FBDC acknowledged the retention money in its reply dated October 11, 2005 but asserted that it was not yet due and demandable and was already subject to garnishment by MS Maxco's other creditors.

Despite Fong's repeated requests, FBDC refused to deliver the assigned amount. In a letter dated January 31, 2006, FBDC informed Fong that after rectification of the defects and the garnishment by MS Maxco's creditors, nothing remained of the retention money from which Fong's claims could be satisfied. Fong thereupon filed a complaint for sum of money against MS Maxco and FBDC before the RTC on February 13, 2006. The RTC found FBDC liable, crediting Fong's position that the assignment was valid and binding upon notice under Article 1624 of the Civil Code, that the garnishment could not prejudice Fong's rights as assignee, and that Fong was not bound by the Trade Contract's anti-assignment clause. The CA affirmed.

• Not Bound by the Deed of Assignment: FBDC asserted that it was not a party to the Deed of Assignment between Fong and MS Maxco and therefore was not bound thereby.
• Retention Money Exhausted: FBDC maintained that because MS Maxco incurred delays and rendered defective works, it was constrained to hire other contractors and deduct the rectification costs from the retention money pursuant to the express stipulations of the Trade Contract, and that the retention money was further depleted by garnishment in favor of MS Maxco's other creditors, leaving no amount due to MS Maxco.
• Assignee Bound by Trade Contract: FBDC argued that Fong, as a mere substitute or assignee of MS Maxco, was bound to observe the terms and conditions of the Trade Contract, including the anti-assignment clause requiring FBDC's written consent.
• Compliance with Court Orders: FBDC stressed that it paid the creditors of MS Maxco in compliance with valid court orders.

• Validity of Assignment Under Article 1624: Fong's position, as sustained by the lower courts, was that the case involved an assignment of credit under Article 1624 of the Civil Code, which did not require the debtor's consent for validity and enforceability, but merely notice to the debtor.
• Binding Effect of Public Instrument: The Deed of Assignment being a public instrument, the assignment was effective against FBDC and third persons, and FBDC did not dispute its genuineness and due execution.
• Garnishment Cannot Prejudice Assignee: The amount assigned having ceased to be MS Maxco's property upon assignment, the subsequent garnishment by MS Maxco's other creditors could not adversely affect Fong's rights.
• Assignee Not Bound by Anti-Assignment Clause: The lower courts ruled in Fong's favor that he did not automatically become a party to the Trade Contract by virtue of being assignee, as its provisions exclusively pertained to the original contracting parties.

• Binding Effect of the Assignment: Whether FBDC was bound by the Deed of Assignment between MS Maxco and Fong.
• Liability to Pay: Whether FBDC was liable to pay Fong the amount of ₱1,577,115.90, representing a portion of MS Maxco's retention money.

• Binding Effect of the Assignment: No. Although the assignment was valid between Fong and MS Maxco, it could not be enforced against FBDC without its written consent, as required by Clause 19.0 of the Trade Contract. Fong, as assignee, was subrogated to the rights and obligations of MS Maxco and was bound by the same conditions, including the anti-assignment stipulation.
• Liability to Pay: No. Without proof of FBDC's consent to the assignment, Fong could not validly demand delivery of the assigned amount. Only MS Maxco, not Fong, could collect on the credit absent such consent. Fong's recourse lies against MS Maxco under Article 1628 of the Civil Code.

• Binding Effect of the Assignment: Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith (Article 1159, Civil Code). By the principle of relativity of contracts embodied in Article 1311, contracts take effect not only between the parties but also their assigns and heirs. The rationale for binding assignees lies in the concept of subrogation inherent in assignment: when a person assigns his credit to another, the assignee is deemed subrogated to both the rights and the obligations of the assignor and is bound by exactly the same conditions. An assignee cannot acquire greater rights than those pertaining to the assignor; the general rule is that an assignee of a non-negotiable chose in action simply stands in the shoes of the assignor. Clause 19.0 of the Trade Contract expressly prohibited MS Maxco from assigning or transferring any of its rights, obligations, or liabilities without FBDC's written consent. Fong, as assignee of MS Maxco's right to recover from the retention money, was equally bound by this provision. Without any proof that FBDC had consented to the assignment, Fong could not validly enforce it against FBDC. The practical efficacy of the assignment, though valid as between Fong and MS Maxco, remained contingent on FBDC's consent.

• Liability to Pay: Because the assignment could not be enforced against FBDC absent its written consent, only MS Maxco — and not Fong — could collect on the credit. The finding did not preclude Fong's recourse against MS Maxco, since an assignment of credit for a consideration covering a demandable sum of money is considered a sale of personal property. Under Article 1628 of the Civil Code, the vendor in good faith is responsible for the existence and legality of the credit at the time of the sale, though not for the solvency of the debtor unless expressly stipulated. The vendor in bad faith is answerable for the payment of all expenses and damages. Thus, Fong's remedy lay against MS Maxco, not against FBDC.

• Relativity of Contracts (Article 1311, Civil Code) — Contracts take effect only between the parties, their assigns, and heirs, except where the rights and obligations are not transmissible by their nature, by stipulation, or by provision of law. The Court applied this principle to hold that the assignee of a contracting party remains bound by the original contract's stipulations, including anti-assignment clauses, because the assignee is subrogated to the assignor's position.

• Subrogation in Assignment — When a person assigns his credit to another, the assignee is deemed subrogated to the rights as well as the obligations of the assignor and is bound by exactly the same conditions. The assignee cannot acquire greater rights than those pertaining to the assignor. The Court relied on this doctrine to bind Fong to the Trade Contract's anti-assignment clause, even though Fong was not an original party to that contract.

• Assignee Stands in the Shoes of the Assignor — The general rule that an assignee of a non-negotiable chose in action acquires no greater right than what was possessed by the assignor and simply stands into the shoes of the latter. This principle prevented Fong from circumventing the consent requirement that bound MS Maxco.

• Assignment of Credit as Sale of Personal Property — An assignment of credit for a consideration and covering a demandable sum of money is considered a sale of personal property (Article 417, Civil Code), bringing into play the vendor's warranty provisions of Article 1628. The Court invoked this to identify Fong's proper recourse against MS Maxco.

• "By virtue of the Deed of Assignment, the assignee is deemed subrogated to the rights and obligations of the assignor and is bound by exactly the same conditions as those which bound the assignor." — This passage articulates the core ratio decidendi: the assignee's subrogation to the assignor's position, including the latter's contractual obligations, which binds the assignee to the anti-assignment clause.

• "The general rule is that an assignee of a non-negotiable chose in action acquires no greater right than what was possessed by his assignor and simply stands into the shoes of the latter." — This is the canonical formulation of the "stands in the shoes" doctrine for assignment of non-negotiable choses in action, frequently cited in subsequent jurisprudence on assignment.

• "Without any proof showing that FBDC had consented to the assignment, Fong cannot validly demand from FBDC the delivery of the sum of [₱]1,577,115.90 that was supposedly assigned to him by MS Maxco as a portion of its retention money with FBDC. The practical efficacy of the assignment, although valid between Fong and MS Maxco, remains contingent on FBDC's consent." — This passage distinguishes between the internal validity of the assignment as between assignor and assignee and its enforceability against the debtor, a distinction central to the Court's disposition.

• BA Finance Corporation vs. CA, 278 Phil. 176 (1991) — Cited for the proposition that when a person assigns his credit to another, the latter is deemed subrogated to the rights as well as the obligations of the former. Followed as controlling authority on subrogation in assignment.

• Mercantile Insurance Co., Inc. vs. Felipe Ysmael, Jr. & Co., Inc., 251 Phil. 66 (1989) — Cited alongside BPI Credit Corporation vs. CA for the rule that the assignee is bound by exactly the same conditions as those which bound the assignor. Followed.

• Gonzales vs. Land Bank of the Philippines, 262 Phil. 568 (1990) — Cited for the principle that an assignee cannot acquire greater rights than those pertaining to the assignor. Followed.

• Koa vs. CA, G.R. No. 84847, March 5, 1993, 219 SCRA 541 — Cited for the general rule that an assignee of a non-negotiable chose in action acquires no greater right than the assignor and simply stands in the shoes of the latter. Followed.

• Lo vs. KJS Eco-Formwork System Phil., Inc., 459 Phil. 532 (2003) — Cited for the proposition that an assignment of credit for a consideration covering a demandable sum is considered a sale of personal property, invoking Article 417 of the Civil Code. Followed to identify Fong's recourse against MS Maxco.

• Mendiola vs. Commerz Trading Int'l., Inc., G.R. No. 200895, July 31, 2013, 703 SCRA 137 — Cited for the principle that stipulations in contracts are binding on the parties unless contrary to law, morals, good customs, public order, or public policy. Followed.

• Article 1159, Civil Code — Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Applied as the foundational principle that contractual stipulations, including the anti-assignment clause, are binding on the parties and their assigns.

• Article 1311, Civil Code — Contracts take effect only between the parties, their assigns, and heirs, except where the rights and obligations are not transmissible by their nature, by stipulation, or by provision of law. Applied to extend the binding force of the Trade Contract's stipulations to Fong as MS Maxco's assignee.

• Article 1624, Civil Code — An assignment of credits and other incorporeal rights shall be perfected in accordance with the provisions of Article 1475. The lower courts applied this provision to hold the assignment valid without the debtor's consent; the Supreme Court did not dispute the assignment's validity as between assignor and assignee but limited its enforceability against the debtor.

• Article 1628, Civil Code — The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, but not for the solvency of the debtor unless expressly stipulated. Applied to identify Fong's recourse against MS Maxco, the assignor-vendor of the credit.

• Article 417, Civil Code — Obligations and actions which have for their object movables or demandable sums are considered personal property. Cited to support the characterization of the assignment as a sale of personal property, bringing Article 1628 into play.

• Clause 19.0 (Assignment and Sub-letting), Trade Contract — The Trade Contractor shall not, without written consent of the Client, assign or transfer any of his rights, obligations, or liabilities under the Contract. This was the decisive contractual provision that barred Fong from enforcing the assignment against FBDC without the latter's written consent.

Chief Justice Maria Lourdes P.A. Sereno (Chairperson), Associate Justice Teresita J. Leonardo-De Castro, Associate Justice Lucas P. Bersamin, and Associate Justice Jose Portugal Perez concurred. No separate concurring opinions were written.