G.R. No. 149420 – SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL., INC., respondent.
YNARES-SANTIAGO, J.
Rule Synopsis
In assignments of credit, the assignor warrants the existence and legality of the credit. That the subject credit or the related obligation thereon had already been extinguished is a violation of said warranty.
Facts
Sonny L. Lo, for San’s Enterprises (buyer) bought scaffolding equipment from KJS ECO FORMWORK System Phil., Inc. (seller) worth P540k. The buyer failed to pay in full. Thus, the parties executed a Deed of Assignment with the buyer assigning P335k of its receivables to seller. When the seller tried to collect on the receivable from one Jomero Realty Corporation, (Jomero) the latter refused on the ground that the buyer was also indebted to it. The seller then demanded payment from the buyer but the latter refused.
Thus, the seller filed an action for collection of money.
As defense, the buyer said that his obligation had already been extinguished when they executed the Deed of Assignment.
The RTC dismissed the complaint sustaining the buyer’s position. The CA reversed. In reversing, the CA found that: a) the buyer failed to comply with his warranty under the deed; b) the object of the Deed did not exist at the time of its execution (void under Art. 1409); and c) the buyer violated the terms of the Deed for its failure to execute and do all acts and deeds as shall be necessary to effectually enable the seller to recover the collectibles. The SC affirmed.
Issue
Did the Deed of Assignment executed by the parties extinguish the buyer’s obligation to the seller?
Ruling and Discussion
No. The Deed of Assignment executed by the parties did not extinguish the buyer’s obligation to the seller.
While the assignment of credit, which is in the nature of a sale of personal property, produced the effects of a dation in payment which may extinguish the obligation, as in this case; the vendor or assignor is bound by certain warranties. Specifically, under Art. 1628, the vendor or assignor warrants the existence and legality of the credit at the time of the sale or assignment.
In this case, Jomero’s claim that it is no longer indebted to the buyer since the latter also had an unpaid obligation to it, it essentially meant that its obligation to the buyer has been extinguished by compensation. In other words, the seller alleged the non-existence of the credit and asserted its claim to the buyer’s warranty under the assignment. The buyer must make good said warranty. Also, by warranting the existence of the credit, the buyer should be deemed to have ensured the performance thereof in case the same is later found to be inexistent.
Dispositive
Decision affirmed with modification.