LICAROS V.

GATMAITAN 362 SCRA 548 (2001)

FACTS: The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for brevity), is a
private bank registered and organized to do business under the laws of the Republic of
Vanuatu but not in the Philippines. Its business consists primarily in receiving fund
placements by way of deposits from institutions and individual investors from different
parts of the world and thereafter investing such deposits in money market placements
and potentially profitable capital ventures in Hongkong, Europe and the United States
for the purpose of maximizing the returns on those investments.
1. Enticed by the lucrative prospects of doing business with Anglo-Asean, petitioner
Abelardo Licaros, decided to make a fund placement with said bank sometime in
the 1980’s. after having invested in Anglo-Asean, encountered tremendous and
unexplained difficulties in retrieving, not only the interest or profits, but even the
very investments he had put in Anglo-Asean
2. Licaros then decided to seek the counsel of Antonio P. Gatmaitan, a reputable
banker and investment manager who had been extending managerial, financial
and investment consultancy services to various firms and corporations both here
and abroad. Gatmaitan voluntarily offered to assume the payment of Anglo-
Asean’s indebtedness to Licaros subject to certain terms and conditions. In
order to effectuate and formalize the parties’ respective commitments, the two
executed a notarized Memorandum of Agreement, under which Gatmaitan
agreed to pay Licaros $150,000 and in turn, Licaros assigned all his rights and
interest over his investments with Anglo-Asian Bank. Gatmaitan subsequently
executed a non-negotiable promissory note amounting to $150,000 in favor of
Licaros.
3. Thereafter Gatmaitan presented to the bank their MOA for the purpose of
collecting the profits of Licaros’ investments. However the bank did not act on
Gatmaitan’s monetary claims
4. As such, respondent did not make good his promise to pay Licaros the amount in
his promissory note
5. Licaros, however, believed that he had a right to collect on the basis of the
promissory note regardless of the outcome of Gatmaitan’s recovery efforts. But
despite demands from Licaros, Gatmaitan refused to make good on the
promissory note.
6. Licaros then filed a complaint to compel Gatmaitan to pay the amount indicated
in the promissory note plus damages
7. The trial court held in favor of Licaros and found Gatmaitan liable under the
MOA. CA reversed the decision and held that Gatmaitan did not any point
become obligated to petitioner

ISSUE: WON the MOA between petitioner and respondent is one of assignment of
credit

HELD: No, the MOA executed was in the nature of a conventional subrugation which
requires the consent of the debtor, Anglo-Asian Bank for its validity.

An assignment of credit has been defined as the process of transferring the right of the
assignor to the assignee who would then have the right to proceed against the debtor.
The assignment may be done gratuitously or onerously, in which case, the assignment
has an effect similar to that of a sale. On the other hand, subrogation has been defined
as the transfer of all the rights of the creditor to a third person, who substitutes him in all
his rights. It may either be legal or conventional. Legal subrogation is that which takes
place without agreement but by operation of law because of certain acts. Conventional
subrogation is that which takes place by agreement of parties.

The crucial distinction deals with the necessity of the consent of the debtor in the
original transaction. In an assignment of credit, the consent of the debtor is not
necessary in order that the assignment may fully produce legal effects. What the law
requires in an assignment of credit is not the consent of the debtor but merely notice to
him as the assignment takes effect only from the time he has knowledge thereof. A
creditor may, therefore, validly assign his credit and its accessories without the debtor’s
consent. On the other hand, conventional subrogation requires an agreement among
the three parties concerned – the original creditor, the debtor, and the new creditor. It is
a new contractual relation based on the mutual agreement among all the necessary
parties. Thus, Article 1301 of the Civil Code explicitly states that “(C)onventional
subrogation of a third person requires the consent of the original parties and of the third
person.”

Had the intention been merely to confer on appellant the status of a mere “assignee” of
appellee’s credit, there is simply no sense for them to have stipulated in their agreement
that the same is conditioned on the “express conformity” thereto of Anglo-Asean Bank.
That they did so only accentuates their intention to treat the agreement as one of
conventional subrogation. And it is basic in the interpretation of contracts that the
intention of the parties must be the one pursued

WON THERE WAS A PERFECTED AGREEMENT
The absence of such conformity on the part of Anglo-Asean, which is thereby made a
party to the same Memorandum of Agreement, prevented the agreement from
becoming effective, much less from being a source of any cause of action for the
signatories thereto.













PNB V. CA 272 SCRA 291 (1997)

FACTS: IEI entered into a coal operating contract with the Bureau of Energy covering
the Gipolos Coal Project. Under a MOA, IEI assigned its rights and interests over the
contract to MMIC.
1. MMIC, undertook to pay IEI some amount of money, in consideration of this
assignment.
2. Meanwhile, MMIC, took loans from PNB and DBP and to secure these loans,
MMIC executed a mortgage over some of its assets, including those in the
Gipolos Coal Project.
3. MMIC defaulted on its loan payment, and PNB commenced foreclosure
proceedings over the chattels in the Gipolos Coal Project. MMIC also failed to
pay IEI, and so IEI moved to rescind the MOA it entered with MMIC.
4. IEI informed PNB that it should not foreclose the chattels in the Gipolos Coal
Project because MMIC failed to pay their consideration and the contract that
assigned them to MMIC was being rescinded. PNB nevertheless proceeded in
foreclosing the chattels. IEI amended its complaint for rescission against MMIC
to include PNB.

ISSUE: Are the chattels in the Gipolos covered by the MOA so as to put them under the
ownership of MMIC and therefore, can be foreclosed by PNB?

HELD: Yes, it can be gleaned from the contract that the chattels were part of the
assignment of rights and interest made by IEI in favor of MMIC. MMIC therefore,
acquired ownership over the properties.

An assignment is a transfer or making over to another of the whole of any property, real,
or personal, in possession, or in action, or any estate or right therein. It includes
transfers of all kinds of property.

In this case, what was transferred was not merely the rights of MMIC over the
project, but also the “interests” therein. “Interest” encompasses the things that
may be found therein, which included the subject movables in this case.

Morevoer, while the MOA was expressed to be an assignment, it is actually a contract
of sale. In an assignment, consideration is not always a requirement unlike in a contract
of sale. This is a sale because IEI undertook to deliver the things under the MOA and
transfer their ownership to MMIC, in consideration of the price to be paid by MMIC.

Therefore, when the Gipolog project was transferred to MMIC, MMIC acquired
ownership over the properties therein, despite its non-payment of price.

PNB could foreclose them. However, the foreclosure proceedings of PNB was deemed
invalid by the SC and therefore, in light of the rescission of the MOA, the chattels were
ordered returned to IEI, or for PNB to pay their value.


LO V. KJS ECO-FRAMEWORK SYSTEM PHIL INC G.R. NO 149420 (2003)

FACTS: Respondent KJS Eco-Framework System is a corporation engaged in the sale
of steel scaffoldings, while petitioner Sonny Lo, doing business under the name of San’s
Enterprises, is a building contractor.
1. In February 1990, petitioner ordered scaffolding equipments from the respondent
amounting to P540, 425.80. He paid a down payment of P150,000 and the
balance was to be paid in 10 monthly installments
2. However, Lo was only able to pay the first 2 monthly installments due to financial
difficulties despite demands from the respondent
3. In October 1990, petitioner and respondent executed a deed of assignment
whereby petitioner assigned to respondent his receivables of P335,462.14 from
Jomero Realty Corp
4. But when respondent tried to collect the said credit from Jomero Realty Corp, the
latter refused to honor the deed of assignment because it claimed that the
petitioner was also indebted to it. As such, KJS sent Lo a demand letter but the
latter refused to pay, claiming that his obligation had been extinguished when
they executed the deed of assignment
5. Subsequently, respondent filed an action for recovery of sum of money against
petitioner.
6. Petitioner argued that his obligation was extinguished with the execution of the
deed of assignment of credit. Respondent alleged that Jomero Realty Corp
refused to honor the deed of assignment because it claimed that the petitioner
had outstanding indebtedness to it
7. The trial court dismissed the complaint on the ground that the assignment of
credit extinguished the bligation
8. Upon appeal, CA reversed the trial court decision and held in favor of KJS. CA
held that
a. Petitioner failed to comply with his warranty under the deed
b. The object of the deed did not exist at the time of the transaction, rendering it
void under Art 1409 NCC
c. Petitioner violated the terms of the deed of assignment when he failed to
execute and do all acts necessary to effectually enable the respondent to
recover the collectibles

ISSUE: WON the deed of assignment extinguished the petitioner’s obligation

HELD: No, the petitioner’s obligation was not extinguished with the execution of the
deed of assignment.
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, dacion en pago, 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.
Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers
another thing to the creditor who accepts it as equivalent of payment of an outstanding
debt. In order that there be a valid dation in payment, the following are the requisites:
(1) There must be the 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); (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. The undertaking really
partakes in one sense of the nature of sale, that is, the creditor is really buying the thing
or property of the debtor, payment for which is to be charged against the debtor’s debt.
As such, 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, in specified
circumstances.
Hence, it may well be that 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. However, as in any other contract of sale, the vendor or
assignor is bound by certain warranties. More specifically, the first paragraph of
Article 1628 of the Civil Code provides:
The vendor in good faith shall be responsible for the existence and legality of the credit
at the time of the sale, unless it should have been sold as doubtful; but not for the
solvency of the debtor, unless it has been so expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge.
From the above provision, petitioner, as vendor or assignor, is bound to warrant the
existence and legality of the credit at the time of the sale or assignment. When Jomero
claimed that it was no longer indebted to petitioner since the latter also had an unpaid
obligation to it, it essentially meant that its obligation to petitioner has been extinguished
by compensation. In other words, respondent alleged the non-existence of the credit
and asserted its claim to petitioner’s warranty under the assignment. Therefore, it
necessary for the petitioner to make good its warranty and pay the obligation.
Furthermore, the petitioner breached his obligation under the Deed of Assignment, to
execute and do all such further acts and deeds as shall be reasonably necessary to
effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR
has in accordance with the true intent and meaning of these presents
Indeed, by warranting the existence of the credit, petitioner should be deemed to have
ensured the performance thereof in case the same is later found to be inexistent. He
should be held liable to pay to respondent the amount of his indebtedness.

NYCO SALES CORPORATION, petitioner, vs. BA FINANCE CORPORATION,
JUDGE ROSALIO A. DE LEON—REGIONAL TRIAL COURT, BR. II, INTERMEDIATE
APPELLATE COURT, FIRST CIVIL CASES DIVISION, respondents.

FACTS: Nyco Sales Corporation, whose Pres. and GM is Rufino Yao, is engaged in the
business of selling construction materials.
1. The Fernandez brothers, requested Nyco, thru Yao, to grant Sanshell
discounting privileges which Nyco had with BA Finance Corporation.
2. Yao agreed to the proposal.
3. The Fernandez brothers went to Yao for the purpose of discounting Sanshell's
post-dated check (a BPI-Davao Branch Check) for the amount of P60,000.00.
The said check was payable to Nyco.
4. Nyco, thru Yao, endorsed the check in favor of BA Finance. Thereafter, BA
Finance issued a check payable to Nyco which endorsed it in favor of Sanshell.
Sanshell then made use of and/or negotiated the check.
5. Nyco executed a Deed of Assignment in favor of BA Finance with the conformity
of Sanshell. At the back thereof was the Continuing Suretyship Agreement
whereby the Fernandezes unconditionally guaranteed to BA Finance the full,
faithful and prompt payment and discharge of any and all indebtedness of Nyco.
6. The BPI check was dishonored by the drawee bank upon presentment for
payment.
7. The Fernandezes issued a substitute check which was a Security Bank and Trust
Company check
8. The check was again dishonored when it was presented for payment
9. Despite repeated demands, Nyco and the Fernandezes failed to settle the
obligation with BA Finance, thus prompting the latter to institute an action in court
10. The lower court ruled in favor of BA Finance
11. On appeal, the appellate court also upheld BA Finance
12. Hence this present recourse
ISSUE: WON the assignor is liable to its assignee for its dishonored checks?
HELD: YES
An assignment of credit is the process of transferring the right of the assignor to the
assignee, who would then be allowed to proceed against the debtor. It may be done
either gratuitously or generously, in which case, the assignment has an effect similar to
that of a sale.
According to Article 1628 of the Civil Code, the assignor-vendor warrants both the credit
itself (its existence and legality) and the person of the debtor (his solvency), if so
stipulated, as in the case at bar. Consequently, if there be any breach of the above
warranties, the assignor-vendor should be held answerable therefor. There is no
question then that the assignor-vendor is indeed liable for the invalidity of whatever he
assigned to the assignee-vendee.
Nyco’s defense that it had not been notified of the fact of dishonor- UNTENABLE
- As found by the trial court, Rufino Yao of Nyco and the Fernandez Brothers of
Sanshell had frequent contacts before, during and after the dishonor.
- For as long as the credit remains outstanding, it shall continue to be liable to BA
Finance as its assignor. The dishonor of an assigned check simply stresses its
liability and the failure to give a notice of dishonor will not discharge it from such
liability. This is because the cause of action stems from the breach of the
warranties embodied in the Deed of Assignment, and not from the dishonoring of
the check alone.
Nyco’s defense that novation took place when BA Finance accepted the SBTC check in
replacement of the BPI cheek- UNTENABLE
- There was no express agreement that BA Finance's acceptance of the SBTC
check will discharge Nyco from liability. Neither is there incompatibility because
both checks were given precisely to terminate a single obligation arising from
Nyco's sale of credit to BA Finance. As novation speaks of two distinct
obligations, such is inapplicable to this case.
- First, novation must be explicitly stated and declared in unequivocal terms as
novation is never presumed. Secondly, the old and the new obligations must be
incompatible on every point. The test of incompatibility is whether or not the two
obligations can stand together, each one having its independent existence If they
cannot, they are incompatible and the latter obligation novates the first
Nyco’s defense that its Pres and GM has no authority to apply to BA Finance for credit
accommodation- UNTENABLE
- Its corporate By-Laws clearly provide for the powers of its President, which
include, inter alia, executing contracts and agreements, borrowing money,
signing, indorsing and delivering checks, all in behalf of the corporation
- Nyco is estopped from denying Rufino Yao's authority as far as the latter's
transactions with BA Finance are concerned because there was already a
previous transaction of discounting of checks involving the same personalities
wherein any enabling resolution from Nyco was dispensed with and yet BA
Finance was able to collect from Nyco and Sanshell was able to discharge its
own undertakings.









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