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Case Background

- Spouses Felicidad and Rico Tibong (Respondents) secured several loans from
Agrifina Aquintey (Petitioner) at monthly interest rates of 6% to 7%.
- Despite demands, the respondents failed to pay their outstanding loan,
amounting to 773,000php
- Respondent issued a check to the petitioner for an amount of 50,000php that
was dishonoured. Respondent was ordered by the court to pay the amount and
did so.
- Petitioner presented copies of the promissory notes and acknowledgement
receipts executed by respondents covering the loaned amounts.
- Petitioner stated that she had lost the receipts signed by respondent for the
following amounts: 100,000php, 34,000php, and 2,000.
- Respondents admitted that they had secured loans from petitioner and the
proceeds of the loan were then re-lent to other borrowers at higher interest
- Respondents specifically denied the material averments in paragraph 2 and 2.1
of the complaint. However, they did not state the total amount of their loans
and declared that they did not receive anything from petitioner without any
- Petitioner sought the assistance of Atty. A-ayo who advised her to require
respondent to execute deeds of assignment over respondent’s debtors.
- Atty. A-ayo also suggested that respondent’s debtors execute promissory notes
in petitioner’s favour, to “turn over” their loans from respondent.
- Petitioner agreed to the proposal and petitioner, respondent, and the
respondent’s debtors had a conference where Atty. A-ayo explained that
petitioner could apply her collections as payments of the respondent’s account.
- Respondent executed deeds of assignment of credits notarized by Atty. A-ayo,
in which respondent transferred and assigned to petitioner.
- Petitioner tried to collect the balance on respondent’s account but respondent
told her to wait until her debtors had money.
- When respondent reneged on her promise, petitioner filed a complaint for the
collection of 773,000php.
- The Court of Appeals found that 585,659php was covered by the deeds of
assignment and promissory notes.
- Respondent’s other debtors were able to pay 103,500php to the petitioner.

Statement of the Problem

Whether the obligation of the respondents to pay the balance of their loans, including
interest, was partially extinguished of the deeds of assignment in favour of petitioner.


Determine the total amount of the loan.

Determine if the respondent’s obligation is extinguished by novation or dation in

payment (dacion en pago)
Determine if the decision of the Supreme Court is in accordance to the principles of
fairness, equity and justice.

Areas for Consideration (codals, other sc decisions)

Rule 8, SEC. 10 Specific Denial - A defendant must specify each material allegation
of fact the truth of which he does not admit and, whenever practicable, shall set forth
the substance of the matters upon which he relies to support his denial. Where a
defendant desires to deny only a part of an averment, he shall specify so much of it as
is true and material and shall deny only the remainder. Where a defendant is without
knowledge or information sufficient to form a belief as to the truth of a material
averment made in the complaint, he shall so state, and this shall have the effect of a

SEC. 11 Allegations not specifically denied deemed admitted. – Material averment in

the complaint, other than those as to the amount of unliquidated damages, shall be
deemed admitted when not specifically denied. Allegations of usury in a complaint to
recover usurious interest are deemed admitted if not denied under oath. (Rules of
Civil Procedure)

The answer should be so definite and certain in its allegations that the pleader’s
adversary should not be left in doubt as to what is admitted, what is denied, and what
is covered by denials of knowledge as sufficient to form a brief. (Kirchmam vs.
Eschman, 127 N.E. 328)

Art. 1245 Dation in payment, whereby property is alienated to the creditor in

satisfaction of a debt in money, shall be governed by the law of sales. (Civil Code of
the Philippines)

Dation in payment is the delivery and the transmission of ownership of a thing by the
debtor to the creditor as an accepted equivalent of the performance of the obligation. –
Novation by change of the object. (2 Castan 525; 8 Manresa 324; Filinvest Credit
Corporation vs. Philippine Acetylene Co., 111 SCRA 421)

The theory of novation is that the new debtor contracts with the old debtor that he will
pay the debt, and also to the same effect with the creditor, while the latter agrees to
accept the new debtor for the old. A novation is not made by showing that the
substituted debtor agreed to pay the debt; it must appear that he agreed with the
creditor to do so. Moreover, the agreement must be based on the consideration of the
creditor's agreement to look to the new debtor instead of the old. It is not essential that
acceptance of the terms of the novation and release of the debtor be shown by express
agreement. Facts and circumstances surrounding the transaction and the subsequent
conduct of the parties may show acceptance as clearly as an express agreement, albeit
implied [City National Bank of Huron, S.D. v. Fuller 52 F.2d 870.; Babst v. Court of
Appeals, 403 Phil. 244, 259-260 (2001)]

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. (Manila Banking
Corporation v. Teodoro, Jr., G.R. No. 53955, January 13, 1989, 169 SCRA 95, 102.
See also Lo v. KJS Eco-Formwork System Phil., Inc., 459 Phil. 532, 539 (2003);
Project Builders, Inc. v. Court of Appeals, 411 Phil. 264, 273 (2001); Rodriguez v.
Court of Appeals, G.R. No. 84220, March 25, 1992, 207 SCRA 553, 558; and Nyco
Sales Corp. v. BA Finance Corp., G.R. No. 71694, August 16, 1991, 200 SCRA 637,

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. (Lo v. KJS Eco-Formwork System Phil., Inc., 459
Phil. 532, 539)

In an assignment of credit, the consent of the debtor is not essential for its perfection;
the knowledge thereof or lack of it affecting only the efficaciousness or
inefficaciousness of any payment that might have been made. The assignment binds
the debtor upon acquiring knowledge of the assignment but he is entitled, even then,
to raise against the assignee the same defenses he could set up against the assignor.
[National Investment and Development Co. v. De Los Angeles, No. L-30150, August
31, 1971, 40 SCRA 487, 496 (1971)]

Even if the debtor had not been notified, but came to know of the assignment by
whatever means, the debtor is bound by it. If the document of assignment is public, it
is evidence even against a third person of the facts which gave rise to its execution
and of the date of the latter. (Tolentino, Civil Code of the Philippines, Vol. V, 1959
ed., pp. 168-1969)

Case law is that, an assignment will, ordinarily, be interpreted or construed in

accordance with the rules of construction governing contracts generally, the primary
object being always to ascertain and carry out the intention of the parties. This
intention is to be derived from a consideration of the whole instrument, all parts of
which should be given effect, and is to be sought in the words and language
employed. (GA C.J.S. Assignments, p. 709)

Art. 1291 Obligations may be modified by:

(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (Civil Code of the

Unlike other modes of extinction of obligations, novation is a juridical act of dual

function in that at the time it extinguishes an obligation it creates a new one in lieu of
the old. (Government vs. Bautista, (C.A.) 37 Off. Gaz., 1880; Pascual vs. Lacsamana
(S.C.) 53 Off. Gaz. 2467, April, 1957; 2 Castan 566)
No specific form is required for an implied novation. All that is required is
incompatibility between the original and the subsequent contracts. (Cojuanco vs.
Gonzales, 49 Off. Gaz. 3866, Sept. 1953; De Lina vs. Malasarte, G.R. No. L-2374,
Sept. 21, 1950; Millar vs. Court of Appeals, et al., G.R. No. L-29981, April 30, 1971;
RCPI vs. Secretary of Labor, 169 SCRA 38)

Art. 1293. Novation which consists in substituting a new debtor in place of the
original one, may be made even without the knowledge or against the will of the
latter, but not without the consent of the creditor. Payment by the new debtor gives
him the rights mentioned in articles 1236 and 1237. (Civil Code of the Philippines)

The two forms of this novation are the expromision and delegacion. In the
expromision, the initiative for the change does not emanate from the debtor and may
be even without his knowledge, since it consists in a third person assuming the
obligation. It logically requires the consent of this third person and the creditor. In
delegacion, the debtor offers and the creditor accepts a third person who consents to
the substitution, so that the consent of these three is necessary. (Tolentino, Civil Code
of the Philippines, Vol. IV, 1991 ed., p. 390; Manresa 436-437)

Alternative Courses of Action (uphold & reversal, sc decision, basis of

disagreements, “substance” not

a. Uphold the decision of the Supreme Court

- The total amount of the loan is 773,000php as alleged by petitioner and
deemed admitted by the respondent.
- The obligation is extinguished upon the assignment of debt, however, it was
intended by both parties that the amounts due from respondents' debtors were
intended to "make good in part" the account of respondents
- The respondents therefore still have a balance of 33,841

b. Reverse the decision of the Supreme Court

Conclusion and Recommendation

The group upholds the decision of the Supreme Court to oblige the respondents
Felicidad and Rico Tibong to pay the remaining balance of Php 33,841.It follows a
crucial concept that law should be based on fairness, justice and equity. The
respondents are obligated to pay Agrifina the debt they acquired from her. However,
since deed of assignments had been assigned to the debtors of the respondents and the
respondents also remitted payments to Agrifina, total amount collected from them
must be deducted from the total outstanding debt of the respondents. Therefore, the
Supreme Court’s decision to deny the petition of Agrifina to collect the orginal debt
amounting of Php 773,000 from the respondent is fair and equitable. As mentioned in
the case, the petitioner cannot collect from the respondents the amount that has been
paid by the respondents’ debtors because she would benefit from this arrangement at
the expense of the respondents which is deemed unjust.

The recommendation from the group for both parties is to keep things in writing when
entering into an agreement. As in their case, Felicidad is claiming that she entered into
a money-lending agreement with Agrifina which the latter expressly denied. If a
written agreement with all the provisions of the partnership has been signed by both
parties prior to the commencement of the business then the intervention of the
Supreme Court could have been avoided.