Sonny Lo v. KJS Eco-Formwork System Phil., Inc.

GR No. 149420, October 8, 2003

Facts:
Petitioner ordered scaffolding equipment form respondent and was able to pay a down payment
with the balance to be paid in 10 monthly installments. But respondent was only able to pay the
first 2 months because of financial difficulties. Later, petitioner and respondent agreed to a deed of
assignment where petitioner assigned to respondent his receivables from Jomero Realty Corp, but
Jomero Corp. refused when respondent tried to collect because petitioner is also indebted to it.
Petitioner now refused to pay KJS claiming his obligation had been extinguished because of the
deed of assignment. Respondent filed an action for recovery of sum of money against petitioner
and the trial court dismissed the complaint, but the CA, upon appeal, later reversed that decision
held in favor of KJS.

HELD:
The deed of assignment does not extinguished the petitioner’s obligation. 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 Corp. 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. 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.