ETRIII
Civil Law Review Lecture Series
OUTLINE/ LECTURE ON
ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL
RIGHTS
AND CONTRACT OF LEASE
By: Atty. Eduardo T.
Reyes, III
(Prepared for Law
4-C,
Univ. of San Agustin Law School,
Civil Law Review II, SY 2016-2017)
I.
ASSIGNMENT OF CREDIT. An assignment of credit is an agreement by
virtue of which the owner of a credit, known as an 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 right 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[1].
1.1. Distinguished from SUBROGATION per Articles
1300 & 1304, NCC. Read Edgar Ledonio v. Capitol Development Corporation[2]
“An
assignment of credit has been defined as 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 or exchange or
donation - and without need of the debtor's consent, transfers that credit and
its accessory rights to another (known as the assignee), who acquires the power
to enforce it, to the same extent as the assignor could have enforced it
against the debtor.[20]
On the
other hand, subrogation, by definition, is 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.[21]
Although
it may be said that the effect of the assignment of credit is to subrogate the
assignee in the rights of the original creditor, this Court still cannot
definitively rule that assignment of credit and conventional subrogation are
one and the same.
A noted
authority on civil law provided a discourse[22] on the
difference between these two transactions, to wit
Conventional
Subrogation and Assignment of Credits. In the Argentine
Civil Code, there is essentially no difference between conventional subrogation
and assignment of credit. The
subrogation is merely the effect of the assignment. In fact it is expressly provided (article 769) that conventional
redemption shall be governed by the provisions on assignment of credit.
Under our Code, however,
conventional subrogation is not identical to assignment of credit. In the former, the debtors consent is necessary; in the latter, it is
not required. Subrogation
extinguishes an obligation and gives rise to a new one; assignment refers to
the same right which passes from one person to another. The nullity of an old obligation may be cured by subrogation, such that
the new obligation will be perfectly valid; but the nullity of an obligation is
not remedied by the assignment of the creditors right to another. (Emphasis
supplied.)
This Court has consistently
adhered to the foregoing distinction between an assignment of credit and a
conventional subrogation.[23] Such
distinction is crucial because it would determine the necessity of the debtors
consent. In an
assignment of credit, the consent of the debtor is not necessary in order that
the assignment may fully produce the 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 debtors consent. On the
other hand, conventional subrogation requires an agreement among the 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.[24]
Article
1300 of the Civil Code provides that conventional subrogation must be clearly
established in order that it may take effect. Since it is petitioner who claims that there is conventional subrogation
in this case, the burden of proof rests upon him to establish the same[25] by a
preponderance of evidence.[26]
In Licaros v. Gatmaitan,[27] this
Court ruled that there was conventional subrogation, not just an assignment of
credit; thus, consent of the debtor is required for the effectivity of the subrogation. This Court arrived at such a conclusion in said case based on its
following findings
We agree with the finding of the Court of
Appeals that the Memorandum of Agreement dated July 29, 1988 was in
the nature of a conventional subrogation which requires the consent of the
debtor, Anglo-Asean Bank, for
its validity. We note with approval the following pronouncement of the Court of
Appeals:
"Immediately discernible from above is
the common feature of contracts involving conventional subrogation, namely, the
approval of the debtor to the subrogation of a third person in place of the
creditor. That Gatmaitan and Licaros had intended to treat their agreement as one
of conventional subrogation is plainly borne by a stipulation in their
Memorandum of Agreement, to wit:
"WHEREAS, the parties herein have come to an agreement on the
nature, form and extent of their mutual prestations which
they now record herein with the
express conformity of the third parties concerned"
(emphasis supplied),
which third party is admittedly Anglo-Asean Bank.
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 (Rule 130, Section 12, Rules of Court).
x x x x
Aside for the 'whereas clause" cited by
the appellate court in its decision, we likewise note that on the signature
page, right under the place reserved for the signatures of petitioner and
respondent, there is, typewritten, the words "WITH OUR CONFORME."
Under this notation, the words "ANGLO-ASEAN BANK AND TRUST" were
written by hand. To our mind, this provision which contemplates the signed
conformity of Anglo-Asean Bank,
taken together with the aforementioned preambulatory clause
leads to the conclusion that both parties intended that Anglo-Asean Bank should signify its agreement and
conformity to the contractual arrangement between petitioner and respondent. The
fact that Anglo-Asean Bank did
not give such consent rendered the agreement inoperative considering that, as
previously discussed, the consent of the debtor is needed in the subrogation of
a third person to the rights of a creditor.
None of the foregoing
circumstances are attendant in the present case. The Assignment of Credit, dated 1 April
1989, executed by Ms. Picache in favor
of respondent, was a simple deed of assignment. There is nothing in the said Assignment of Credit which imparts to this Court,
whether literally or deductively, that a conventional subrogation was intended
by the parties thereto. The terms
of the Assignment of Credit only convey the straightforward intention of Ms. Picache to sell, assign, transfer, and convey to
respondent the debt due her from petitioner, as evidenced by the two promissory
notes of the latter, dated 9 November 1988 and 10 November 1988, for the
consideration of P60,000.00. By virtue of the same document, Ms. Picache gave
respondent full power to sue for, collect and discharge, or sell and assign the
very same debt. The
Assignment of Credit was signed solely by Ms. Picache, witnessed by two other persons. No reference was made to securing the conforme of
petitioner to the transaction, nor any space provided for his signature on the
said document.
Perhaps more in point to
the case at bar is Rodriguez
v. Court of Appeals, [28] in which this Court found that
The basis of the complaint is not a deed of
subrogation but an assignment of credit whereby the private respondent became
the owner, not the subrogee of the
credit since the assignment was supported by HK $1.00 and other valuable
considerations.
x x x x
The petitioner further contends that the
consent of the debtor is essential to the subrogation. Since there was no
consent on his part, then he allegedly is not bound.
Again, we find for the respondent. The
questioned deed of assignment is neither one of subrogation nor a power of
attorney as the petitioner alleges. The deed of assignment clearly states that
the private respondent became an assignee and, therefore, he became the only
party entitled to collect the indebtedness. As a result of the Deed of
Assignment, the plaintiff acquired all rights of the assignor including the
right to sue in his own name as the legal assignee. Moreover, in assignment,
the debtor's consent is not essential for the validity of the assignment (Art.
1624 in relation to Art. 1475, Civil Code), his knowledge thereof affecting
only the validity of the payment he might make (Article 1626, Civil Code).
Since the Assignment of
Credit, dated 1 April
1989, is just as its title suggests, then petitioners consent as debtor is not
necessary in order that the assignment may fully produce legal effects. The duty to pay does not depend on the consent of the debtor; otherwise,
all creditors would be prevented from assigning their credits because of the
possibility of the debtors' refusal to give consent.[29] Moreover,
this Court had already noted previously that there does not appear to be
anything in Philippine statutes or jurisprudence which prohibits a creditor,
without the consent of the debtor, from making an assignment of his credit and
the rights accessory thereto; and, certainly, an assignment of credit and its
accessory rights does not at all obliterate the obligation of the debtor to
pay, but merely puts the assignee in the place of the assignor.[30] Hence,
the obligation of petitioner to pay his debt subsists despite the assignment
thereof; only, his obligation after he came to know of the said assignment
would be to pay the debt to the respondent (the assignee), instead of Ms. Picache (the original creditor).
It bears to emphasize that
even if the consent of petitioner as debtor is unnecessary for the validity and
enforceability of the assignment of credit, nonetheless, the petitioner must
have knowledge, acquired either by formal notice or some other means, of the
assignment so that he may pay the debt to the proper party, which shall now be
the assignee. This much
can be gathered from a reading of Article 1626 of the Civil Code providing
that, The debtor who, before having knowledge of the assignment, pays his
creditor shall be released from the obligation.
This
Court, in Sison v. Yap Tico,[31] presented
and adopted Manresas analysis
of Article 1626 of the Civil Code (then Article 1527 of the old Civil Code)
Manresa, in commenting upon the provisions of
article 1527 of the Civil Code, after discussing the articles of the Mortgage
Law, says:
We have said that article 1527 deals with the
individual phase or aspect which presupposes the existence of a relationship
with third parties, that is, with the person of the debtor. Let us see in
what way.
The above-mentioned article states that a
debtor who, before having knowledge of the assignment, should pay the creditor
shall be released from the obligation.
In the first place, the necessity for the
notice to the debtor in order that the assignment may fully produce its legal
effects may be inferred from the above. It refers to a notice and not to a
petition for the consent which is not necessary. We say that the notice is
not necessary in order that the legal effects may be fully produced, because if
it should be omitted, such omission will not imply that the assignment will not
exist legally, but that its effects will be limited to the parties thereto; at
least, they will not reach the debtor.
* * * * * * * *
Let us go to the legal effects produced by
the failure to give the notice. In the beginning, we have said that the
contract does not lose its efficacy with respect to the parties who made it;
but article 1527 determines specifically one of the consequences arising from
the failure to give notice, for it evidently takes for granted that the debtor
who, before having knowledge of the assignment, should pay the creditor shall
be released from the obligation. So that if the creditor assigned his
credit, acting in bad faith and taking advantage of the fact that the debtor
does not know anything about the assignment because the latter has not been
notified, and collects its amount, the debtor shall be free from the
obligation, inasmuch as it has been legally extinguished by a payment which
fully redounds to his benefit. The assignee can take advantage of all
civil and criminal actions against the assignor, but he can ask nothing from
the debtor, because the latter did not know of the assignment, nor was he bound
to know it; the assignor should blame himself for his failure to have the
notice made.
* * * * * * * *
Hence, there not having been any notice to
the debtor, the existence of his knowledge of the assignment should be proved
by him who is interested therein; and the debtor is not bound to prove his
ignorance.
In a more
recent case, Aquintey v.
Spouses Tibong,[32] this
Court stated: The law does not require any formal notice to bind the debtor to
the assignee, all that
the law requires is knowledge of the assignment. Even if the debtor had not
been notified, but came to know of the assignment by whatever means, the debtor
is bound by it.
Since his
consent is immaterial, the only other matter which this Court must determine is
whether petitioner had knowledge of the Assignment of Credit, dated 1 April 1989, between Ms. Picache and
respondent. Both the
Court of Appeals and the RTC ruled in the affirmative, and so must this Court. Petitioner does not deny having knowledge of the assignment of credit by
Ms. Picache to the
respondent. In 1989,
when petitioners loans became overdue, it was respondent and its counsel who
sent several demand letters to him. It can be
reasonably presumed that petitioner received said letters for they were sent by
registered mail, and the return cards were signed by petitioners agent. Petitioner expressly acknowledged receipt of respondents demand letter,
dated 13 June 1989, to which he
replied with another letter, dated 21 June
1989, stating that he would settle his account with respondent but also
requesting consideration of the losses he suffered from the electric power
disconnection at the property he leased from MRMC. It further appears that petitioner had never questioned why it was
respondent seeking payment of the loans and not the original creditor, Ms. Picache. All these
circumstances tend to establish that respondent already knew of the assignment
of credit made by Ms. Picache in favor
of respondent and explains his acceptance of all the demands for payment of the
loans made upon him by the respondent.
Finally,
assuming arguendo that this
Court considers petitioner a third person to the Assignment of Credit, dated 1
April 1989, the fact that the said document was duly notarized makes it legally
enforceable even as to him. According
to Article 1625 of the Civil Code
ART. 1625. An
assignment of credit, right or action shall produce no effect as against third
persons, unless it appears in a public instrument, or the instrument is
recorded in the Registry of Property in case the assignment involves real
property.
Notarization converted the
Assignment of Credit, dated 1 April 1989, a private document, into a public
document,[33] thus,
complying with the mandate of the afore-quoted provision and making it
enforceable even as against third persons.”
Thus, we
can deduce that:
Assignment
of Credit
|
Subrogation
|
1. Debtor’s Consent
is not required; Mere Notice suffices
|
1. Debtor’s Consent
required
|
2. Does not
extinguish the original Obligation
|
2. Extinguishes
original obligation
|
3. Does not cure
any defect of the original obligation
|
3. If original
obligation is null and void, the subrogation cures the defect
|
1.2. Requirement to Bind Third Persons. “An
assignment of a credit, right or action shall produce no effect as against
third persons, unless it appear in a public instrument, or the instrument is
recorded in the Registry of Property in case the assignment involves real
property.[3]”
1.3.
Contract of Assignment is Consensual. “Perfected in accordance with Article
1475. In turn, Art. 1475 states that like in “contract of sale”, it is
“perfected upon the meeting of the minds”.
The requirement in Art. 1625 is only for purposes of affecting third
persons.
1.4.
Warranties. “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”[4].
1.4.1. Solvency. “The vendor shall
not be responsible 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.[5]”
1.4.2. Exception. The assignor is
responsible for the solvency of the debtor if there is an express stipulation
to that effect. If there is an agreement, the liability shall be effective within
the following period: (i) Within the period agreed upon, (ii) if there is no
period agreed upon the one year only from the time of assignment if the period
(of the assigned obligation) had already expired, or (iii) one year from
maturity if the credit should be payable within a term or period which has not
yet expired.
II.
BARTER OR EXCHANGE. “By the contract
of barter or exchange, one of the parties binds himself to give one thing in
consideration of the other’s promise to give another thing”[6].
The law on sales apply to barter[7].
2.1.
Reciprocal. “If one of the
contracting parties, having received the thing promised him in barter, should
prove that it did not belong to the person who gave it, he cannot be compelled
to deliver that which he offered in exchange, but he shall be entitled to
damages”[8].
2.2.
Remedies; Eviction. “One who loses
by eviction the thing received in barter may : (1) Recover that which he gave
in exchange with a right to damages, or (2) he may only demand an indemnity for
damages. EXCEPTION: There is no right to recover if the property is already
with a third person who acquired it in good faith”[9].
III. CONTRACT OF
LEASE. “A contract of lease
is consensual, bilateral, onerous and commutative contract which the owner
temporarily grants the use of his property to another who undertakes to pay the
rent”[10].
3.1. Conclusive
Presumption. “The
lessee cannot by any proof, however strong, overturn the conclusive presumption
that the lessor has a valid title to or better right of possession to the
subject premises than the lessee”[11].
3.1.1. Exception. “It is clear that
what a tenant is stopped from denying x
x x is the title of the landlord at the time of the commencement of the
landlord-tenant relation, if the title asserted is one that is alleged to have
been acquired subsequent to the commencement of that relation, the presumption
will not apply. Hence the tenant may show that the landlord’s title has expired
or been conveyed to another or himself; and he is not stopped to deny a claim
for rent if evicted or ousted by title paramount”[12].
3.2.
Obligations of the Lessor.
3.2.1. To deliver the thing which is
the object of the contract in a condition as to render it fit for the use
intended.
3.2.2. To make on the same during
the lease all the necessary repairs in order to keep it suitable for the use to
which it has been devoted, unless there is a stipulation to the contrary.
3.2.3. To maintain the lessee in the
peaceful and adequate enjoyment of the lease for the entire duration of the
contract.
-
Refers
only to LEGAL, NOT PHYSICAL possession.
-But lessor is not responsible for mere
trespass it is the lessee who enjoys a direct action against the trespasser.
3.2.5. To be responsible for warranty against
hidden defects.
3.2.6. Not to alter the form of the thing in
such a way as to impair the use to which the thing is devoted under the terms
of the lease.
3.2.7.
In lease of Rural Lands, the outgoing lessee shall allow the incoming
lessee or the lessor the use of the premises and other means necessary for the
preparatory labor for the following year; and reciprocally, the incoming lessee
or the lessor is under obligation to permit the outgoing lessee to do whatever
may be necessary for the gathering or harvesting and utilization of the fruits
, all in accordance with the custom of the place.
3.3.
Remedies. In case of breach of the
obligations of the lessor, the lessee may avail of the following remedies:
3.3.1. Judicial Rescission plus
damages
3.3.2. Damages only.
3.4.
LESSEE.
3.4.1. Rights of the lessee.
Among others, “To demand the
delivery of the thing leased”.
What
if the lessor fails to meet his obligation?
“Article 1191 of the Civil Code provides
that the power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him. A lease
contract is a reciprocal contract. By signing the lease agreement, the lessor
grants possession over his/her property to the lessee for a period of time in
exchange for rental payment. Indeed, rescission is statutorily recognized in a
contract of lease. Article 1659 of the Civil Code provides: Art. 1659. If the lessor
or the lessee should not comply with the obligations set forth in articles 1654
and 1657, the aggrieved party may ask for the rescission of the contract and
indemnification for damages, or only the latter, allowing the contract to
remain in force. Article 1659 outlines the remedies for non-compliance with the
reciprocal obligations in a lease contract, which obligations are cited in
Articles 1654 and 1657: Article 1654. The lessor is obliged: (1) To deliver the
thing which is the object of the contract in such a conditions as to render it
fit for the use intended; (2) To make on the same during the lease all the
necessary repairs in order to keep it suitable for the use to which it has been
devoted, unless there is a stipulation to the contrary; (3) To maintain the
lessee in the peaceful and adequate enjoyment of the lease for the entire
duration of the contract. Article 1657. The lessee is obliged: (1) To pay the
price of the lease according to the terms stipulated; Decision 8 G.R. No.
192108 (2) To use the thing leased as a diligent father of a family, devoting
it to the use stipulated; and in the absence of stipulation, to that which may
be inferred from the nature of the thing leased, according to the custom of the
place; (3) To pay the expenses for the deed of lease. (Boldfacing supplied).
The aggrieved party is given the option to the aggrieved party to ask for: (1)
the rescission of the contract; (2) rescission and indemnification for damages;
or (3) only indemnification for damages, allowing the contract to remain in
force.11 While Andok’s had complied with all its obligations as a lessee, the
lessor failed to render the premises fit for the use intended and to maintain
the lessee in the peaceful and adequate enjoyment of the lease. The case of CMS
Investments and Management Corporation v. Intermediate Appellate Court12 quoted
Manresa’s comment on the lessor’s obligation to maintain the lessee in the
peaceful and adequate enjoyment of the lease for the entire duration of the
contract, in this wise: The lessor must see that the enjoyment is not
interrupted or disturbed, either by others' acts x x x or by his own. By his
own acts, because, being the person principally obligated by the contract, he
would openly violate it if, in going back on his agreement, he should attempt
to render ineffective in practice the right in the thing he had granted to the
lessee; and by others' acts, because he must guarantee the right he created,
for he is obliged to give warranty in the manner we have set forth in our commentary
on article 1553, and, in this sense, it is incumbent upon him to protect the
lessee in the latters’ peaceful enjoyment.13 Andok’s paid a total of
P480,000.00 as advance deposit for four (4) months and security deposit
equivalent to four (4) months. However, the construction of its outlet store was hindered by two incidents — the unpaid
MERALCO bills and the unfinished construction of a billboard structure directly
above the leased property. Sy argues that per contract, Andok’s had assumed the
risk of delay by allowing MediaPool, Inc. to construct a billboard structure on
a portion of the leased premises. We reproduce the pertinent provision for
brevity: 10. That the LESSEE shall allow persons who will construct, inspect,
maintain and repair all billboard structures to be set up and constructed on
the portion of the parcel of land excluded from this contract, only upon
approval of written request to LESSEE AND LESSOR from the billboard LESSEE to
avoid disruption of business operations of Andok’s Litson Corporation and its
affiliates.14 True, Andok’s agreed to allow MediaPool, Inc. to construct a
billboard structure but it was conditioned on Andok’s and the lessor’s approval
to avoid disruption of its business operation. Sy is thus cognizant of the fact
that the said billboard structure construction might disrupt, as it already
did, the intended construction of respondent’s outlet. It is thereby understood
that the construction of a billboard should be done within a period of time
that is reasonable and sufficient so as not to disrupt the business operations
of respondent. In this case, Andok’s had agreed to several extensions for
MediaPool, Inc. to finish its billboard construction. It had sent a total of
four (4) letters in a span of 8 months, all of which were merely ignored.
Indeed, the indifference demonstrated by Sy leaves no doubt that she has
reneged on her obligation. Sy’s disregard of Andok’s repeated demands for the
billboard lessee to finish the construction is a violation of her obligation to
maintain the lessee in peaceful and adequate enjoyment of the lease. The delay
in the 14 Rollo, p. 54. Decision 10 G.R. No. 192108 construction had obviously
caused disruption in respondent’s business as it could not immediately commence
its business operations despite prompt payment of rent. The attendant
circumstances show substantial breach. The delay in the construction prevented
Andok’s from using the leased premises for its business outlet. On top of the
failure of Sy to address the delay in the billboard construction, she also
failed to resolve or explain the unpaid electricity bills. Sy resorted to a
blanket denial without however producing any proof that the said bill had been
settled. These incidents refer to the fundamentals of the contract for the
lease of Sy’s premises. She failed to comply with the obligations that have
arisen upon Andok’s payment of the amount equivalent to eight months of the
monthly rentals.”[13]
3.5. Obligations of the Lessee. See Art.
1662, NCC.
3.5.1. Remedies. In case of breach of the
obligations of the first three (1 to 3) obligations specified, the lessor may
avail of the following remedies: (1) Judicial Rescission plus damages ; (2)
Damages only.
-The lessor is entitled to twin
remedies of rescission and judicial ejectment after the lessee failed to pay
the rent or to comply with the conditions of the contract of lease. The lessor
may directly file an action for unlawful detainer case under Rule 70 and the
lessor is not required to bring an action for rescission but may ask the court
to do so simultaneously seek the ejectment of the lessee in a single action for
unlawful detainer. (This is true regardless of the legal truism that a judicial
rescission action is incapable of pecuniary estimation).
3.6. Expiration of period of lease.
If the lease was made for a determinate time, it ceases upon the day fixed without
need of a demand.
-
But for
purposes of unlawful detainer case, one-year period is still counted from date
of last demand. Lessor though, may waiver expiration.
3.7. Right regarding improvements.
3.7.1.
Useful improvements. If the lessee makes, in good faith, useful improvements
which are suitable to the use for which the lease is intended, without altering
the form or substance of the property leased, the lessor has the option either:
a)
To pay the lessee, upon the termination of the lease, one-half of the value of
the improvements at that time[14]
b)
refuse to reimburse said amount but allow the lessee to remove the
improvements, even though the principal thing may suffer damage thereby. The
lessee shall not, however, cause any more impairment upon the property leased
than is necessary.
-
No
absolute right of removal
-
No right
of retention even if the lessor appropriates useful improvement and fails to
pay. Not a possessor in good faith as contemplated in Art. 448, NCC.
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