Assignment of
Credits, Contract of Lease
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-A,
Univ. of San Agustin Law School,
Civil Law Review II, SY 2017-2018)
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 estopped 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 estopped 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[1].
(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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