Fort Bonifacio Development v. Domingo
REITERATIONFacts
The Antecedents: Fort Bonifacio Development Corporation (FBDC) entered into a Trade Contract with MS Maxco Company, Inc. (MS Maxco) for construction work. The contract allowed FBDC to withhold retention money and prohibited MS Maxco from assigning its rights without FBDC's written consent. MS Maxco assigned receivables amounting to P804,068.21 from FBDC's retention money to Manuel M. Domingo (Domingo) via a Deed of Assignment. FBDC received notices of garnishment against MS Maxco's receivables from various creditors, including the Construction Industry Arbitration Commission (CIAC), National Labor Relations Commission (NLRC), and RTC of Makati. FBDC also incurred expenses for rectifying defects and completing MS Maxco's unfinished work. FBDC informed Domingo that the retention money was subject to garnishment and had been exhausted by payments to creditors and rectification costs. Procedural History: Domingo filed a Complaint for Collection of Sum of Money against MS Maxco and FBDC. The RTC ruled in favor of Domingo, ordering FBDC to secure the amount from the retention money for Domingo as a preferred creditor. FBDC appealed, arguing that the retention money was exhausted and that the RTC's order contradicted its finding of no direct debtor-creditor relationship with Domingo. The Court of Appeals (CA) affirmed the RTC's decision, holding FBDC liable to pay Domingo. FBDC's motion for reconsideration was denied. The Petition: FBDC filed a Petition for Review on Certiorari before the Supreme Court, assailing the CA's decision and resolution.
Issue(s)
Whether FBDC is liable to pay Domingo the amount of P804,068.21 representing a portion of the retention money subject of the Deed of Assignment, considering the enforceability of the Deed of Assignment. Whether the Deed of Assignment between MS Maxco and Domingo is enforceable against FBDC without FBDC's written consent, independent of FBDC's liability to Domingo.
Ruling
The Supreme Court granted the petition, reversed and set aside the decisions of the Court of Appeals and the Regional Trial Court, and deleted the award of P804,068.21 in favor of Manuel Domingo.
Ratio Decidendi
On FBDC's liability to Domingo and the enforceability of the Deed of Assignment against FBDC: The Court held that obligations arising from contracts have the force of law between the parties and must be complied with in good faith, citing Article 1159 of the Civil Code. By virtue of the principle of relativity of contracts, stipulations bind the parties, their assigns, and heirs, except when rights and obligations are not transmissible. In assignment, the assignee is deemed subrogated to the rights and obligations of the assignor and is bound by the same conditions. The Court reiterated its ruling in Fort Bonifacio Development Corporation v. Fong that MS Maxco, as Trade Contractor, could not assign its rights under the Trade Contract without FBDC's written consent. Therefore, Domingo, as the assignee, could not validly demand payment from FBDC without proof of FBDC's written consent to the assignment. The practical efficacy of the assignment, though valid between MS Maxco and Domingo, remained contingent upon FBDC's written approval, which was not obtained. Consequently, since MS Maxco failed to secure FBDC's written consent for the assignment of its receivables to Domingo, FBDC cannot be held liable to pay Domingo the P804,068.21. The Court further noted that the retention money had already been exhausted by payments made pursuant to garnishment orders and costs for rectification of defects, totaling P17,418,695.84 against the retention money of P17,237,060.83. On the enforceability of the Deed of Assignment against FBDC independent of FBDC's liability to Domingo: The Deed of Assignment could not be enforced against FBDC for want of its written consent. Even if FBDC had funds available, the lack of written consent would preclude enforcement.
Main Doctrine
An assignment of receivables under a contract is ineffective against the client if the client's written consent, as required by a stipulation in the contract, is not obtained, even if the assignment is valid between the assignor and the assignee.