G.R. No. 209370 , March 25, 2015.
Fort Bonifacio Development Corporation, Petitioner, vs. Valentin L. Fong, Respondent.

FACTS

Petitioner Fort Bonifacio Development Corporation (FBDC) entered into a Trade Contract with MS Maxco Company, Inc. (MS Maxco) for construction work on the Bonifacio Ridge Condominium. The contract allowed FBDC to withhold 5% of the contract price as retention money and to deduct costs for rectifying defects caused by MS Maxco. MS Maxco incurred delays and rendered defective work, prompting FBDC to hire other contractors to complete and correct the work, costing P11,567,779.12, which FBDC deducted from the retention money. The Trade Contract also prohibited MS Maxco from assigning its rights under the contract without FBDC’s written consent. On February 28, 2005, MS Maxco executed a notarized Deed of Assignment assigning P1,577,115.90 from its retention money with FBDC to respondent Valentin L. Fong as payment for an obligation. FBDC was notified of this assignment by a letter dated April 18, 2005. FBDC refused to pay Fong, asserting that the retention money was not yet due, was subject to garnishment by MS Maxco’s other creditors, and was entirely consumed by the rectification costs and garnishments. Fong filed a complaint for sum of money. The Regional Trial Court ruled in favor of Fong, ordering FBDC to pay the assigned amount with interest. The Court of Appeals affirmed the decision. FBDC appealed to the Supreme Court.

ISSUE

Whether the Court of Appeals erred in ruling that FBDC was bound by the Deed of Assignment between MS Maxco and Fong and was liable to pay Fong the assigned amount of P1,577,115.90.

RULING

The Supreme Court granted the petition and reversed the decisions of the lower courts. The Court ruled that FBDC was not liable to pay Fong. The Deed of Assignment was an assignment of credit under Article 1624 of the Civil Code. However, under the principle of relativity of contracts and subrogation, an assignee steps into the shoes of the assignor and is bound by the terms of the original contract. The Trade Contract between FBDC and MS Maxco explicitly prohibited assignment without FBDC’s written consent under Clause 19.0. Since FBDC did not consent to the assignment, the assignment to Fong was invalid as against FBDC. Consequently, Fong, as assignee, acquired no greater right than MS Maxco and could not enforce the assignment without FBDC’s consent. Furthermore, the retention money was properly applied by FBDC to the rectification costs arising from MS Maxco’s breaches, as stipulated in the Trade Contract. Therefore, FBDC had no remaining obligation to MS Maxco that could be validly assigned to Fong.