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MICHELLE A.

OGATIS
LAW 111C
CASE NO.: 149
SONNY LO vs. KJS ECO-FORMWORK SYSTEM PHIL., INC.
G.R. No. 149420
October 8, 2003
NATURE OF THE ACTION:
Petition to review the decision of the lower courts.
RELEVANT FACTS:
Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the
sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style
Sans Enterprises, is a building contractor. On February 22, 1990, petitioner ordered scaffolding
equipment from respondent worth P540,425.80. He paid a down payment in the amount of
P150,000.00 and the balance payable in ten monthly installments. Respondent delivered the
scaffoldings to petitioner. Petitioner was able to pay the first two monthly installments but due to
financial difficulties, he was not able to settle his obligation to respondent despite oral and
written demands made against him.
On October 11, 1990, petitioner and respondent executed a Deed of Assignment, whereby
petitioner assigned to respondent his receivables in the amount of P335,462.14 from Jomero
Realty Corporation. However, when respondent tried to collect the said credit from Jomero
Realty Corporation, the latter refused to honor the Deed of Assignment because it claimed that
petitioner was also indebted to it. On November 26, 1990, respondent sent a letter to petitioner
demanding payment of his obligation, but petitioner refused to pay claiming that his obligation
had been extinguished when they executed the Deed of Assignment. Consequently, on January
10, 1991, respondent filed an action for recovery of a sum of money against the petitioner before

the Regional Trial Court of Makati, Branch 147, which was docketed as Civil Case No. 91-074.
Petitioner insists that his obligation was extinguished with the execution of the Deed of
Assignment of credit. Respondent presented the testimony of its employee, Almeda Baaga, who
testified that Jomero Realty refused to honor the assignment of credit because it claimed that
petitioner had an outstanding indebtedness to it. On August 25, 1994, the trial court rendered a
decision dismissing the complaint on the ground that the assignment of credit extinguished the
obligation. Upon appeal, Court of Appeals reversed the trial court decision and held in favor of
KJS. Petitioner filed a motion for reconsideration of the said decision but was denied by the CA.
ISSUE:
Whether the deed of assignment extinguished the petitioners obligation.
RULING:
The Decision of the Court of Appeals ordering petitioner to pay respondent the sum of
P335,462.14 with legal interest of 6% per annum from January 10, 1991 until fully paid is
affirmed with modification. Upon finality, the rate of legal interest shall be 12% per annum,
inasmuch as the obligation shall thereafter become equivalent to a forbearance of credit. The
award of attorneys fees is deleted for lack of evidentiary basis.
RATIONALE:
An assignment of credit is an agreement by virtue of which the owner of a credit, known
as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without
the consent of the debtor, transfers his credit and accessory rights 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. In dacion en pago, as a special mode of payment, the debtor offers another
thing to the creditor who accepts it as equivalent of payment of an outstanding debt. In order
that there be a valid dation in payment, the following are the requisites: (1) There must be the
performance of the prestation in lieu of payment (animo solvendi) which may consist in the
delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be
some difference between the prestation due and that which is given in substitution (aliud pro
alio); (3) There must be an agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a prestation different from that due.
The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really
buying the thing or property of the debtor, payment for which is to be charged against the
debtors debt. As such, the vendor in good faith shall be responsible, for the existence and
legality of the credit at the time of the sale but not for the solvency of the debtor, in specified
circumstances.
The assignment of credit, which is in the nature of a sale of personal property, produced
the effects of a dation in payment which may extinguish the obligation. However, as in any other
contract of sale, the vendor or assignor is bound by certain warranties. More specifically, the
first paragraph of Article 1628 of the Civil Code provides that 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; but not 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. From that
provision, 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 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. In other words, respondent
alleged the non-existence of the credit and asserted its claim to petitioners warranty under the
assignment. It is therefore necessary for the petitioner to make good its warranty and pay the
obligation. 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.

MICHELLE A. OGATIS
LAW 111C
CASE NO.: 232
HEIRS OF MANUEL UY EK LIONG, represented by BELEN LIM VDA. DE UY,
vs. MAURICIA MEER CASTILLO, HEIRS OF BUENAFLOR C. UMALI,
represented by NANCY UMALI, VICTORIA H. CASTILLO, BERTILLA C.
RADA, MARIETTA C. CAVANEZ, LEOVINA C. JALBUENA and PHILIP M.
CASTILLO
G.R. No. 176425
June 5, 2013
NATURE OF THE ACTION:
Petition for Review on Certiorari the Decision rendered by the Court of Appeals to annul
the title of PMPCI over respondents land.
RELEVANT FACTS:
Respondents entered into an AGREEMENT whereby in exchange for the legal services
of Atty. Zepeda and the financial assistance of Manuel Uy Ek Lions, in the event of a favorable
decision in the civil case, Atty. Zepeda and Manuel would be entitled to 40% of the realties
and/or monetary benefits which may be adjudicated in favor of the respondents. Respondents, on
the same day entered into a Kasunduan, agreeing to sell the remaining 60% share in the land in
favor of Manuel for the sum of P180,000. Manuel would pay a P1,000 down payment upon
execution of the Kasunduan. They agreed that any party violating the Kasunduan would pay the
aggrieved party a penalty fixed in the sum of P50,000, together with the attorneys fees and
litigation expenses incurred should a case be subsequently filed in court. The respondents won in
the civil case. The land was divided in accordance with the Agreement but the respondents
refused to comply with the Kasunduan, despite Manuels offer to pay the remaining P179,000
balance, claiming that the same was void ab initio for being violative of Art 1491 of the NCC

and the Canons of Professional Responsibility. Article 1491 prohibits lawyers from acquiring by
purchase or assignment the property /rights involved in the litigation in which they intervene by
virtue of their profession. Manuel instituted an action for Specific Performance and Damages
against respondents.
ISSUE:
Whether the Kasunduan should be given effect.
RULING:
The Court of Appeals Decision is REVERSED and SET ASIDE. The RTC's Decision is
REINSTATED subject to the following MODIFICATIONS: (a) the exclusion of a 1,750-square
meter portion from the 60% share in the subject parcel respondents were ordered to convey in
favor of petitioners; and (b) the deletion of the awards of moral and exemplary damages. The
rights of the parties under the Agreement may be determined in a separate litigation.
RATIONALE:
The Kasunduan is valid. The prohibition applies only during the pendency of the suit and
generally does not cover contracts for contingent fees where the transfer takes effect only after
the finality of a favorable judgment. The Agreement and the Kasunduan are not independent
contracts, with parties, objects and causes different from that of the other. Obligations arising
from contracts have the force of law between the contracting parties. When the terms of the
contract are clear and leave no doubt as to the intention of the parties, the literal meaning of its
stipulation should govern. The Kasunduan contained a penal clause which provides that a party
who violates any of its provisions shall be liable to pay the aggrieved party a penalty fixed at
P50,000, together with the attorneys fees and litigation expenses incurred by the latter should
judicial resolution of the matter becomes necessary. The obligor would then be bound to pay the
stipulated indemnity without the necessity of proof of the existence and the measure of damages
caused by the breach. In obligations with a penal clause, the penalty generally substitutes the
indemnity for damages and the payment of interests in case of non-compliance. Usually
incorporated to create an effective deterrent against breach of the obligation by making the
consequences of such breach as onerous as it may be possible, the rule is settled that a penal
clause is not limited to actual and compensatory damages. Obligations arising from contracts,
after all, have the force of law between the contracting parties who are expected to abide in good
faith with their contractual agreements.

MICHELLE A. OGATIS
LAW 111C
CASE NO.: 315
Eastern Shipping Lines, Inc. v. Margarine-Verkaufs-Union GmbH
G.R. No. L-31087 93 SCRA 257
NATURE OF THE ACTION:

Appeal from judgment holding petitioner liable under the terms of its own bill of lading
for the damage suffered by respondent's copra cargo on board petitioner's vessel.
RELEVANT FACTS:
MARGARINE-VERKAUFS-UNION, a corporation not engaged in business in the
Philippines, was the consignee of copra in bulk shipped from Cebu on board EASTERN
SHIPPING LINESs vessel for discharge at Hamburg, Germany. Petitioners bill of lading for the
cargo provided that the contract shall be governed by the laws of the Flag of the Ship carrying
the goods. In case of average, same shall be adjusted according to York-Antwerp Rules. While
the vessel was off Gibraltar, a fire broke out aboard the and caused water damage to the copra.
EASTERN SHIPPING LINES rejected MARGARINE-VERKAUFS-UNION GmbH s claim
for payment.
ISSUE:
Whether Article 848 of the Code of Commerce govern this case despite the bill of lading
which expressly contained for the application of the York-Antwerp Rules.
RULING:
The appealed judgment is hereby affirmed with the modification that the award of
attorney's fees is set aside, with costs against petitioner.
RATIO:
The lower court correctly ruled the cited codal article to be not applicable in this
particular case for the reason that the bill of lading contains an agreement to the contrary. There
is a clear and irreconcilable inconsistency between the York-Antwerp Rules expressly adopted by
the parties as their contract under the bill of lading which sustains Easterns claim and the codal
article cited by Margarine which would bar the same.
A contract of adhesion as embodied in the printed bill of lading issued for the shipment to which
the consignee merely adhered, having no choice in the matter, and consequently, any ambiguity
must be construed against the author.