CASE DIGEST : Fort Bonifacio Development Corporation v. Manuel M. Domingo G.R. No. 218341, December 7, 2022 GAERLAN

FACTS

Fort Bonifacio Development Corporation (FBDC) entered into a Trade Contract with MS Maxco Company, Inc. for the construction of the Bonifacio Ridge Condominium Project. Under the contract, FBDC retained 5% of the contract price as retention money to answer for any defects during the one-year defect liability period. The contract also expressly prohibited MS Maxco from assigning or transferring its rights or receivables without FBDC's prior written consent, embodying the principle that contractual stipulations bind the parties under Article 1159 of the Civil Code.

Before the retention money became due, several creditors of MS Maxco obtained Notices of Garnishment and Orders of Delivery of Money against its receivables from FBDC. Meanwhile, MS Maxco executed a Deed of Assignment assigning ₱804,068.21 from its retention money to Manuel Domingo as payment of its debt to him. FBDC refused to honor the assignment, arguing that it never gave the required written consent and that the retention money had already been exhausted by garnishments and expenses incurred in correcting defects left by MS Maxco. The RTC and the Court of Appeals nevertheless ruled in favor of Domingo and ordered FBDC to pay the assigned amount. FBDC elevated the case to the Supreme Court through a Petition for Review on Certiorari under Rule 45.

ISSUE

Whether the Deed of Assignment executed by MS Maxco in favor of Manuel Domingo was enforceable against FBDC despite the absence of the latter's written consent, considering the prohibition against assignment under the Trade Contract and the principle of relativity of contracts under Article 1311 of the Civil Code.

Whether FBDC could still be held liable to Domingo for the assigned amount notwithstanding that the retention money had already been applied to satisfy valid garnishment orders and the costs of rectifying the contractor's defective work pursuant to the Trade Contract.

HELD

The Supreme Court granted the petition and reversed the decisions of the RTC and the Court of Appeals. It ruled that while the Deed of Assignment between MS Maxco and Domingo remained valid as between them, it could not bind FBDC because the Trade Contract expressly prohibited any assignment without FBDC's prior written consent, which was never obtained. The Court emphasized Article 1159 of the Civil Code, which provides that obligations arising from contracts have the force of law between the contracting parties, and Article 1311, which embodies the principle of relativity of contracts, under which contractual stipulations bind only the parties, their assigns, and heirs, subject to the terms agreed upon. Since the assignment violated the contractual restriction, FBDC incurred no obligation to Domingo.

The Court further held that even assuming the assignment could be enforced, the retention money had already been exhausted by valid garnishment orders issued in favor of MS Maxco's creditors and by the expenses FBDC incurred in completing and correcting the contractor's defective work, as authorized by the Trade Contract. Consequently, there was no remaining fund from which Domingo's claim could be satisfied. The Court clarified that Domingo's proper remedy lies against MS Maxco, the assignor, and not against FBDC. Accordingly, the award of ₱804,068.21 and legal interest in favor of Domingo was deleted, without prejudice to his filing the appropriate civil action against MS Maxco.