Rights assigned, obligations included
Under a deed of assignment, the assignor assigns his credit to an assignee. Consequently, the assignee is deemed to have replaced or subrogated the assignor in his obligations and rights relating to that credit.
The Supreme Court has recently addressed the issue of whether this deed covers the obligation to pay rent accruing beforehand in Philippine Fisheries Development Authority v. Pascual.
This case involved petitioner Philippine Fisheries Development Authority (PFDA), which is responsible for establishing, maintaining, and operating local fish markets and ports. In this regard, it has been leasing market stalls at the Navotas Fish Port Complex (NFPC).
Lease contract
PFDA leased a parcel of land at the NFPC to Lucila Bautista. Under the lease contract, Lucila undertook to construct more market stalls on the property at her expense. Moreover, she would need to pay the indicated rent once these stalls become fully operational, and after she completely recovers the corresponding construction costs.
Afterwards, Lucila assigned her leasehold rights under the contract with PFDA to respondent Mario Pascual. Under the parties’ deed of assignment, Mario shall discharge Lucila’s responsibilities under this lease.
Meanwhile, once PFDA approves of the assignment, Mario shall subrogate Lucila, who then shall be absolved from obligations under the lease. Eventually, PFDA signified its approval through its general manager’s signature on the deed.
Accrued rent
With this assignment, Mario used the subject stalls for his fish trading business and paid the corresponding rent. Subsequently, however, PFDA served on Mario demand letters on the payment of rent that had accrued before the deed of assignment was executed.
Mario did not pay the accrued rent, prompting PFDA to terminate their lease contract.
Consequently, Mario filed against PFDA a complaint for injunction and specific performance before the Regional Trial Court (RTC).
In his complaint, Mario argued that, among others, he should not be held liable for Lucila’s unpaid rent since their deed of assignment became effective only after it became due.
Meanwhile, PFDA claimed that under the same deed, Mario assumed all of Lucila’s obligations under the lease, including payment of accrued rent.
The RTC dismissed Mario’s complaint, finding that the deed did not limit the obligations and rights transferred to him. Thus, he was liable for Lucila’s rental arrears under the lease.
CA reversal
Upon appeal, the Court of Appeals reversed and set aside the RTC’s decision. It declared that the deed did not replace or novate the lease. To be sure, the deed supposedly only subrogated or substituted Lucila with Mario to her rights, and not obligations, under the lease contract.
Furthermore, based on the deed’s “whereas” clauses or recitals, as well as the parties’ and PFDA’s contemporaneous acts, they did not intend for Lucila to assign to Mario the payment of the rental arrears.
Assignment of credit
The Supreme Court granted PFDA’s petition, declaring that Mario was liable for Lucila’s previously incurred rent. In so doing, it has held that under an assignment of credit, the assignee is deemed to have substituted the assignor to his rights, as well as his obligations, thereon. Thus, the assignee is bound by the same conditions previously binding the assignor.
Furthermore, the assignee merely steps in the assignor’s shoes. This assignment then does not terminate the existing burdens or liens on the thing assigned.
Under the subject deed, Mario agreed to discharge all of Lucila’s obligations and responsibilities in the lease, while Lucila would be absolved from performing them. Furthermore, the deed did not qualify the obligations or rights to be transferred.
Consequently, when Lucila assigned her interests in the lease to Mario, he was deemed subrogated her rights and obligations under the lease contract, including the payment of the rental arrears.
Neither the deed’s recitals nor the parties’ contemporaneous acts support the finding that Mario could not be held liable for the previously incurred rent. Citing previous jurisprudence, the Supreme Court declared that these recitals are merely introductory statements that did not create binding rights and obligations.
Meanwhile, it found unnecessary to consider the parties’ acts since the deed’s terms were clear and thus, did not leave any doubt on the parties’ intent.
