In the Philippine legal system, settling debts often involves various strategies. A notable approach is dation in payment, where a debtor transfers assets, like credits, to a creditor to settle an obligation. The Supreme Court’s decision in Agrifina Aquintey v. Spouses Felicidad and Rico Tibong clarifies the requirements for a valid dation in payment and how it affects the original debt. The Court ruled that when a creditor accepts the assignment of credits from the debtor, the original debt is extinguished up to the value of the assigned credit, preventing unjust enrichment. This case explains the relationship between novation, assignment of credit, and dation in payment.

From Lending Friends to Legal Wrangling: Exploring Assignment of Credit and Debt Settlement

Agrifina Aquintey, a money lender, sought to recover P773,000 from Spouses Tibong, whom she lent money with interest. The Spouses argued they assigned credits from their own debtors to Agrifina. The issue before the Supreme Court was whether the assignment of these credits constituted a valid form of payment. The Court’s analysis revolved around understanding novation, where an old obligation is replaced by a new one, and dation in payment, where a debtor offers something else (in this case, credits) to the creditor who accepts it as equivalent to payment of an outstanding debt.

Building on this understanding, the Court explained the requirements for proving specific denials in legal proceedings. When a defendant fails to specifically deny factual allegations in a complaint, those allegations are deemed admitted. The Court found that Spouses Tibong did not sufficiently deny that the loan amounted to P773,000. Rule 8 of the Rules of Civil Procedure mandates that a defendant must specify which allegations they contest and provide a basis for their denial.

However, the critical question centered on whether the assignment of credit was indeed a valid form of payment and had extinguished the Spouses’ debt, even partially. The Court emphasized that a key aspect of dation in payment is the agreement between creditor and debtor that the obligation is immediately extinguished by the new performance, different from the original debt. As an assignment of credit represents an agreement where the creditor receives the right to collect from the debtor’s debtors, it functions effectively as a special form of payment that diminishes the primary debtor’s liability. The Supreme Court cited Article 1231(b) of the New Civil Code, highlighting that obligations may be modified by changing the principal creditor or by substituting the person of the debtor.

Furthermore, in cases of substituting a new debtor, the consent of the creditor is crucial. The Supreme Court referenced jurisprudence in the Iloilo Traders Finance, Inc. v. Heirs of Sps. Oscar Soriano, Jr. case, which emphasized that a novation should be explicitly declared and reflect an intent to dissolve the old obligation. The case at bar was that Aquintey’s active participation in the assignment of credits implied that the creditor had accepted the assignment of credit in lieu of payment, thereby reducing the obligation of the original debtors.

Regarding assignments of credit, the Court discussed their legal effect and what is necessary for legal effects to fully materialize. An assignment of credit is the assignor, via a legal transaction, transfers his credit and associated rights to another, known as the assignee, who can enforce it without the debtor’s consent, who can enforce it to the same extent as the assignor could enforce it against the debtor. This assignment can take the form of a sale or a dation in payment, which arises when the debtor assigns to the creditor a credit he holds against a third party to obtain release from his debt. In any event, consent is an essential prerequite.

The requisites for dacion en pago are: (1) there must be a 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); and (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, such as an assignment of credit, can result in an equivalent performance, ultimately impacting the rights and obligations of those involved.

However, it’s critical to understand the interplay of an assignor’s (in this case Felicidad) obligation with the transfer. Citing jurisprudence from Vda. de Jayme v. Court of Appeals, The requisites for dacion en pago are: (1) there must be a 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); and (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 fact that Aquintey was able to collect part of the obligations of debtors, only further served as sufficient evidence in part to the satisfaction of the requisites.

After the assignment, the creditor, like Agrifina in this case, stands in the shoes of the original creditor and can pursue the assigned credits, even without the original debtor’s consent. The notification to the debtor and any consent of the debtor is not an essential requisite of an assignment of credit to legally take place.

Based on the facts of the case and previous discussion, the Supreme Court reconciled previous jurisprudence, by coming to the ultimate conclusion based on legal and equitable considerations that the original P773,000 debt of the respondents to the petitioner, must be set-off by way of compensation from: (1) payments made, and (2) payment/credits or property derived out of and from valid contracts assigned to them in the Deeds.

FAQs

What is dation in payment?	It is a special form of payment where the debtor offers another thing or right to the creditor who accepts it as equivalent of payment of an outstanding debt. The property serves as the agreed payment.
What is assignment of credit?	It’s an agreement where the owner of a credit transfers his credit and accessory rights to another. It allows the assignee to enforce the claim to the same extent as the assignor could.
Does an assignment of credit require the debtor’s consent?	No, the debtor’s consent is not required for its perfection. However, the debtor must be notified of the assignment, so they can make the payments to the new creditor, assignee, and not the old, assignor.
What happens if a debtor doesn’t consent to the assignment of credit?	The validity of the assignment is not affected, however they are entitled, even then, to raise against the assignee the same defenses he could set up against the assignor, if payment has not yet been made. In this case however, since the debts have been validly set-off to extinguish respondents debt to petitioner Aquintey, this can no longer be asserted by Spouses Tibong.
How does novation relate to assignment of credit and dation in payment?	While assignment of credit and dation in payment can modify an obligation, novation requires a clear intention to replace the old obligation with a new one. If the intent isn’t clear, the old obligation remains in effect, modified by the new agreement.
What was the main issue decided in Agrifina Aquintey v. Spouses Tibong?	Whether assigning credits from debtors to a creditor constitutes a valid form of payment (dation in payment) to reduce or extinguish the original debt. It also determined whether Spouses Tibong specifically denied the amounts of their debt, pursuant to procedural rules of specifically making proper averments in the Answer/Reply to complaints/petitions.
What amount was ultimately owing in this case?	Considering valid credits due out of existing and valid contracts were given and proven in the lower courts, the Supreme Court determined there was a debt, based on mathematical equations, of P33,841.00.
Can a creditor collect twice on the same debt if they have collected via assigned contracts/credits?	No, doing so would result in unjust enrichment, which Philippine Law does not permit.

The Supreme Court’s decision provides important guidance for creditors and debtors involved in credit assignments. It reaffirms that while novation requires explicit intent, a valid assignment of credit, accepted by the creditor, operates as a dation in payment, extinguishing the original debt to the extent of the assignment. This promotes fairness and prevents unjust enrichment by ensuring creditors cannot collect twice on the same debt.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Agrifina Aquintey, vs. Spouses Felicidad and Rico Tibong, G.R. NO. 166704, December 20, 2006