In the case of Liam vs. United Coconut Planters Bank, the Supreme Court clarified the distinction between assignment of credit and subrogation. The Court ruled that UCPB, as an assignee of credit, could not be held liable for the developer’s failure to deliver a condominium unit. This distinction is vital for understanding the rights and obligations of parties when financial institutions take over receivables from property developers, safeguarding consumers from misdirected claims.

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Florita Liam entered into a contract with Primetown Property Group, Inc. (PPGI) to purchase a condominium unit, with PPGI later assigning its receivables from Liam to United Coconut Planters Bank (UCPB). When PPGI failed to deliver the unit, Liam sought recourse against both PPGI and UCPB. This legal battle hinged on whether UCPB, by accepting the assignment of receivables, stepped into the shoes of PPGI regarding the obligation to deliver the property. The Supreme Court’s analysis centered on distinguishing between an assignment of credit and subrogation, which are distinct legal concepts with different implications for the parties involved.

The Court emphasized that an assignment of credit is an agreement where the owner of a credit (the assignor) transfers their right to another (the assignee) without needing the debtor’s consent. In contrast, subrogation requires the agreement of all three parties: the original creditor, the debtor, and the new creditor. The critical difference lies in the debtor’s consent: assignment of credit does not require it, whereas subrogation does. To illustrate, the Court quoted:

“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, dation in payment, 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 Liam’s case, the Memorandum of Agreement (MOA) and Deed of Sale/Assignment between PPGI and UCPB clearly indicated an assignment of credit. The MOA explicitly stated that PPGI sold its outstanding receivables to UCPB as partial settlement of its loan. The Deed of Sale/Assignment reinforced this, granting UCPB the right to pursue condominium buyers like Liam for outstanding balances. The Supreme Court highlighted that the intention of the parties is paramount in interpreting contracts. It stated that:

“The primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a contract appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only from the express terms of their agreement, but also from the contemporaneous and subsequent acts of the parties.”

Here, the Court found no ambiguity in the agreements between PPGI and UCPB. The absence of Liam’s consent to these agreements further solidified their nature as an assignment of credit. Liam was only notified of the arrangement after it was finalized, reinforcing that UCPB was merely acquiring PPGI’s right to collect receivables, not assuming PPGI’s obligations as the property developer. Moreover, PPGI explicitly stated that the transfer of receivables to UCPB would not alter the terms of the original Contract to Sell, meaning UCPB never replaced PPGI as the responsible party for delivering the unit. This point is vital because it preserves the original agreement between the buyer and developer and ensures that the bank’s involvement is limited to financial aspects.

Therefore, the Supreme Court sided with UCPB, stating that it could not be held liable for PPGI’s failure to deliver the condominium unit. As a mere assignee, UCPB’s role was limited to collecting receivables, not fulfilling the developer’s contractual obligations. The Court cited previous cases with similar circumstances to bolster its decision. The Supreme Court relied on this precedent to show that the principle was consistently upheld. It affirmed the Court of Appeals’ ruling that UCPB was improperly impleaded in Liam’s complaint for specific performance.

Furthermore, Liam argued that UCPB’s appeal to the HLURB Board of Commissioners should have been dismissed for failure to post an appeal bond. The Supreme Court rejected this argument, clarifying that the HLURB rules mandate an appeal bond only in cases involving a monetary award. Since the initial HLURB decision ordered UCPB to allow Liam to choose another unit or maintain her original unit, it did not constitute a monetary judgment requiring a bond.

What is the key difference between assignment of credit and subrogation?	Assignment of credit does not require the debtor’s consent, while subrogation requires the agreement of all three parties involved. This distinction is crucial in determining the rights and obligations of parties in financial transactions.
Was UCPB liable for PPGI’s failure to deliver the condominium unit?	No, the Supreme Court ruled that as a mere assignee of credit, UCPB was not liable for PPGI’s contractual obligations as the property developer. UCPB’s role was limited to collecting receivables.
Did Liam’s consent matter in the assignment of credit to UCPB?	No, the Supreme Court emphasized that the debtor’s consent is not necessary for an assignment of credit to take effect. Notice to the debtor is sufficient.
What was the effect of PPGI’s statement that the agreement would not alter the terms of the Contract to Sell?	This statement reinforced that UCPB was not stepping into PPGI’s shoes as the developer. The original contractual obligations remained with PPGI.
Why was UCPB not required to post an appeal bond before the HLURB Board of Commissioners?	The HLURB rules require an appeal bond only for judgments involving a monetary award. The initial HLURB decision did not order UCPB to pay a specific sum of money.
What were the agreements between PPGI and UCPB?	The parties entered into a MOA and Deed of Sale/Assignment that transferred the receivables from PPGI’s condominium buyers to UCPB.
What did HLURB Arbiter Marino Bernardo M. Torres decide?	The HLURB Arbiter ruled in favor of Liam. It ordered that UCPB should allow Liam to choose from among the available units, or to maintain the unit. Further, the arbiter said that realty taxes and documentary stamp tax must be charged to UCPB.
What did the CA rule in this case?	The Court of Appeals ruled in favor of UCPB. It reversed the Office of the President’s decision, holding that Liam had no right to demand specific performance from UCPB.

The Supreme Court’s decision in Liam vs. United Coconut Planters Bank provides critical clarity on the scope of liability for assignees of credit in property development projects. By differentiating between assignment and subrogation, the Court reinforces the principle that financial institutions taking over receivables do not automatically inherit the contractual obligations of the original developers. This ruling underscores the importance of carefully examining the nature of agreements between developers and financial institutions to determine the extent of each party’s responsibilities.

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: FLORITA LIAM, PETITIONER, VS. UNITED COCONUT PLANTERS BANK, RESPONDENT., G.R. No. 194664, June 15, 2016