TAN, Mary Ann C.

September 6, 2020
2I

1. No, it will not prosper. Under Article 1626 of the Civil Code, the debtor who, before having
knowledge of assignment, pays his creditor shall be released from the obligation. The cited
article shows that payment of an obligation which is already existing does not depend on the
consent of the debtor. It, in effect, mandates that such payment of the existing obligation shall
already be made to the new creditor from the time the debtor acquires knowledge of the
assignment of the obligation. It seems to be clear, then, that a debtor is protected if he pays his
creditor without actual notice that the debt has been assigned. Such notice must be actual, and the
recording of the assignment, there being no law requiring the same, will not operate as
constructive notice to the debtor. (Sesbreno v.CA, G.R. No. 89252, May 24, 1993 citing Sison v.
Yap-Tico, G.R. No. L-11583, February 8, 1918).

In the case at bar, Mr. B failed to give notice to Mr. A regarding the transfer of right to collect
from the latter to Mr. B. Such failure caused Mr. A to pay Mr. B in good faith which in turn
exonerates him from his obligation to pay. As explained by the Supreme Court in Sison v. Yap-
Tico (supra.):
no man is bound to remain a debtor; he may pay to him with whom he contacted to pay;
and if he pay before notice that his debt has been assigned, the law holds him exonerated,
for the reason that it is the duty of the person who has acquired a title by transfer to
demand payment of the debt, to give his debt or notice.

Therefore, the debtor or party liable on contracts like the one in question is not affected by the
assignment until he has notice thereof, and consequently he may set up against the claim of the
assignee any defense acquired before notice that would avail him against the assignor had there
been no assignment, and payment by the debtor to the assignor, or any compromise or release of
the assigned claim by the latter before notice will be valid against the assignee and discharge the
debtor. What Mr. C can do is to go after Mr. B who was unjustly enriched in this case. Hence,
Mr. C’s case against Mr. A will not prosper.

2. No, the position of Mr. C is untenable. Under Article 1629 of the Civil Code, in case the
assignor in good faith should have made himself responsible for the insolvency of the debtor, and
the contracting parties should not have agreed upon the duration of the liability, it shall last for
one year only, from the time of the assignment if the period had already expired. If the credit
should be payable within a term or period which has not yet expired, the liability shall cease one
year after the maturity.

In this case, Mr. B in good faith assigned the credit to Mr. C with the knowledge that Mr. A is
solvent, thus, capable of paying the obligation. Aside from that, the assignment of credit between
Mr. B and Mr. C happened on January 2, 2019 and Mr. C obviously relied on the date of
maturity stated in the non-negotiable promissory note which is February 1, 2020. Thus, Mr. C
cannot demand from Mr. B because the period of one year (pertaining to the period wherein Mr.
B could still be liable when Mr. A becomes insolvent) already lapsed. Since the credit is payable
within a term or period (February 1, 2020) which has already expired, Mr. B can no longer be
held liable to pay Mr. C for Mr. A’s insolvency. The liability to pay Mr. C has already matured,
because demand was made on February 2, 2020 while the credit matured on February 1, 2020.
Thus, Mr. C cannot hold Mr. B liable of the insolvency of Mr. A.

3. Yes, Mr. C’s position is tenable. Article 1629 of the Civil Code states that, in case the assignor
in good faith should have made himself responsible for the solvency of the debtor, and the
contracting parties should not have agreed upon the duration of the liability, it shall last for one
year only, from the time of the assignment if the period had already expired. If the credit should
be payable within a term or period which has not yet expired, the liability shall cease one year
after the maturity. 

In this case, pursuant to Article 1629, Mr. C can still demand from Mr. B because the period of
one year, pertaining to the period wherein Mr. B could still be liable after the maturity of the
obligation (February 1, 2020), has not yet lapsed. Hence, Mr. B’s liability has not yet ceased
since Mr. C timely raised his claim within the one-year prescriptive period under the Art. 1629 of
the Civil Code.

4. In the case of Licaros v. Gatmaitan (G.R. No. 142838, August 9, 2001), the Supreme Court
had explained the differences between conventional subrogation and assignment of credit as
follows:

Subrogation refers to the transfer of all the rights of the creditor to a third person, who substitutes
him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes
place without agreement but by operation of law because of certain acts. Conventional
subrogation is that which takes place by agreement of parties.

On the other hand, assignment of credit has been defined as 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 or
exchange or donation - and without need of the debtor's consent, transfers that credit and its
accessory rights to another (known as the assignee), who acquires the power to enforce it, to the
same extent as the assignor could have enforced it against the debtor. The assignment may be
done gratuitously or onerously, in which case, the assignment has an effect similar to that of a
sale.

A. As to rules which governs

Conventional Subrogation: governed by Article 1300 to Article 1304 of the Civil Code.
Assignment of Credit: governed by Article 1624 to Article 1635 of the Civil Code.

B. As to necessity of debtor’s consent

Conventional Subrogation: the debtor's consent is required.
Assignment of Credit: the consent of the debtor is not necessary in order that the
assignment may fully produce legal effects.

C. As to effect upon obligation

Conventional Subrogation: it has the effect of extinguishing the obligation and giving
rise to a new one.
 Assignment of Credit: has the effect of transmitting the rights of the creditor to another
person without modifying or extinguishing the obligation.

D. As to effect upon vices:

Conventional Subrogation: the nullity of an old obligation may be cured by subrogation,
such that a new obligation will be perfectly valid.
Assignment of Credit: the nullity of an obligation is not remedied by the assignment of
the creditor's right to another.

E. As to time of effectivity
Conventional Subrogation: the nullity of an old obligation may be cured by subrogation,
such that a new obligation will be perfectly valid.
Assignment of Credit: the effect as far as the debtor is concerned, arises from the moment
of notification.

5. As cited in the textbook of Aquino on Notes and Cases on Negotiable Instruments Law and
Banking Law (2018), the following are the differences of negotiable instrument and non-
negotiable instrument:

A. As to Applicable Law

Negotiable Instruments: Governed by the Negotiable Instruments Law.

Non-negotiable Instruments: Application of the Negotiable Instruments Law is only by
analogy.

B. As to Transferability

Negotiable Instruments: Transferrable by negotiation or by assignment.

Non-negotiable Instruments: Transferrable only by assignment.

C. As to Transferee

Negotiable Instruments: The transferee can be a holder in due course if all the
requirements under Sec. 52, NIL are complied with.
Non-negotiable Instruments: The transferee remains to be an assignee and can never be a
holder in due course.

D. As to the Nature of Title

Negotiable Instruments: A holder in due course acquires clean title and takes the
instrument free from any personal defenses and defects in title that prior parties may raise
against each other.
Non-negotiable Instruments: Transferee acquires a derivative title only such that all
defenses available against prior parties may be raised against the last assignee.

6.
a). Yes, Mr. A validly refused Mr. D. In this case, Mr. A’s assent to the promissory note was
obtained through intimidation. Under Art. 1335, par. 2, of the Civil Code, there is intimidation
when one of the contracting parties is compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or upon the person or property of his
spouse, descendants or ascendants, to give his consent. The consideration for which Mr. A
signed the promissory note is invalid which exonerates him from any obligation.

b.) Mr. D can go against Mr. C. When a creditor assigns his credit, he warrants only the (a)
existence and (b) legality of the credit at the perfection of the contract ((Lo vs. KJS Eco-
Formwork System, Phil., Inc., 413 SCRA 182 [2003]). If there be any breach of the above
warranties, the assignor- vendor shall be held answerable therefor. For violation of the above
warranties, the liability of the vendor (assignor) in good faith is limited only to the price
received and to the expenses of the contract, and any other legitimate payments by reason of the
assignment (Art. 1616, par. 1). In this case, Mr. C is in good faith since he is ignorant of any of
the circumstances (kidnapping of Mr. B’s relative) which would make him an assignor in bad
faith. As such, he is only liable to Mr. D to the for P900 only – the extent of the amount he
received from Mr. D at the time he assigned the credit to the latter and to the expenses of the
contract, and any other legitimate payments by reason of the assignment, if any.

c.) No, Mr. D cannot go against Mr. B because there is no contract between Mr. D and Mr. B in
the first place. The assignment involves no transfer of ownership but merely effects the transfer
of rights which the assignor has at the time to the assignee. (Casabuena v. Court of Appeals, 286
SCRA 594 [1998].) As a consequence of the assignment, the third party (assignee) steps into the
shoes of the original creditor (assignor) as a subrogee of the latter (South City Homes, Inc. vs.
BA Finance Corporation, 371 SCRA 603 [2001]). In this case, what Mr. D has in his possession is
a defective title. In a non-negotiable instrument, the title acquired by the transferee is a derivative
title. If the title of the transferor is defective, and therefore subject to defenses, the title of the
transferee will also be defective. This being the case at bar, Mr. D cannot collect from Mr. B
since there is no privity between them. Hence, Mr. D cannot go against Mr. B.

7. No, the arguments of Spouse R are not correct. As explained in the case of BPI v. Spouses
Royeca (G.R. No. 176664, July 21, 2008) citing Jimenez v. NLRC (G.R. No. 116960, April 2,
1996), as a general rule, one who pleads payment has the burden of proving it. Even where the
plaintiff must allege non-payment, the general rule is that the burden rests on the debtor to prove
payment, rather than on the creditor to prove non-payment. The debtor has the burden of
showing with legal certainty that the obligation has been discharged by payment. When the
existence of a debt is fully established by the evidence contained in the record, the burden of
proving that it has been extinguished by payment devolves upon the debtor who offers such a
defense to the claim of the creditor. Where the debtor introduces some evidence of payment, the
burden of going forward with the evidence - as distinct from the general burden of proof - shifts
to the creditor, who is then under a duty of producing some evidence to show non-payment.

In this case, the Acknowledgment Receipt was not sufficient proof of as this is only proof that
the debtor, or in this case, Spouses R delivered eight checks in payment of the amount due.
Apparently, this will not suffice to establish actual payment because, payment must be made in
legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of
payment. Since a negotiable instrument is only a substitute for money and not money, the
delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually realized.

Spouses R therefore had to present proof, not only that they delivered the checks to the
petitioner, but also that the checks were encashed which they failed to do so. Had the checks
been actually encashed, the Spouses R could have easily produced the cancelled checks as
evidence to prove the same. Instead, they merely averred that they believed in good faith that the
checks were encashed because they were not notified of the dishonor of the checks and three
years had already lapsed since they issued the checks. Because of this failure of the Spouses R to
present sufficient proof of payment, it was no longer necessary for F Bank to prove non-
payment, particularly proof that the checks were dishonored. The burden of evidence is shifted
only if the party upon whom it is lodged was able to adduce preponderant evidence to prove its
claim.

Further, F Bank, as payee, did not have a legal obligation to inform the Spouses R of the
dishonor of the checks. A notice of dishonor is required only to preserve the right of the payee to
recover on the check. It preserves the liability of the drawer and the indorsers on the check.
Otherwise, if the payee fails to give notice to them, they are discharged from their liability
thereon, and the payee is precluded from enforcing payment on the check. Therefore, Spouses R,
cannot fault the F Bank for not notifying them of the non-payment of the checks because
whatever rights were transgressed by such omission belonged only to the F Bank. Hence,
Spouses R’s arguments are wrong.

8. None. As explained in the case of BPI v. Spouses Royeca (G.R. No. 176664, July 21, 2008), as
a general rule, one who pleads payment has the burden of proving it. Even where the plaintiff
must allege non-payment, the general rule is that the burden rests on the debtor to prove
payment, rather than on the creditor to prove non-payment. The debtor has the burden of
showing with legal certainty that the obligation has been discharged by payment. When the
existence of a debt is fully established by the evidence contained in the record, the burden of
proving that it has been extinguished by payment devolves upon the debtor who offers such a
defense to the claim of the creditor. Where the debtor introduces some evidence of payment, the
burden of going forward with the evidence - as distinct from the general burden of proof - shifts
to the creditor, who is then under a duty of producing some evidence to show non-payment.

F Bank’s cause of action was based on the original obligation as evidenced by the Promissory
Note and the Chattel Mortgage, and not on the checks issued in payment thereof. However, the
contract of loan, as evidenced by the promissory note, was not signed. This follows that Spouses
R had no part in the said contract. As enunciated in the aforementioned case, the creditor's
possession of the evidence of debt is proof that the debt has not been discharged by payment. A
promissory note in the hands of the creditor is a proof of indebtedness rather than proof of
payment. In an action for replevin by a mortgagee, it is prima facie evidence that the promissory
note has not been paid. Likewise, an uncanceled mortgage in the possession of the mortgagee
gives rise to the presumption that the mortgage debt is unpaid. Nowhere could it be seen from
the facts that Spouses R have not yet paid their monetary obligation. The chattel mortgage, being
an accessory contract to the promissory note must also fail for no valid accessory contract can be
had if the principal contract is defective. Hence, they can no longer be faulted by F Bank.

9.

PROMISSORY NOTE
(MONTHLY)

P90,000.00
Antipolo City, Rizal, Philippines
September 6, 2020

For value received, I/We jointly and severally, promise to pay Padanan Motor Sales
Corporation or order, at its office in Antipolo City, Rizal,  the sum of NINETY THOUSAND
ONLY (P90,000.00) Philippine currency, which amount includes interest at 14% per
annum based on the diminishing balance, the said principal sum, to be payable, without need
of notice or demand, in installments of the amounts following and at the dates hereinafter set
forth, to wit: P5,000.00 monthly for "36" months due and payable on the 15th day of each
month starting September 15, 2020 thru and inclusive of August 15, 2023. P_________
monthly for ______ months due and payable on the ______ day of each month starting
_____202__ thru and inclusive of _____, 202________ provided that interest at 14% per
annum shall be added on each unpaid installment from maturity hereof until fully paid.

x x x           x x x          x x x

Maker: Co-Maker:

(SIGNED) MARY ANN TAN ____________________

Address:

____________________ ____________________

WITNESSES

SIGNED: ILLEGIBLE SIGNED: ILLEGIBLE

TAN # TAN #

PAY TO THE ORDER OF

FILINVEST FINANCE AND LEASING CORPORATION

PADANAN MOTOR SALES CORPORATION

BY: (SIGNED) ROMULO A. PADANAN
Cash Manager
10.

CITY OF ANTIPOLO

September 6, 2020 P100,000

Twenty (20) days after above date, PAY TO THE OPRDER OF ROMULO
PADANAN the amount of Thirty Thousand Pesos Only (P30,000.00) Philippine
Currency.

VALUE RECEIVED AND DEBIT THE SAME FROM THE ACCOUNT OF

THE DRAWER.

MARY ANN TAN

Drawer

To: ASIAN BANK

Antipolo City