PROJECT BUILDERS v. CA, GR No.

99433, 2001-06-19
Facts:
"`This collection suit was filed on July 17, 1981 by Industrial Finance Corporation (IFC for
short) against defendant Project Builders, Inc
Galicano Calapatia, Jr., Pablo Malasarte, Teodoro Banas and Leandro Enriquez, arising
from an alleged... deficiency of P1,323,053.08, after the extrajudicial foreclosure of the real
estate mortgage.
`The defendants deny liability and in their answer they allege that plaintiff has no cause or
right of action because the obligation is already fully paid out of the proceeds of foreclosure
sale of defendants' property.  Further, defendants alleged that a proper accounting... of the
transaction between the parties will show that it is the plaintiff who is liable to the
defendants.
`The facts, which led to the filing of the case, are as follows:
On August 21, 1975, plaintiff and defendant PBI entered into an agreement (Exh. A')
whereby it was agreed that plaintiff would provide a maximum amount of
P2,000,000.00 against which said defendant would discount and assign to
plaintiff on awith recourse non-collection... basis' its (PBI's) accounts receivable under
the contracts to sell specified in said agreement.
And on June 15, 1976, the same parties entered into an agreement (Exh. `B') whereby it
was agreed that PBI's credit line with plaintiff be increased to P5,000,000.00.  It... was
stipulated that the credit line of P5,000,000.00 granted includes the amount already
assigned/discounted.
Against the above-mentioned `credit line,' defendant PBI discounted with plaintiff on
different dates accounts receivables with different maturity dates from different
condominium-unit buyers.  And each time a certain account receivable was discounted, the
covering
Contract to Sell (Exh. C-1' toO-1') was assigned by defendant to plaintiff.
`The total amount of receivables discounted by defendant PBI is P7,986,815.38 and
consists of twenty accounts. Of such receivables amounting to P7,986,815.38 plaintiff
released to defendant PBI the amount of P4,549,132.72 and the difference of
P3,437,682.66 represents the... discounting fee or finance fee.
To secure compliance with the terms and conditions of the agreement...
defendants on the same date executed a Deed of Real Estate Mortgage
(Exh.Q') in favor of plaintiff.  When defendants allegedly defaulted in the payment of the
subject... account, plaintiff foreclosed the mortgage and plaintiff was the highest bidder in
the amount of P3,500,000.00.'
The foreclosed property was redeemed a year later (Exh.T'), but after application
of the redemption payment, plaintiff claims that there is still a deficiency in the amount of
P1,323,053.08, hence, this complaint.'
"The terms and conditions of the Agreement dated June 15, 1976 (Exh. `B') which are
material to the present appeal state as follows:
"'1.     That the Assignor assigned all its rights and interests on several Contracts to Sell
executed by Assignor and the latter's customers.
the trial court dismissed the complaint and ruled on the counterclaim in this wise -
"1.
Ordering plaintiff to return to the defendants the amount of P3,705.91 which plaintiff
charged on the account of Dr. Ricardo Ortiz and Olympic Engineering Sales Corporation
which had already been paid;
"2.
Ordering plaintiff to pay to defendants the amount of P238,052.53, representing the amount
of the promissory note which was (sic) not been compensated or applied to the account of
defendants;
"3.
Ordering plaintiff to return to defendants the amount of P425,833.33, representing the
interest collected by plaintiff from defendants from foreclosure to redemption of the real
estate mortgage;
"4.
Ordering plaintiff to return to defendants the amount of P344,302.18, representing the
prepaid interests collected by plaintiff, since defendants were not allowed to use the period
of such prepaid interests;
"5.
Ordering plaintiff to pay attorney's fees in the amount of P20,000.00.
The Court of Appeals, in its decision of 14 May 1991, overturned the judgment of the trial
court
Feeling aggrieved, Public Builders, Inc., and its officers, namely, Galicano Calapatia, Jr.,
Teodoro Banas and Leandro Enriquez, have come to this Court via a petition for review on
certiorar
Issues:
whether or not the agreement forged by petitioners and private respondent is a simple loan
or a financing transaction governed by the provisions of Republic Act No. 5980
Ruling:
Petitioners would have us... convinced that the transaction forged by them with private
respondent is a simple loan.  It is a contention difficult to accept
Petitioner corporation, the developer-builder of Jovan Condominium Building, in obtaining a
credit line of P5,000,000.00 from private respondent, assigned twenty (20) contracts to sell
with accounts receivable from its condominium unit buyers to the latter with recourse to...
assignor and on a non-collection basis.
Succinctly, private respondent is a financing company as so defined by the Financing
Company Act.
(a) "Financing companies," x x x organized for the purpose of extending credit facilities to
consumers and to industrial, commercial, or agricultural enterprises, either by discounting or
factoring commercial papers or accounts receivable, or by... buying and selling contracts,
leases, chattel mortgages, or other evidences of indebtedness or by leasing of motor
vehicles, heavy equipment and industrial machinery, business and office machines and
equipment, appliances and other movable property."
The assignment of the contracts to sell falls within the purview of the Act.  The term credit
has been defined to -
"(c)            x x x mean any loan, mortgage, deed of trust, advance, or discount; any
conditional sales contract, any contract to sell, or sale or contract of sale of property or
service, either for present or... future delivery, under which, part or all of the price is payable
subsequent to the making of such sale or contract; any rental-purchase contract; any
option, demand, lien, pledge, or other claim against, or for the delivery of, property or
money, any purchase, or other... acquisition of or any credit upon the security of, any
obligation or claim arising out of the foregoing; and any transaction or series of transactions
having a similar purpose or effect;"[
An assignment of credit is an act of transferring, either onerously or gratuitously, the right of
an assignor to an assignee who would then be capable of proceeding against the debtor for
enforcement or satisfaction of the credit.
The transfer of rights takes place upon... perfection of the contract,[8] and ownership of the
right, including all appurtenant accessory rights, is thereupon acquired by the assignee. 
The assignment binds the debtor only upon acquiring knowledge of the assignment but he
is entitled,... even then, to raise against the assignee the same defenses he could set up
against the assignor.  Where the assignment is on account of pure liberality on the part of
the assignor, the rules on donation would likewise be pertinent; where valuable
consideration is involved,... the assignment partakes of the nature of a contract of sale or
purchase.
Upon an assignment of a contract to sell, the assignee is effectively subrogated in place of
the assignor and in a position to enforce the contract to sell to the same extent as the
assignor could.
An insistence of petitioners that the subject transaction should be considered a simple loan
since private respondent did not communicate with the debtors, condominium unit buyers,
to collect payment from them, is untenable.  In an assignment of credit, the consent of the...
debtor is not essential for its perfection,[10] his knowledge thereof or lack of it affecting only
the efficaciousness or inefficaciousness of any payment he might make.
In Rodriguez vs. Court of Appeals,[12]... the Court has said:... consent is not necessary in
order that assignment may fully produce legal effects. Hence, the duty to pay does not
depend on the consent of the... debtor.  Otherwise, all creditors would be prevented from
assigning their credits because of the possibility of the debtors' refusal to give consent.
"What the law requires in an assignment of credit is not the consent of the debtor but merely
notice to him
The purpose of the notice is only to inform the debtor that from the date of the assignment,
payment should be made to the assignee and not to the original creditor."[13]
The assignment, it might be pointed out, was "with recourse," and default in the payment of
installments had been duly established when petitioner corporation foreclosed on the
mortgaged parcels of land.  The resort to foreclosure of the mortgaged properties did not...
preclude private respondent from collecting interest from the assigned Contracts To Sell
from the time of foreclosure to the redemption of the foreclosed property.  The imposition of
interest was a mere enforcement or exercise of the right to the ownership of the credit or...
receivables which the parties stipulated in the 1976 financing agreement.  Thus -
"f. That the Assignor shall comply with all the terms and conditions specified on the said
Contracts to Sell, executed by the assignor and its individual purchaser or customers, and
assigned/discounted to Assignee
One of the provisions in the contracts to sell... related to the imposition of interest in the
event of default by the debtor in the payment of installments, to wit:
"All payments shall be made on or before their respective due dates without necessity of
demand therefor, and failure to make such payments on time shall entitle the Developer to
charge interest at the rate of one percent (1%) per month without prejudice to the other...
remedies available to the Developer."[15]
As owner of the account receivables, private respondent was impressed with the
entitlement over such interest payment.
Petitioners' claim that private respondent is proscribed from imposing interest and other
charges beyond the limits set out by the Financing Company Act lacks merit.  The law
states:
"SEC. 5.            Limitation on purchase discount, fees, service and other Charges. In the
case of assignments of credit or the buying of installment papers, accounts receivables and
other evidences of... indebtedness by financing companies, the purchase discount,
exclusive of interest and other charges, shall be limited to fourteen (14%) per cent of the
value of the credit assigned or the value of the installment papers, accounts receivable and
other evidence of... indebtedness purchased based on a period of twelve (12) months or
less, and to one and one-sixth (1 1/6%) per cent for each additional month or fraction
thereof in excess of twelve months, regardless of the terms and conditions of the
assignment or purchase."
Clearly, the 14% ceiling provided for purchase discount is exclusive of interest and other
charges.  A purchase discount is distinct from interest.  The term purchase discount refers
to the difference between the value of the receivable purchased or credit assigned,... and
the net amount paid by the finance company for such purchase or assignment, exclusive of
fees, service charges, interests and other charges incident to the extension of credit,[16]
and it is akin to "time price differential," or the increase in... price to cover the expense
generally entailed by transactions on credit.[17] There is thus no impingement of the Usury
Law even when the controversy might have arisen prior to the adoption by the Central Bank
Monetary Board on 03 December 1982 of its
Resolution No. 224 on interest ceilings.
Principles:
An insistence of petitioners that the subject transaction should be considered a simple loan
since private respondent did not communicate with the debtors, condominium unit buyers,
to collect payment from them, is untenable.  In an assignment of credit, the consent of the...
debtor is not essential for its perfection,[10