Lo vs. KJS Eco-Formwork System Phil.

, Inc (2003) Dacion en pago case Lo is building contractor doing business under the name Sans Enterprises. On February 1990, Lo ordered P540,425.80 worth of scaffolding equipments from KJS. Lo paid P150,000 as downpayment and the balance was made payable in 10 monthly installments. KJS delivered the scaffoldings to the Lo, but Lo was only able to pay the first 2 monthly installments as his business encountered financial difficulties and he was unable to settle his obligation to respondent despite oral and written demands made against him. On, October 1990 petitioner and respondent executed a Deed of Assignment where Lo assigned to KJS his receivables in the amount of P335,462.14 from Jomero Realty Corporation. However, when KJS tried to collect the credit from Jomero Realty, the latter refused to honor the DOA because it claimed that petitioner was also indebted to it. When KJS demanded from Lo the payment of his obligation, Lo refused to pay claiming that his obligation have been extinguished when they executed the DOA. Was the obligation to pay extinguished by the DOA? NO. The assignment of credit, which is in the nature of a sale of personal property, produced the effects of a dation in payment which may extinguish the obligation. However, as in any contract of sale, the vendor or assignor is bound by certain warranties. The petitioner, as vendor/assignor, is bound to warrant the existence and legality of the credit at the time of the sale or assignment. When Jomero claimed that it was no longer indebted to Lo because of debt compensation, Lo have breached his obligation under the DOA in warranting the existence of the credit. NOTES An assignment by virtue of which the owner of a credit, known as the assignor, by legal cause, such as sale, dacion en pago, 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 as the assignor could enforce it against the debtor. Dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent payment of an outstanding debt. The undertaking really partakes in one sense the nature of sale, that is, the creditor is really buying the thing or property of the debtor as payment for which to be charged against the debtors debt. Requisites of a valid dation in payment there must be: 1. 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. some difference between the prestation due and that which is given in substitution (aliud pro alio) 3. an agreement between the creditor that the obligation is immediately extinguished by reason of a prestation different from that due.