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SONNY LO v. VS.KJS ECO-FORMWORK SYSTEM PHIL.

FACTS:

Respondent, KJS ECO-FORMWORK System Phil., Inc., is a corporation engaged in the sale of steel scaffoldings. Petitioner Sonny L. Lo, doing business as San's Enterprises, is a building contractor. Petitioner ordered scaffoldings from respondent worth P540,425.80, with a downpayment of P150,000.00. Petitioner was able to pay the first two installments but encountered financial difficulties and was unable to settle the remaining balance.

On October 11, 1990, petitioner and respondent executed a Deed of Assignment, wherein petitioner assigned to respondent his receivables in the amount of P335,462.14 from Jomero Realty Corporation. However, Jomero Realty Corporation refused to honor the Deed of Assignment because it claimed that petitioner was also indebted to it. Respondent sent a letter to petitioner demanding payment of his obligation, but petitioner refused to pay, claiming that his obligation had been extinguished when they executed the Deed of Assignment.

As a result, respondent filed an action for recovery of a sum of money against petitioner. The trial court initially dismissed the complaint, but on appeal, the Court of Appeals reversed the decision and ordered petitioner to pay respondent the amount of P335,462.14.

ISSUES:

  1. Whether the execution of the Deed of Assignment extinguished petitioner's obligation to respondent.

  2. Whether petitioner's obligation to Jomero Realty Corporation should be set off against respondent's claim.

RULING:

  1. The execution of the Deed of Assignment did not extinguish petitioner's obligation to respondent. The Deed of Assignment merely transferred petitioner's right to collect the receivables from Jomero Realty Corporation to respondent, but it did not release petitioner from his obligation to pay the amount due.

  2. Petitioner's obligation to Jomero Realty Corporation cannot be set off against respondent's claim. The Court held that petitioner's liability to respondent and his indebtedness to Jomero Realty Corporation are separate and distinct obligations. There is no legal basis to allow the set off of these obligations.

PRINCIPLES:

  • The execution of a Deed of Assignment does not automatically extinguish an obligation, unless it expressly provides for the release or discharge of the debtor from his obligation.

  • Obligations are separate and distinct, and cannot be set off against each other unless there is a legal basis for doing so.