Assignment of Credit vs. Assumption of Liability: Clarifying a Bank's Role in Property Development

When a condominium developer assigns its receivables to a bank, does the bank step into the developer's shoes and assume responsibility for delivering the units? This question has practical importance for homebuyers and lenders alike. In Spouses Chin Kong Wong Choi and Ana O. Chua v. United Coconut Planters Bank (G.R. No. 207747, March 11, 2015), the Supreme Court drew a clear line between an assignment of credit and an assumption of liability, holding that a bank that merely buys receivables does not automatically inherit the developer's obligations to buyers.

The Facts

The petitioners, Spouses Choi, entered into a Contract to Sell with Primetown Property Group, Inc. for a condominium unit in Kiener Hills Cebu. They paid a down payment and agreed to pay the balance in 40 monthly installments.

In 1998, Primetown executed a Memorandum of Agreement and Sale of Receivables and Assignment of Rights and Interests with United Coconut Planters Bank (UCPB). Under this agreement, Primetown assigned to UCPB all its accounts receivable from the Kiener project—including the Chois' account—for P748 million. The agreement expressly stated that the assignment was "limited to the Receivables" and did not include "any and all liabilities which [Primetown] may have assumed under the individual Contract to Sell."

When Primetown failed to finish construction and deliver the unit despite full payment, the Chois filed a complaint for refund against both Primetown and UCPB before the Housing and Land Use Regulatory Board (HLURB). The HLURB Board of Commissioners ordered UCPB to refund the full amount paid by the Chois, holding that UCPB was Primetown's successor-in-interest. The Office of the President affirmed. The Court of Appeals reversed, applying its earlier rulings in UCPB v. O'Halloran and UCPB v. Ho.

The Issue

The central question was whether UCPB, under the agreement with Primetown, assumed the liabilities and obligations of Primetown under its contract to sell with the Chois.

The Ruling

The Supreme Court denied the petition and held that UCPB was a mere assignee of receivables, not a successor to Primetown's obligations.

The Court defined an assignment of credit as an agreement by which the owner of a credit transfers that credit and its accessory rights to another, who acquires the power to enforce it to the same extent as the assignor could have enforced it against the debtor. The assignee does not, by virtue of the assignment alone, assume the assignor's liabilities.

The Court found that the agreement's language was clear: Primetown assigned its receivables, rights, titles, interests, and participation over the units, but explicitly excluded liabilities Primetown assumed under the contracts to sell. Under Article 1370 of the Civil Code, when the terms of a contract are clear and leave no doubt as to the parties' intention, the literal meaning shall control.

The Court also noted that UCPB's letters to buyers only assured them of completion by the developer; UCPB never represented itself as the new owner of the project. Estoppel did not apply.

Distinguishing PD 957 Cases

The Chois argued that Luzon Development Bank v. Enriquez and Philippine Bank of Communications v. Pridisons Realty Corporation should apply. The Court distinguished these cases: both involved banks that failed to comply with Sections 17, 18, and 25 of Presidential Decree No. 957, which expressly made the banks solidarily liable. A solidary obligation cannot be inferred lightly; it exists only when expressly stated or when the law or nature of the obligation requires it (Civil Code, Article 1207).

The Outcome

UCPB was ordered to refund only the amount it actually received from the Chois—P26,292.97—with interest. It was not solidarily liable with Primetown for the full purchase price.

Practical Takeaways

• Assignment of credit is not assumption of liability. A bank that buys a developer's receivables acquires the right to collect payments; it does not automatically inherit the developer's duty to deliver units or refund buyers.
• Read the contract carefully. The agreement's express terms control. If the assignment explicitly excludes liabilities, courts will respect that limitation.
• Solidary liability requires a clear basis. A bank is jointly liable with a developer only if the contract says so, or if a law—like PD 957—expressly imposes it.
• For buyers, the developer remains primarily liable. When a developer fails to deliver, buyers should pursue claims against the developer, though they may recover from the assignee amounts the assignee actually received.
• PD 957 imposes special duties on banks. Banks involved in projects covered by PD 957 must comply with its registration and licensing requirements, or they may face solidary liability.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.