LO V KJS ECO-FORMWORK SYSTEM PHIL. INC.FACTS:KJS Inc. was engaged in the sale of steel scaffoldings. Sonny Lo, a contractor, purchased scaffolding equipment worth some P 540,000.00; he made a deposit of P 150,000.00, the balance payable w/in 10 months. Due to financial difficulties, Lo defaulted after paying only 2 installments. A debt of some P 335,000.00 remained. Thus, Lo assigned in favor or KJS all his receivables from Jomero Realty Corp. w/c however refused to pay and raised the defense of compensation claiming that Lo also had debts in its favor. KJS thus again sought to collect from Lo who then averred that his debts have already been extinguished by the said assignment.

ISSUE: W/N the assignment of credit extinguished the debts

HELD:Assignment of credit agreement by virtue of which the owner of a credit by a legal cause and without consent of the debtor transfers his credit and accessory rights to another who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.Valid dation in payment:There must be the performance of the prestation in lieu of paymentThere must be some difference between the prestation due and that which is given in substitutionThere must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due

The assignment of credit made by Lo in favor of KJS was in the nature of dacion en pago, w/c is governed by the Law on Sales. It is as if KJS bought the credit from Lo, the payment of w/c is to be charged upon the latters debt. Lo, as vendor in good faith, shall be liable for the existence and legality of the credit at the time of the sale (but not for the solvency of the debtor). He is bound by certain warranties. In this case, since the assignment he made in favor of KJS has already been compensated, he should still be liable to pay KJS for his indebtedness. Lo alleged the nonexistence of the credit and asserted its claim to KJSs warranty under assignment. By warranting the existence of the credit, Lo should be deemed to have ensured the performance thereof in case the same is later found to be inexistent. He should make good the warranty and pay the obligation.