CHAPTER 8: ASSIGNMENT OF CREDITS AND OTHER

INCORPOREAL RIGHTS Article 1475

- Contract of sale is perfected at the moment there is a meeting of
Article 1624. An assignment of creditors and other incorporeal minds upon the thing which is the object of the contract and upon
rights shall be perfected in accordance with the provisions of the price
article 1475. (n) - In assignment, meeting of minds is that between the assignor
Assignment and assignee, no necessity for the consent of the debtor
- When someone transfers something they own to another person o Validity of the assignment is not affected by the absence
- Could be any kind of property: of knowledge or lack of consent of the debtor
o Real (immovable) or personal (movable) o It is sufficient that the assignment be brought to the
o In possession (something the person already physically knowledge of the debtor to be binding upon him
or legally has) or in action (something the person has the Article 1625. An assignment of a credit, right or action shall
right to claim) produce no effect as against third persons, unless it appears in a
o Any estate or right therein public instrument, or the instrument is recorded in the Registry of
- Most commonly used for intangible personal property (things you Property in case the assignment involves real property. (1526)
can’t touch, like rights, trademarks, patents, debts, etc.)
- Ordinarily employed to describe the transfer of: Form of Assignment of Credits:
o Non-negotiable (cannot be easily transferred) choses in a. Between the parties
action (legal right to sue someone or claim something or b. For binding effect against third persons
something you don’t physically possess but have a right 1. If personal property – public instrument
to enforce in court) 2. If real property – public instrument must be recorded in the
o Rights in or connected with property, not necessarily the Registry of Property
property itself (e.g., right to rent the building or right to
Example: D owes P500,000 to C. C owes AC P400,000. C assigns his
collect rent)
right to collect from D to A, but only through a private instrument. AC
- A contract or agreement between two parties:
sues C for the P400,000 debt. The court finds that C has the right to
o Assignor (the one who gives up or transfers the right)
collect P500,000 from D. Since the assignment to A is not in a public
o Assignee (the one who receives the right) instrument, AC can garnish the P500,000 debt from D to satisfy C’s
- Subject to the same requisites as to validity of contracts obligation to AC. A cannot stop this because the assignment was not
- Whether or not a transfer of a particular right or interest is an made in public, so it produces no effect against AC.
assignment or some other transaction (e.g., sale) depends not
on the name by which it calls itself, but on the legal effect of its Article 1626. The debtor who, before having knowledge of the
provisions assignment, pays his creditor shall be released from the obligation.
(1527)
Assignment of Credits and other Incorporeal Rights (rights to property
that can't be seen or touched but are still enforceable by law) Assignment does not require the consent of the debtor. However, actual
- A consensual and bilateral contract whereby the owner of a notice must be given to him so that he could make his payment to the
credit and other incorporeal rights (assignor or creditor) assignee.
transfers, onerously or gratuitously, to another (assignee) his
Effect of payment by debtor to creditor:
rights and actions against a third person (debtor)
a. Before knowledge of the assignment – debtor is released from
- Legal cause may be sale, dation in payment, exchange or
his obligation
donation
 b. After knowledge of the assignment – debtor is not released from The vendor in bad faith shall always be answerable for the payment
the obligation; payment is not valid as against the assignee, of all expenses, and for damages. (1529)
thus, debtor can be made to pay again by the assignee

Article 1627. The assignment of a credit includes all the accessory General Warranties of the Assignor
rights, such as a guaranty, mortgage, pledge or preference. (1528) a. Existence of the credit at the time of the assignment, and
b. Legality of the credit unless it should have been sold as doubtful
General Rule: Assignment of credit includes all accessory rights such as
guaranty, mortgage, pledge, or preference Question: Ano yung pinopoint with the word “doubtful”, yung collectability
ba nung credit or regarding sa existence and/or legality nung credit? Kasi
XPN: If the party stipulates that the accessory rights shall be excluded for example, sabi ko “I’ll sell you my right to collect from B for P50,000
Based on the rule that the accessory follows the principal. Assignee is but I’m not sure B will ever pay”, merong doubt with the collectability,
deemed subrogated to the rights and obligations of the assignor and is pero legal and existing naman yung credit, so bakit matatanggal yung
bound by exactly the same conditions as those which bound the warranty on the existence and legality dahil lang sold siya as doubtful?
assignor. Paano kung sinabi ko lang doubtful ung collectability niya pero bigla di
naman pala existing yung credit, parang lumilitaw dahil lang sinabi ko na
Examples: hindi ko sure if magbabayad ba yung debtor, hindi na ako liable na hindi
- Guaranty: D owes C P500,000. G signs as guarantor that if D naman pala existing yung credit. Unlike if yung pinopoint don sa
doesn’t pay, G will. C assigns the credit to A. Now, A can demand “doubtful” is doubt on existence or legality, like “hindi ko sure if nag-eexist
payment from G if D defaults. pa yung credit kasi sabi nung debtor bayad na siya”.
o Question: Yung guarantor, considered ba siya as third
party sa assignment na kapag in private instrument lang Warranty as to the Solvency of the Debtor
yung form, hindi siya pwedeng singilin? - General Rule: There is no warranty as to the solvency of the
- Mortgage: D owes C P1,000,000, secured by a mortgage on D’s debtor
land. C assigns the credit to A. Now, A can foreclose the land if D - XPN:
fails to pay. o If expressly stipulated, or
- Pledge: D owes C P200,000 and delivers a diamond ring to C as o If the solvency was already existing and of public
pledge. C assigns the credit to A. A now has possession of the knowledge at the time of the assignment
ring and can sell it if D defaults.
Liabilities of the Assignor in case of Breach of Warranty
o Question: What if hindi dineliver kay assignee yung thing
a. Assignor in good faith – price received + expenses of the
pledged? contract + any other legitimate payments made by reason of the
- Preference: D owes C P300,000 and C has a legal preference assignment
under the Civil Code to be paid first from the proceeds of D’s b. Assignor in bad faith – payment of all expenses + damages
property sale. C assigns the credit to A. A now enjoys the same
priority in getting paid ahead of other creditors. Article 1629. In case the assignor in good faith should have made
himself responsible for the solvency of the debtor, and the
Article 1628. The vendor in good faith shall be responsible for the contracting parties should not have agreed upon the duration of the
existence and legality of the credit at the time of the sale, unless it liability, it shall last for one year only, from the time of the
should have been sold as doubtful; but not for the solvency of the assignment if the period had already expired.
debtor, unless it has been so expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge. If the credit should be payable within a term or period which has
not yet expired, the liability shall cease one year after the maturity.
Even in these cases he shall only be liable for the price received (1530a)
and for the expenses specified in No. 1 of article 1616.
Duration of Warranty for the Debtor’s Solvency General Rule: The vendor warrants only the legitimacy of the whole and
a. Time agreed upon by the contracting parties not the various parts of which it may be composed, thus not liable for
b. If no time was agreed upon eviction of each of the various parts
1. If the assignment was made before maturity (debt was not
yet due) – 1 year after maturity XPN: If the vendee was evicted from:
2. If the assignment was made after maturity (debt was already a. The whole of the thing; or
due) – 1 year after assignment b. A part of the greater value (more than 50%)

In short, 1 year from date of maturity or date of assignment, Example: S sold all his receivables from different customers to B for
whichever comes later. P1,000,000.

Article 1630. One who sells an inheritance without enumerating the If B was deprived of the amount of P20,000 representing a single
things of which it is composed, shall only be answerable for his receivable from a customer, S shall not be liable because S does not
character as an heir. (1531) warrant each of the various parts but only the legitimacy of his rights as a
creditor taken as a whole.
General Rule: Seller of an inheritance warrants only the fact of his
heirship but not the objects which make up his inheritance (warranty of If B was deprived of the whole amount of the receivables or more than
heirship) 50%, S shall be liable to B.

XPN: If such things were enumerated Article 1632. Should the vendor have profited by some of the fruits
or received anything from the inheritance sold, he shall pay the
Example: A, B, and C are heirs of X. Pending the partition of the estate of vendee thereof, if the contrary has not been stipulated. (1533)
X, A sold his share in the inheritance to Y for P2,000,000. After the
partition, A received only P1,800,000. Liabilities of Vendor of Inheritance for Fruits Received
- General Rule: The fruits of the inheritance are included in the
If A did not enumerate the things which composed his inheritance, A will sale because since the vendor has already sold the inheritance,
not be liable for the insufficiency, which was P200,000, because what he he should not profit except for the price
warranted was that he was an heir of X. o If the vendor merely received the fruits, he must deliver
them to the vendee
If A listed down that he would be receiving a car, a house and lot,
o If the vendor have consumed the fruits, he must
furniture and fixtures, but he did not receive the car, then he shall be
reimburse the vendee
liable to Y for violation of his warranty that he will be receiving the things
o If the vendor have sold the fruits, he must deliver the
he enumerated.
price of the sale
If A received nothing because he was not an heir in the first place, A will - XPN: If the contrary has been stipulated
be liable to Y for violation of warranty of heirship.
Question: Does this provision only apply to fruits which arose after the
Article 1631. One who sells for a lump sum the whole of certain sale or including those before the sale?
rights, rents, or products, shall comply by answering for the
Article 1633. The vendee shall, on his part, reimburse the vendor for
legitimacy of the whole in general; but he shall not be obliged to
all that the latter may have paid for the debts of and charges on the
warrant each of the various parts of which it may be composed,
estate and satisfy the credits he may have against the same, unless
except in the case of eviction from the whole or the part of greater
there is an agreement to the contrary. (1534)
value. (1532a)
Liability of Vendee for Debts of and Charges on Estate
Warranty for Lump Sum Sale of the Whole of Certain Rights, Rents, or
Products
 - General Rule: The vendee shall reimburse the vendor for (1) To a co-heir or co-owner of the right assigned;
whatever the latter has paid for the debts of and charges on the
estate (2) To a creditor in payment of his credit;
- XPN: If the contrary has been stipulated (3) To the possessor of a tenement or piece of land which is subject
Article 1634. When a credit or other incorporeal right in litigation is to the right in litigation assigned. (1536)
sold, the debtor shall have a right to extinguish it by reimbursing Exceptions to Article 1634:
the assignee for the price the latter paid therefor, the judicial costs a. Sale to a co-heir or co-owner of the right assumed
incurred by him, and the interest on the price from the day on which - Reason: The law does not favor co-ownership or pro-
the same was paid. indivision. If the right of redemption is granted to the debtor,
A credit or other incorporeal right shall be considered in litigation it would not terminate the litigation which is the purpose of
from the time the complaint concerning the same is answered. this article, because the co-owner or co-heir may still sue the
debtor for the share that corresponds to the co-owner or co-
The debtor may exercise his right within thirty days from the date heir in the credit.
the assignee demands payment from him. (1535) - Example: D owes X and Y. X and Y sue D for collection. D
files his answer to the complaint. While the case is pending,
General Rule: Debtor has the right of legal redemption in sale of credit or X sells his share of the credit to Y. D cannot redeem the
incorporeal rights in litigation share of X from Y because if he is allowed to do so, the
XPN: Article 1635 litigation continues because Y can still sue him for her share.
b. Sale to a creditor in payment of his credit
Requisites of the Legal Redemption in Sale of Credit or other Incorporeal - Reason: Because the assignee is not just some outsider or
Right in Litigation: speculator, he is a creditor of the assignor, and the
a. There must be a sale or assignment of credit transaction is considered a dation in payment. So the
- Cannot be exercised if the transaction is exchange or purpose of right of legal redemption to avoid speculation
donation does not apply.
b. There must be a pending litigation at the time of the assignment - Example: D owes C. In another contract, C also owes X.
- Complaint by the assignor concerning the credit must have Despite demand, D failed to pay C, and C filed a complaint
been filed and answered by the debtor before the sale which D answered. During the pendency of the litigation, C
c. The debtor must pay the assignee: assigned his credit in favor of X as payment for his debt. In
1. Price paid by him this case, D has no right of legal redemption.
2. Judicial costs incurred by him, and c. Sale to the possessor of a tenement or piece of land which is
3. Interest on the price from the date of payment subject to the right in litigation assigned
d. The right must be exercised by the debtor within 30 days from - Reason: Similar to b, there is no speculation here since the
the date the assignee demands (judicially or extra judicially) assignee has a personal interest in the property, such as to
payment from him preserve the tenement
- Example: A mortgaged his land to B, but A sold it to C. Later
Purpose of Grant of Right of Legal Redemption to Debtor:
while suit is pending, C acquires mortgage credit assigned to
a. To enable debtor to pay less than the value of the credit
him by B. A has no right to redeem the mortgage credit.
b. To prevent purchase by the third person of credits in litigation
merely for speculation (just to make profit from it)
c. To put an end to the litigation

Article 1635. From the provisions of the preceding article shall be

excepted the assignments or sales made: