Sales- C8 Assignment of credits

& other incorporeal rights

ARTICLE 1624: b. For binding effects against third person
An assignment of creditors and other incorporeal rights shall be perfected in 1. If personal property is involved- public instrument
accordance with the provisions of Article 1475. (n) 2. If real property is involved- public instrument recorded in the Registry of
Property
Terms:
Assignment – a. The transfer of a claim, right, interest, or property from one ARTICLE 1626:
to another; The debtor who, before having knowledge of the assignment,
b. The instrument by which this transfer is effected. pays his creditor shall be released from the obligation. (1527)
Credit – assets - anything of material value or usefulness that is owned
by a person or company; claims to sums which are owing I. ASSIGNMENT - Mechanics:
Incorporeal – Of or relating to property or an asset that does not have value The owner of a credit transfers to another his rights and actions in
in material form, as a right or patent; having no material consideration of a price certain in money or its equivalent
existence but existing by reason of its annexation of something 1. transfers the right to collect the full value of the credit, even if he paid a
material, such as an easement, touchline, copyright, etc. price less than such value
Rights - A just or legal claim or title; exs. A stockholder's privilege of 2. transfers all the accessory rights (e.g. guaranty, mortgage, pledge,
buying additional stock in a corporation at a special price, preference)
usually at par or at a price below the current market value, The 3. debtor can set up against the assignee (new creditor) all the defenses he
negotiable certificate on which this privilege is indicated, could have set up against the assignor (old creditor)
privilege of subscribing for a particular stock or bond
II. What Makes Assignment Different From Species Sale?
Concept of Assignment of Credit: 1. Technical term but basically a sale
- this is an agreement whereby credits, rights or actions pertaining to a 2. Sale of credits and other incorporeal things
person (called assignor) are transferred by him to another (called
assignee) either onerously or gratuitously who acquires the power to WHAT MAKES ASSIGNMENT DIFFERENT FROM SALE:
enforce the same against the debtors. ASSIGNMENT SALE
 a contract by which the owner of a credit transfers to another his Term Technical term but basically
rights and actions against a third person in consideration of a price a sale
certain in money or its equivalent Scope/Covera Sale of credits and other
Illustration: ge incorporeal things
Debtor owes Creditor P10,000. Creditor assigns his credit right (right Subject Intangibles; Credit, Generally Tangibles;
to collect) to A for a consideration with notice to debtor. matter/Object incorporeal rights or rights Property
Parties: Creditor is the assignor, A is the assignee of action
Effect of the assignment of credit: D will have to make his payment Subject A definite third person The whole world
to A (assignee) and no longer to C (assignor) Obligated
Form/When Consensual; Consensual;
Nature: Perfected/As It may be in any form (oral, It may be in any form
1. Has all the elements of a contract of sale, to wit: between the written, partly oral or partly (oral, written, partly
a. Consent – which is the agreement of the parties in the assignment parties written) oral or partly written)
b. Object – which is the credit, right, action assigned – general rule
c. Consideration – which is the price paid for the assignment, or Ownership Ownership is transferred Transfer of ownership
liberality of the assignor if the assignment is gratuitous when upon delivery of the need not be upon
2. Partakes of the nature of a contract of sale thus is perfected at the transferred documents evidencing the delivery of the thing.
moment there is a meeting of the minds upon the credit or right which is credit or incorporeal rights The parties may agree
the object and upon the price. that ownership be
3. Agreement by virtue of which the owner of a credit, known as the transferred only after
assignor, by a legal cause, such as sale, dacion en pago, exchange or full payment (Art.
donation, and without the consent of the debtor, transfers his credit and 1478)
accessory rights to another, known as the assignee, who acquires the For Binding Recorded in registry of No recording needed
power to enforce it to the same extent as the assignor could enforce it effect against property or in public to such effect
against the debtor. 3rd persons instrument
Note: notice (of the debtor) is different from consent) Manner of If personal property is It need not be through
delivery of involved - It must be through a public instrument
NOTE: object a public instrument;
Transfer of rights by assignment takes place by the perfection of the contract If real property is involved –
of assignment without the necessity of delivering the document evidencing the public instrument recorded
credit. in the Registry of Property
 this rule does not apply to negotiable documents and documents of
Consideration It is not always a requisite. It is always a requisite
title which are governed by special laws. Action may be maintained
by the assignee based on his
ARTICLE 1625: title even if there is no
An assignment of a credit, right or action shall produce no consideration
effect as against third person, unless it appears in a public
instrument, or the instrument is recorded in the Registry of
III. Effects of Assignment
Property in case the assignment involves real property.
(1526)  Effects of Assignment:
 transfers the right to collect the full value of the credit, even if he paid
1. Form of assignment of credits a price less than such value
a. Between the parties  transfers all the accessory rights – similar with the natural obligations
- it may be in any form. It may be oral or written or party oral and partly of a vendor, to deliver the fruits, accessories, and accessions along
written. with the object of the contract of sale even without any stipulation to
that effect
o The accessory follows the principal
 Sales- C8 Assignment of credits
& other incorporeal rights
 debtor can set up against the assignee all the defenses he could have This inclusion of accessory rights in the assignment is based on the rule that
set up against the assignor the accessory follows the principal. However, the parties may stipulate that
the accessory rights shall be excluded from the assignment.
1. lack of knowledge or consent of debtor not essential for
validity but has legal effects 2. Example
2. assignment of rights made w/o knowledge of debtor D obtained a lone from C amounting to P200,000. The loan is secured by a
– debtor may set up against assignee the compensation w/c would mortgage of D’s lot. If C assigns his credit right to X, the mortgage right is
pertain to him against assignor of all credits prior to assignment and of also considered assigned unless C and X agreed otherwise.
later ones until he had knowledge of the assignment
3. debtor has consented to assignment – cannot set up compensation ARTICLE 1628:
unless assignor was notified by debtor that he reserved his right to the The vendor in good faith shall be responsible for the
compensation existence and legality of the credit at the time of the sale,
4. debtor has knowledge but no consent - may still set up compensation unless it should have been sold as doubtful; but not for the
of debts previous to assignment but not the subsequent ones. solvency of the debtor, unless it has been so expressly
*can set up compensation – meaning that the obligation is extinguished stipulated or unless the insolvency was prior to the sale and
of common knowledge.
 The sale of a credit which is in the nature of a sale of personal Even in these cases he shall only be liable for the price
property, produced the effects of dation in payment which may received and for the expenses specified in No. 1 of Article
extinguish the obligation. 1616.
 Art. 1625 – an assignment of credit, right or action shall produce no The vendor in bad faith shall always be answerable for the
effect as against third persons unless it appears in a public instrument, payment of all expenses, and for damages. (1529)
or the instrument is recorded in the Registry of Property in case the
assignment involves real property VI. Warranties of the assignor of credit (Art. 1529, NCC)
1. NO warranty against hidden defect - N/A because intangibles has no
 If the object of the assignment is real property, to affect third persons, physical existence
the instrument must be recorded with the appropriate Registry of 2. He warrants the (1) existence of the credit at the time of the assignment;
Property and (2) legality of credit – unless he sold the thing as doubtful,
 IMPORTANT: While assignment of credits is included in the Title of meaning, he is not sure of the validity of his acquisition of the thing
Sales, it must be noted that assignment of credits is not always a sale. sold which fact he has disclosed to the assignee
It assumes the nature of a sale when the assignment is onerous, that is, Effect of warranty:
when there is a price paid therefor as consideration. If the assignee cannot collect because of the invalidity of the credit such
 If it is gratuitous, it is in the nature of a donation. As such, the law on as when the credit is sourced from an illegal cause or when the credit is
donation applies as to its perfection and other incidents. no longer inexisting (ex. It has prescribed), the assignee can go after
the assignor.
Illustration: 3. NO warranty as to the solvency of debtor
A obtained a loan P100,000 from B. To secure the payment of the loan, A unless it is expressly stipulated OR
mortgaged his property to B. B assigned his credit owing from A to D. A unless the insolvency was already existing and of public knowledge at the
failed to pay the loan. D can foreclose the mortgage because being an time of the assignment
accessory right, it is deemed included in the assignment. * warranty shall last for 1 year only
Note: The assignor warrants the solvency of the debtor if expressly
IV. Transfer of Ownership stipulated, or if the insolvency of the debtor was prior to the sale and of
1. by tradition and not by perfection common knowledge.
2. by execution of public instrument because intangibles cannot be Effect of no warranty:
physically transferred If the assignee cannot collect from the debtor because of incolvency,
3. Without necessity of delivering the document evidencing the credit. assignee cannot go after the assignor.
4. This rule does not apply to negotiable documents and documents of title 4. one who assigns inheritance right w/o enumerating rights, shall be
which are governed by special laws. answerable for his character as an heir
5. one who sells whole of certain rights for a lump sum, shall be answerable
V. Effect of payment of debtor after assignment of credit for legitimacy of the whole in general but not for each of the various
Notice – is for the protection of the assignee parts
1. Before Notice of the Assignment
a. Payment to the original creditor is valid and debtor shall be released VII. Breach of Warranty: Liabilities of the assignor of credit for violation
from his obligation of his warranties
2. After Notice 1. Assignor in good faith
a. Payment to the original creditor is not valid as against the assignee a. Liability is limited to price received, expenses of the contract and other
b. He may be made to pay again by the assignee legitimate payments made by reason of the assessment
2. Assignor in bad faith
Illustration: a. Liable ALSO for (expenses of contract and other legitimate payments
D owes C. C assigns his credit to B. If the debtor D had been notified of the plus useful and necessary expenses) damages
assignment, and he paid his original creditor C despite the notice, the debtor
remains liable to the assignee. VIII. Assignment of Credit or Incorporeal Right in Litigation –
However, if he paid the original creditor before having obtained knowledge of Requisites:
the assignment, his obligation is extinguished. 1. There must be a sale or assignment of credit
2. There must be a pending litigation
Article 1627: 3. The debtor must pay the assignee:
The assignment of a credit includes all the accessory rights, a. price paid by him AND
such as a guaranty, mortgage, pledge or preference. (1528) b. judicial costs incurred by him AND
c. interest on the price from the date of payment
1. Accessory rights included in the assignment 4. The right must be exercised by the debtor within 30 days from the date
a. Guaranty the assignee demands (judicially or extre-judicially) payment from him
b. Mortgage
c. Pledge
d. Preference
 Sales- C8 Assignment of credits
& other incorporeal rights
NOTE: Presumption: buyer’s purpose is speculation and; law would o If assignor did not receive anything because he was not an heir, assignor
rather benefit the debtor of such credits rather than the one who will be made liable to the assignee for breach of warranty
merely speculates for profit.
ARTICLE 1631:
NOTE: When credit or incorporeal right in litigation is assigned or One who sells for a lump sum the whole of certain rights,
sold, debtor has a right to extinguish it by reimbursing the rents, or products, shall comply by answering for the
assignee for the price the buyer paid plus interest legitimacy of the whole in general; but he shall not be
obliged to warrant each of the various parts of which it may
 right to redeem to be exercised within 30 days from demand by be composed, except in the case of eviction from the whole or
assignee for payment – Legal redemption the part of greater value. (1532a)

IX. Right to redeem by debtor not available in the following instances Problem: A is the owner of a building which is rented to tenants. The yearly
(not considered speculative) rentals amount to P5M. A sold to B his rental rights over the property for a
1. assignment of credit / incorporeal right to co-heir or co-owner; the lump sum of P4M. Later, C a creditor of A, garnished parts of the rentals.
law does not favor co-ownership (1) If the amount garnished is the entire amount or is more than one-half
2. assignment to creditor in payment for his credit (P2M) of the whole. Thus representing the greater value, A is liable
a. presumption is that the assignment is above suspicion; for the eviction of B. (the assignee)
assignment is in the form of dacion en pago, thus perfectly (2) If the amount garnished does not cover the whole or consists only of
legal the smaller (less than one-half), the seller incurs no liability for the
3. assignment to possessor of tenement or piece of land which is subject eviction.
to the right in litigation assigned
a. purpose is to presumably preserve the tenement MCQs on Assignment:
Lucky is a lessee of a store in a shopping mall. She orally sells/assigns his
ARTICLE 1629: right to Samonte. She then allows Samonte to occupy the stall. The delivery
In cas the assignor in good faith should have made himself here is called:
responsible for the solvency of the debtor, and the a. Actual delivery
contracting parties should not have agreed upon the b. Quasi-traditio
duration of the liability, it shall last for one year only, from c. Traditio longa manu
the time of the assignment if the period had already d. Traditio brevi manu
expired.
If the credit should be payable within a term or period ARTICLE 1632:
which has not yet expired, the liability shall cease one year Should the vendor have profited by some of the fruits or
after the maturity. (1530a) received anything from the inheritance sold, he shall pay the
vendee thereof, if the contrary has not been stipulated.
1. Duration of assignor’s warranty of the debtor’s solvency if assignor (1533)
weas in good faith
a. The period stipulated Profits received by the vendor (assignor)
b. If no period was stipulated Explanation/Illustration:
1. If the assignment was made before maturity- One year from maturity When inheritance is sold, the fruits thereof or anything received out of it, are
2. If the assignment was made after maturity- One year from the time of deemed included and therefore shall pertain to the vendee (assignee) unless
the assignment: there is a contrary stipulation between the parties.
Consequently, in the absence of such stipulation, the vendor who received
(Therefore, the one-year period shall be counted from the date of maturity fruits or benefits from the inheritance after the sale, must pay the value thereof
of the date of the assignment, whichever comes later. or restore the same to the vendee.

ARTICLE 1633:
ARTICLE 1630: The vendee shall, on his part, reimburse the vendor for all
One who sells an inheritance without enumerating the that the latter may have paid for the debts of and charges on
things of which it is composed, shall only be answerable for the estate and satisfy the credits he may have against the
his character as an heir. (1531) same, unless there is an agreement to the contrary. (1534)

- Sale of hereditary rights (sale of successional rights) and not of 1. Liabilities of vendee inheritance
specific properties on the inheritance The vendee must reimbursed the vendor for debts and charges on the estate
- Sale is done before the partition of the estate. paid by the vendor, unless there is a stipulation to the contrary.
- Sale is allowed because ownership is already vested upon the heirs
upon the death of their predecessor ARTICLE 1634:
When a credit or other incorporeal right in litigation is sold,
Versus: sale of future inheritance – void the debtor shall have a right to extinguish it by reimbursing
Inheritance – merely potential or inchoate in nature the assignee for the price the latter paid therefor, the judicial
costs incurred by him, and the interest on the price from the
A potential heir does not own anything yet during the lifetime of the day on which the same was paid.
predecessor A credit or other incorporeal right shall be considered in
litigation from the time the complaint concerning the same is
- In the sale of hereditary rights, the heir merely warrants the fact answered.
of his heirship in the estate of the decedent. If it turns out that he The debtor may exercise his right within thirty days from
is not an heir, then he is liable for the breach of his warranty and the date the assignee demands payment from him. (1535)
open to claims for damages and swindling, if there is deceit.
- Situations: 1. When right considered in ligitation
o If after partition, the value in the share in the inheritance is less, The credit or other incorporeal right shall be considered in litigation from the
no warranty thus still valid and no recourse against the assignor time the complaint concerning the same is answered.
o If what was listed down as share in the inheritance did not exist 2. Right of legal redemption of debtor when credit or other incorporeal right in
after partition, the assignor is liable to the assignee, liable for ligitation is sold
breach of warranty
 Sales- C8 Assignment of credits
& other incorporeal rights
For the debtor to be entitled to extinguish his credit by reimbursing the
assignee, the following requisites must concur:
a. There must be credit or incorporeal right
b. The credit or other incorporeal right must be in litigation be sold to an
assignee pending litigation
c. The credit or other incorporeal right must be sold to an assignee
pending litigation
d. The assignee must have demanded payment from the debtor
e. The debtor must reimburse to assignee for the price paid by the latter,
the judicial costs incurred by the latter, and the interest on the price
from the day on which the same was paid, and
f. The reimbursement must be done within 30 days from the date of the
assignee’s demand.
3. Purpose of legal redemption
a. To enable the debtor to pay less than the value of the credit
b. To prevent speculation on the part of the assignee.
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:
(1) To a co-heir or co-owner of the right assigned;
(2) To a creditor in payment of his credit;
(3) To the possessor of a tenement or piece of land
which is
subject to the right in litigation assigned. (1536)