University of the Cordilleras

College of Accountancy RFBT 3 (Law on Sales, Credit Transactions, Negotiable Instruments and Other
Business

Transactions) LESSON no. 8 Module 8 ASSIGNMENT OF CREDITS AND REMEDIES Assignment of Credit

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor,
by a legal cause - such as sale, dation in payment or exchange or donation - and without need of the
debtor's consent, transfers that credit and its accessory rights to another, known as the assignee, who
acquires the power to enforce it to the same extent as the assignor could have enforced it against the
debtor. In every case, the obligations between assignor and assignee will depend upon the judicial
relation which is the basis of the assignment (United Coconut Planters Bank v. Uy, G.R. No. 204039,
January 10, 2018).

In assignment of credits it shall include all the accessory rights, such as a guaranty, mortgage, pledge or
preference (Art. 1627, New Civil Code).

For example, A sold to B a car for the price of P750,000.00. B only paid an initial payment of
P250,000.00, thus, A is now the creditor for the remaining balance of P500,000.00 as against B, the
debtor. A sold his right over the credit to C. C as the assignee of the credit, can now enforce the right
over the credit against B based on the original agreement between A and B.

Rules in Assignment of Credits

1. To bind third persons, the assignment of credits must be in public instrument or is duly registered in
the registry of deeds or chattels (Art. 1625, New Civil Code);

2. A debtor who pays his creditor without knowing that the credit has been assigned will be released
from his obligation (Art. 1626, New Civil Code);

3. The seller in good faith is only responsible for the legality and the existence of the credit at the time
of the sale, unless the credit has been sold as doubtful (Art. 1628, New Civil Code);

4. The seller in good faith, in addition, is also responsible for the solvency of the debtor in the following
instances:

a. It has been expressly stipulated or agreed upon; or

b. the insolvency of the debtor was prior to the sale and of common knowledge (Ibid.)
 The duration of the liability of the seller in good faith when he is responsible for the solvency of the
debtor shall be:

a. One year from the time of assignment if the period for the credit assigned has expired;

b. One year from the maturity date of the credit assigned if the period has not yet expired; or

c. The period as agreed upon. (Art. 1629, New Civil Code).

5. When the seller has assigned in lump sum the whole of certain rights, he is only responsible for the
whole in general and not the parts consisting the whole (Art. 1631, New Civil Code)

Assignment of Rights in Inheritance

When an heir as assigned his rights as an heir and not the property that he shall inherit, he shall only be
responsible as to his personality as an heir and not the property that shall form the inheritance
(Art.1630, New Civil Code).

REMEDIES

In a contract of sale the parties have the following remedies:

1. Specific Performance

The Seller may file an action for specific performance, that is to perform specifically the payment of the
purchase price, against the Buyer, whether the object of the sale has been delivered to the buyer, or
has not been delivered to the buyer, or where the seller has kept possession of the object when he
cannot exercise his right of resale and the buyer had unjustly refused to accept the object of the sale
(Art 1595, New Civil Code).

The Buyer may file an action for specific performance, that is to perform specifically the delivery of the
object, when the seller has failed to deliver specific or ascertained goods (Art. 1598, New Civil Code).

2. Damages

The Seller may file an action for damages against the Buyer when the latter wrongfully neglects or
refuses to accept the goods as delivered (Art. 1596, New Civil Code)

The Buyer may file an action for damages against the seller when the seller has failed to deliver specific
or ascertained goods (Art. 1598, New Civil Code) and for the breach of warranty (Art. 1599 Sub. Par.
1,2,3 and 5, New Civil Code).

3. Rescission

The Seller may rescind the contract when the goods have not been delivered to the buyer, and the
buyer has repudiated the contract of sale, or has manifested his inability to perform his obligations
 thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale by
giving notice of his election so to do to the buyer (Art. 1597, New Civil Code).

The Buyer may rescind the contract and refuse to accept the goods or if the goods have already been
received, return them or offer to return them to the seller and recover the price or any part thereof
which has been paid (Art. 1599 Sub. Par. 4, New Civil Code

Remedies of the Buyer in Case of Breach of Warranty

The following remedies are alternative, thus, if the buyer elects one of the remedies then he can no
longer elect the other remedies:

1. Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment
in diminution or extinction of the price;

2. Accept or keep the goods and maintain an action against the seller for damages for the breach of
warranty;

3. Refuse to accept the goods, and maintain an action against the seller for damages for the breach of
warranty;

4. Rescind the contract of sale and refuse to receive the goods or if the goods have already been
received, return them or offer to return them to the seller and recover the price or any part thereof
which has been paid;

5. In the case of breach of warranty of quality, such loss, in the absence of special circumstances
showing proximate damage of a greater amount, is the difference between the value of the goods at
the time of delivery to the buyer and the value they would have had if they had answered to the
warranty.

When the buyer is entitled to rescind the contract he also has the right to return the goods to the
seller, or if the seller refuses to accept, offer to return the goods to the seller and from thereon he
shall be free from any liability arising out of the goods, the seller on the other hand shall return any
price already paid to him once the buyer had returned or offered to return the goods.

If the Buyer is aware of the breach prior to delivery, he must accept the goods with protest in order
to be able to rescind the contract of sale (Art. 1599, New Civil Code).
References:

Republic Act 386, An Act to Ordain and Institute the Civil Code of the Philippines

United Coconut Planters Bank v. Spouses Walter Uy and Lily Uy, G.R. No. 204039,
January 10, 2018
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