SALES
Art. 1624 An assignment of credits and other
incorporeal rights
shall be perfected in accordance with the
provisions of article 1475.
Assignment of credit defined
 Assignment of Credit – a contract by which the
owner (assignor/creditor) of a credit and other
incorporeal rights transfers, either onerously or
gratuitously, to another (assignee) his rights and
actions against a third person (debtor)
 The process of transferring the right of the
assignor to the assignee who would then be
allowed to proceed against the debtor for the
enforcement or satisfaction of the credit to the
same extent as the assignor could.
 Assignment by receivables is a commonplace
commercial transaction today. It is an activity or
operation that permits the assignee to monetize or
realize the value of receivables before the maturity
thereof. (Atok Finance Corporation vs CA)
Nature of Assignment of Credit
 Assignment of credit and other incorporeal rights is
a
C – consensual
B – bilateral
O – generally onerous
C – commutative or aleatory contract
o Where the assignment is on account of pure
liberality on the part of the assignor, the rules
on donation would be pertinent
o Where valuable consideration is involved, the
assignment partakes of the nature of a
contract of sale or purchase
 Assignment merely effects the transfer of rights
which the assignor has at the time to the assignee.
o As a consequence of the assignment, third
party (assignee) steps into the shows of the
original creditor (assignor) as a subrogee of
the latter.
o Assignee acquires not only credit itself but
also right to endorse it as against the debtor
of the assignor
 May be done gratuitously (by donation), or
onerously.
o Gratuitous – whatever may be the legal
cause, it is really a sale (exchange, dacion en
pago, etc)
 Subject matter – credit or right assigned
 Consideration – price paid for credit or
right
 Consent – agreement of parties to
assignment of
credit or right at the agreed
price
o Art 1475 is applicable to assignment of credit
and other incorporeal rights
 As a general rule, all principles governing sales also
apply to this transaction.
o In Sale, the assignee cannot acquire a greater
right than that pertaining to assignor.
o The act of assignment cannot operate to erase
liens or restrictions burdening the right
assigned.
Perfection of contract for assignment of credit
 The assignment of credit and other incorporeal
rights is perfected from the moment the parties
argee upon the credit or right assigned and upon
the price
 The assignee will acquire ownership only upon
delivery. Thus when sale is made through a public
instrument, the execution thereof shall be
equivalent to the delivery of the incorporeal right.
 Placing of titles of ownership in the possession of
assignee will be understood as delivery.
 SC: “transfer of rights takes place upon perfection
of the contract, and ownership of the right,
including all appurtenant accessory rights, is
thereupon acquired by the assignee.”
 Art 1624 should be applicable only to assignments
done onerously since 1475 relates to perfection of
a contract of sale.
Consent of debtor not necessary
 Consent of debtor not necessary in order that
assignment may fully produce the legal effects.
o What law requires in an assignment of credit is
mere notice to debtor as the assignment takes
effect only from the time he has knowledge
thereof.
o Creditor may validly assign his credit and its
accessories without debtor’s consent.
 Conventional subrogation requires an agreement
among parties concerned –original creditor, debtor,
and new creditor.
o It is a new contractual relation based on
mutual agreement among necessary parties
Assignment distinguished from other terms
 Renunciation – abandonment of a right without a
transfer to
another
 Agency – involves representation, not transmission
wherein the
agent acts for the principal.
 Substitution – change of previous debtor by a
new debtor with
the credit remaining in the same
creditor.
 Subrogation – the change in the person of the
creditor with his
credit being transferred t the new
creditor
 Dation in payment – alienation of property to the
creditor in
satisfaction of a debt in money. It
is also governed by law on sales.
Legal or conventional.
Art. 1625 An assignment of credit, right or action
shall produce no
effect as against third persons, unless it
appears in a public instrument, or the
instrument is recorded in the Registry of
Property in case the assignment involves
real property.
Binding effect of Assignment
 Between parties – assignment is valid although it
appears only in a private document so long as the
law does not require a specific form for its validity.
 To affect third persons – assignment must appear in
a public instrument, and in case it involves real
property, it is indispensable that it be recorded in
the Registry of Property.
o Phrase “no effect as against third persons”
means that the assignment shall not adversely
affect third persons (produce damage or
prejudice to such third persons)
 Assignee merely steps into the shoes of the
assignor, the former acquiring the credit subject to
defenses available to the debtor against the
assignor. (fraud, prescription, etc.)
o He cannot acquire greater rights than those
pertaining to the assignor.
o Hence, act of assignment cannot operate to
efface liens or restrictions burdening the right
assigned.
 SALES
 Assignment for sale of things in action, at a price
not less than P500 must be in writing, unless the
buyer has received evidence of the things in action
or paid part of the purchase money.
Art. 1626 The debtor who, before having
knowledge of the
assignment, pays his creditor shall be
released from the obligation
Consent of debtor to assignment not required
 In an assignment of credit, consent of debtor is not
essential in order that it may produce legal effects.
 The duty to pay does not depend on the consent of
debtor.
 Law speaks not of consent but of notice to the
debtor.
o The purpose of notice by the assignee is to
inform the debtor that from date of
assignment he should make payment to the
assignee and not to the original creditor.
Effect of payment by debtor after assignment of
credit
 The consent of debtor is not essential for its
perfection. However, knowledge thereof or lack of
it affects the efficaciousness or inefficaciousness of
any payment that may have been made.
 Before notice – notice is for protection of the
assignee because before the said notice, payment
to original creditor is valid.
o No man is bound to remain a debtor; he may
pay to him with whom he contracted to pay;
and if he pays before notice that his debt has
been assigned, the law holds him exonerated,
for the reason that it is the duty of the person
who has acquired a will by transfer to demand
payment of debt to give debtor notice.
 After notice, or before notice but debtor had
knowledge of assignment – payment by debtor
to original creditor after the former had received
notice of the assignment, whether or not he
consented, is not valid as against the assignee.
o Even without notice, debtor will not also be
released from his obligation should he pay
creditor after having knowledge of the
assignment of obligation. He acts in bad faith.
Art. 1627 The assignment of a credit includes all
the accessory
rights, such as a guaranty, mortgage,
pledge or
preference.
Extent of assignment of credit
 Assignment of credit includes not only credit itself
but also all rights accessory thereto. This follows
the familiar rule that the accessory follows the
principal. But the parties may stipulate that the
accessory rights shall not be included in the
assignment.
Art. 1628 The vendor in good faith shall be
responsible for the
existence and legality of the credit at the
time of sale, unless it should have been
sold as doubtful; but not for the solvency
of the debtor, unless it has been so
expressly stipulated or unless the
insolvency was prior to the sale and of
common knowledge.
Even in these cases he shall only be liable
for the price received and for the
expenses specified in No. 1 Art 1616.
The vendor in bad faith shall always be
answerable for the payment of all
expenses and for damages.
Warranties of the assignor of credit
 Assignment of credit, in the nature of sale of
personal property, produces the effects of a dation
in payment which may extinguish the obligation.
 However, as in any other contract of sales, vendor
or assignor is bound by certain warranties provided
in Art 1628 Par 1.
o When creditor assigns his credit, he warrants
only the
E – existence, and
L – legality
Of the credit at the perfection of the contract,
unless the credit had been sold as doubtful
o There is no warranty as to the solvency of the
debtor unless it is expressly stipulated or
unless the insolvency was already existing
prior to the sale and of public knowledge at
the time of the assignment.
 If there be any breach of the warranties, the
assignor-vendor shall be held answerable therefor.
Liabilities of the assignor of credit
 For violation of warranties – liability of vendor
(assignor) in good faith is limited only to the price
received and to the expenses of the contract, and
any other legitimate payments by reason of the
assignment.
 Assignor in bad faith is liable not only for the
payment of the price and all expenses, but also for
damages.
o Assignor in bad faith is one who has
knowledge of any of the circumstances
mentioned (non-existence or illegality of
credit, insolvency of debtor, etc)
o Assignor in good faith is one who is ignorant of
them
Art. 1629 in case the assignor in good faith
should have made
himself responsible for the solvency of
the debtor, and the contracting parties
should not have agreed upon the duration
of the liability, it shall last for one year
only, from the time of the assignment if
the period had already expired.
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.
Duration of assignor’s liability where debtor’s
solvency guaranteed
 This provision does not apply if the assignor acted
in bad faith
 In case the assignor has expressly warranted the
solvency of the debtor, the duration of the
assignor’s liability shall be as follows:
S – if there is a stipulation, then for the term or
period fixed;
N – if there is no stipulation:
A – for 1 year from assignment of the credit
when the
period for payment of the credit has
expired; or
M – for 1 year after its maturity, when such
period for
payment has not yet expired
Reason for the rule
 First – to prevent fraud which may be committed
by feigning the solvency of the debtors at the time
of the assignment when in fact he is insolvent; and
 Second – to oblige the assignee to exert efforts in
the recovery of the credit and thereby avoid that
by his oversight, the assignor may suffer.
 SALES
Art. 1630 One who sells an inheritance without
enumerating the
things of which it is composed, shall only
be answerable for his character as an
heir.
Sale of successional or hereditary rights
 This article refers to the sale of successional right
or the right to an inheritance before partition.
 Sale of hereditary rights before partition
o pursuant to Art 774, “the rights to the
succession are transmitted from the moment
of the death of decedent.”
 The person concerned is an heir and may
exercise his rights as such, from the very
moment of the death of the decedent.
o There is no law which prohibits an heir from
selling his interests in an inheritance before
partition except that any such sale must be
deemed subject to the result of the
administration proceedings and any pending
litigation.
o Hereditary rights in an estate under judicial
settlement can be validly sold without need for
approval by the probate court.
o Law prohibits future inheritance, upon which
no contract can be made other than those
making a division inter vivos of an estate in
accordance with Art 1347.
 Subject of sale is hereditary right, not
objects which make up inheritance
o An inheritance may be sold either with
specification of the properties to be alienated
or without enumerating the things
compromising it, that is to say, the hereditary
rights only.
 Warranties of seller
o The seller of hereditary rights warrants only
the fact of his heirship but he does not warrant
the objects which make up his inheritance.
o The sale is a sort of an aleatory contract
because the assignee bears the risk that the
estate may not be sufficient to pay the
obligations of the deceased.
 Distinguished from a waiver of hereditary rights
o There is a marked difference between sale of
hereditary rights and a waiver of hereditary
rights.
 The first presumes the existence of a
contract of sale between the parties.
 Second is technically speaking, a mode of
extinction of ownership where there is an
abdication or intentional relinquishment of
a known right with knowledge of its
existence and intention to relinquish it, in
favor of other persons who are co-heirs in
the succession.
Art. 1631 One who sells for a lump sum the
whole of a certain
rights, rents, or products, shall comply by
answering for the legitimacy of the whole
in general; but he shall not be obliged to
warrant each of the various parts of
which it may be composed, except in the
case of eviction from the whole or the
part of greater value.
Sale of whole of certain rights, rents or products
 In the sale of whole of certain rights, rents, or
products for a lump sum, the subject matter is the
totality of such rights, rents or products.
 As a consequence, the vendor warrants only the
legitimacy of the whole and not the various parts of
which it may be composed. The vendor is not liable
for eviction of each of the various parts unless the
eviction involves the whole or the part of greater
value.
Art. 1632 Should the vendor have profited by
some of the fruits or
received anything from the inheritance
sold, he shall pay the vendee thereof, if
the contrary has not be stipulated.
Liability of vendor of inheritance for fruits
received
 Unless otherwise stipulated, fruits of an inheritance
are included in the sale thereof.
 If the vendor merely received the fruits, he must
deliver them to the vendee; if they have been
consumed, he must reimburse the vendee; if they
have been sold, he must deliver the price of the
sale.
 The liability of the vendor for anything received
from the inheritance sold is subject to any
agreement to the contrary.
Art. 1633 The vendee shall, on his part,
reimburse the vendor for
all that the latter may have paid for the
debts of the charges on the estate and
satisfy the credits he may have against
the same, unless there is an agreement to
the contrary.
Liability of vendee for debts of and charges on
estate
 Since under Art 1632, the vendor is obliged to pay
the vendee the fruits or anything received from
inheritance, it is also just that the vendee be
required to reimburse the vendor for whatever the
latter has paid for the debts and other charges on
the estate.
 Liability of vendee for debts and charges is likewise
subject to any contrary agreement.
Art. 1634 When a credit or other incorporeal
right in litigation is
sold, the debtor shall have a right to
extinguish it by reimbursing the assignee
for the price the latter paid thereof, the
judicial costs, incurred by him, and the
interest on the price from the day on
which the same was paid.
A credit or other incorporeal right shall be
considered in litigation form the time the
complaint concerning the same is
answered.
The debtor may exercise his right within
thirty days from the date the assignee
demands payment from him.
Legal redemption in sale of credit or other
incorporeal right in litigation
 An instance of legal redemption
 Requisites for the exercise by debtor of the right of
legal redemption:
S – there must be a sale or assignment of credit or
other
incorporeal right.
- The concept of sale must be understood in its
restricted sense. The right cannot be
exercised if the transaction is exchange or
donation.
L – credit or other incorporeal right must be in
litigation
P – there must be a pending litigation at the time
of the
assignment.
D – assignee must have demanded payment from
debtor
R – debtor must reimburse the assignee:
P – price paid by him
J – judicial costs incurred by him; and
 SALES
I – interest on the price from date of
payment
30 – reimbursement must be made by debtor
within 30 days
from date assignee demands payment from
him.
- Debtor who has paid full amount of litigated
credit to one who has purchased such
litigated credit cannot counterclaim the
difference between amount paid by debtor
and amount paid by purchased of such
litigated credit unless debtor shall make use
of right within prescribed period.
Purpose of grant of right to debtor
 The object of law in allowing redemption by debtor
is to avoid the purchase by third person of credits
in litigation merely for speculation.
Art. 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
Exceptions to debtor’s right to legal redemption.
 1635 enumerates the 3 instances of assignments
or sales as exceptions to the provision of 1634.
 It must be emphasized that under 1634 and 1635,
the debtor cannot redeem if the credit or other
incorporeal right is not in litigation when the same
is sold.
 Sale to a co-heir or co-owner
o Exception is based on the desire to do away
with co-ownership. Moreover, if the right of
redemption Is granted to the debtor, it would
not terminate litigation which is the purpose of
article because co-owner or co-heir may still
sue the debtor for the share that corresponds
to the former in the credit.
 Sale to a creditor
o There is a lawful basis for the assignment as
the assignee cannot be considered as a
vendee of a right in litigation and as a
speculator. It really refers to a dation in
payment.
 Sale to the possessor of property in question
o The reason for this exception is that the
assignee is moved by a desire to preserve the
property and not to speculate at the expense
of the debtor.
o Example usually given is that where a vendee
of property subject to a mortgage acquires the
mortgage credit of assignor against vendor. It
may also refer to a purchase of property under
attachment who subsequently acquires the
credit giving rise to the attachment.
Art. 1636 In the preceding articles in this Title
governing the sale of
goods, unless the context or subject
matter otherwise requires:
(1) “Document of title to goods” includes
any bill of lading, dock warrant,
“quedan,” or warehouse receipt or
order, for the delivery of goods, or any
other document used in the ordinary
course of business in the sale or
transfer of goods, as proof of the
possession or control of the goods, or
authorizing or purporting to authorize
the possessor of the document to
transfer or receive, either by
indorsement or by delivery, goods
represented by such document.
“Goods” includes all chattels personal
but not things in action or money of
legal tender in the Philippines. The
term includes growing fruits or crops.
“Order” relating to documents of title
means an order by indorsement on the
documents.
“Quality of goods” includes their state
or condition.
“Specific goods” means goods
identified and agreed upon at the time
a contract a sale is made.
An antecedent or pre-existing claim,
whether for money or not, constitutes
“value” where goods or documents of
title are taken either in satisfaction
thereof or as security therefor.
(2) A person is insolvent within the
meaning of this Title who either has
ceased to pay his debts in the
ordinary course of business or cannot
pay his debts as they become due,
whether insolvency proceedings have
been commenced or not.
(3) Goods are in a “deliverable state”
within the meaning of this Title when
they are in such a state that the buyer
would, under the contract be bound to
take delivery of them.
Definition of Terms
 This article explains the various terms used in the
preceding articles governing the sale of goods. The
definitions of this article do not apply if the context
or subject matter of any particular portion of the
law otherwise requires.
 Goods – do not include things or choses in action
or negotiable instruments
o Chose in action – any claim or right which
may be pleaded in a suit at law, such as a
claim of reparation for a tort or quasi-delict, or
a right acquired under a contract
o Stock certicicates – have been held to be
goods within the meaning of the US Uniform
Sales Act
o Real property – not the proper subject of a
transaction involving a sale of goods within
the definition of the term. However, growing
crops or fruits which are agreed to be severed
under the contract of sale are treated as goods
and not as interest in realty.
o US Uniform Commercial Code – excludes
money from term “goods” but only where
money is the medium of payment. Said
another way, money in which the price is to be
paid for the goods involved, is not to be
considered part of the goods which are the
subject matter of transaction.
 Code specifically provides that money,
when treated as commodity, is a good and
the contract formed out of the transaction
is one for the sale of good
o Any transaction between parties – even if
in the form of an unconditional contract to sell
or even if in the form of present sale, is
excluded from a sale of goods if the parties to
the transaction intended that the transaction
operate only as a security transaction; but
the provision on sales will govern the general
sales aspects of such transaction
 Ascertained goods – goods that are identified
and agreed upon as forming the subject matter of
the bargain
o Specific – if they are identified and agreed
upon at the time of the contract of sale is
made
 SALES
o No specific - if identification takes place
afterwards
o Future goods - to be manufacture or
acquired by seller after making of contract to
sell cannot be specific.
Art. 1637 The provisions of this Title are subject
to the rules laid
down by the Mortgage Law and the Land
Registration Law with regard to
immovable property.
Sale of immovable subject to registration law
 Under Spanish Mortgage Law and Land Registration
Law, registration of documents or titled pertaining
to immovable property is the operative act that
binds the property and serves as constructive
notice to the public.
o This means that the right of third persons are
not adversely affected by the sale of
immovable property until after its registration.
 Spanish Mortgage Law has been discontinued by
PD 892. This discontinuance was reiterated in PD
1529, the Property Registration Decree, which
superseded Act No. 496.
1. “No deed, mortgage, lease or other voluntary
instrument, except a will purporting to convey or
affect registered land shall take effect as a
conveyance or bind as evidence of authority to the
Register of Deeds to make registration. The act of
registration shall be the operative act to convey of
affect the land insofar as third persons are
concerned.”
2. Every conveyance, if registered, shall be
constructive notice to all persons from the time of
such registration
3. “The registration shall be made in the office of the
Register of Deeds for the province or city where
the land lies.”