Assignment of Credits and

Other Incorporeal Rights

What is Assignment?
• It is a consensual and bilateral contract whereby the owner of a credit
and other incorporeal rights (known as the assignor or creditor)
transfers, onerously, or gratuitously, to another (known as the
assignee) his rights and actions against a third person (known as the
debtor).
Assignment as a Form of Sale
• Perfected thru meeting of the minds;

• No necessity for the consent of the debtor; it is sufficient that is

brought to the knowledge of the debtor.

• Without the necessity of delivering the documents evidencing the

credit, except negotiable documents.
Effect to Third Person
• It produces effect when:

• Personal property – public instrument;

• Real property – public instrument and registered in the Registry of

Deeds
Effect of Payment by the Debtor
Debtor pays creditor –

• Before having knowledge of the assignment, the debtor is discharged;

• After having knowledge of the assignment, the debtor is not

discharged;
Effects of Assignment
• Right to subrogate to all the rights as well as to the obligations of the
seller/assignor. (e.g., guaranty, mortgage pledge or preference)
Effects of Assignment
a. Transfers the rights to collect the full value of the credit, even if he
paid a price less than such value

b. The assignment of a credit includes all the accessory rights, such as

guaranty, pledge or preference;
Effects of Assignment
c. Debtor can set up against the assignee all the defenses he could have
set up against the assignor.
• Compensation can be set up if the assignment is without knowledge
of the debtor.

d. Assignee cannot go after the assignor to enforce the credit if through

his own negligence or fault he allowed the credit to prescribe provided
the assignee is given enough time to enforce the said credit.
• A 1M
• B 200T 800T
• C – assignee – with the knowledge of the debtor and consent of the
debtor
• Unless with reservations

• Without the knowledge and consent of the debtor – compensation

can be availed of
Warranties
• General warranties
• The existence of the credit at the time of assignment; and
• The legality of the credit unless it should have been sold as doubtful.

• Warranties as to the solvency of the debtor

• No warranties except: (1) expressly stipulated; (2) insolvency was already
existing and of public knowledge at the time of the assignment.
• If warranted, but not agreed as to 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 agreed the period but not yet expired, the liability shall cease one year after
the maturity.
Warranties
• One who sells an inheritance without enumerating the things of which it is
composed, shall only be answerable for his character as an heir.

• Vendor benefited by some of the fruits or received anything from the

inheritance sold, he shall pay the vendee thereof, if the contrary has not
been stipulated.

• The vendee shall reimburse the vendor for all that the latter may have paid
for the debts of and charges on the estate and satisfy against the credits he
may have against the same, unless there is an agreement to the contrary.
Application:
Don Harold was survived by his two children: Har and Rold. Rold
sold his share in the inheritance to Donald for P 2,000,000. After
partition, the share of Rold got from the inheritance had an appraised
value of P 1.5M only.

Is Rold liable to Donald?

Warranties
• One who sells for a lump sum the whole of 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.
Breach of Warranty
• Good faith – liable for the price received and the expenses of the
contract, and any other legitimate payments made by reason of the
assignment.

• Bad faith – payment of all expense plus damages.

Legal Redemption
• Debtor has the right of legal redemption in sale of credit or
incorporeal rights in litigation.

• Requisites:
1. There must be a sale or assignment of credit;
2. There must be a pending litigation at the time of assignment;
Legal Redemption
• Requisites:
3. The debtor must pay the assignee:
a. price paid by him;
b. judicial cost incurred by him; and
c. interest on the price from the date of payment.
4. The right must be exercised by the debtor within 30 days from
the date the assignee demands payment from him.
Exceptions to Legal Redemption
• The right of legal redemption in sale of credit or incorporeal rights in
litigation shall not be available in the following sale or assignment:
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.
Application:
A, B, and C are the co-owners in equal shares of a land located in
Bulacan, During their co-ownership, A sold his share to D. B expressed
his intention to redeem A’s share to the land, but D refused. B instituted
a civil action against D wherein he sought to invoke his right of
redemption under Art. 1620 of the Civil Code. During the pendency of
litigation, B assigned his right to redeem to C.

Can D redeem the right that was assigned by B to C?