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ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS

(ARTICLES 1624-1635)
It is a contract by which the owner (assignor/creditor) of a credit
and other incorporeal rights transfers, either gratuitously or onerously,
to another (assignee) his rights and actions against a third person
(debtor) in consideration of a price certain in money or its equivalent.
Nature
The assignment involves no transfer of ownership but merely effects
the transfer of rights which the assignor has at the time to the
assignee.
Distinction between a Contract of Sale and Assignment of
Credits
ASSIGNMENT OF CREDITS
CONTRACT OF SALE
As to Object
Credit, incorporeal rights, or
Property
rights of action

Public instrument

Manner of Delivery of Object


Need not be through a public
instrument

Definite third person

Subject Obligated
Whole world

When Ownership is Transferred


Upon delivery of the documents
Transfer need not be upon
evidencing the credit or
delivery of the thing. The parties
incorporeal rights
may agree that ownership be
transferred only after full
payment
Consideration
Not always a requisite. Action
It is always a requisite
may be maintained by the
assignee based on his title even if
there is no consideration

Effects of Assignment
1. Transfers the right to collect the full value of the credit, even if
he paid a price less than such value.
2. Transfers all the accessory rights (e.g. guaranty, mortgage,
pledge, preference).
Note: If the period for payment has been extended without the
consent of the guarantor, the assignee cannot go after the

guarantor because, as to him, his guaranty is only up to the


original period.
3. Debtor can set up against the assignee all the defenses he could
have set up against the assignor.
4. Assignee cannot go after the assignor as to enforce the credit if
through his own negligence he allowed the credit to prescribe
provided the assignee was given enough time to enforce the said
credit.
Effectivity against Third Persons
1. If personal property is involved, a public instrument is needed to
make the assignment effective against third persons;
2. If real property is involved, registration in the Registry if
Property is necessary. (Article 1625)
Effect of Payment by the Debtor After Assignment of Credit
1. Before Notice of the Assignment: Payment to the original
creditor is valid and debtor shall be released from his obligation
(Article 1626)
2. After Notice: Payment to the original creditor is not valid as
against the assignee. He can be made to pay again by the
assignee.
Note: Formal notice is not essential. As long as the debtor has
knowledge of the assignment, he is not released from the
responsibility should he pay the original creditor.
Warranties of the Assignor of Credit
1. The existence of the credit at the time of the assignment
2. The legality of the credit at the time of the sale
3. The solvency of the debtor, only IF expressly stipulated, or if the
solvency was already existing and of public knowledge at the
time of the assignment. (Article 1628)
Note: The seller of an inheritance warrants only the fact of his heirship
but not the objects which make up his inheritance.
Liabilities of the Assignor of Credit for Violation of his
Warranties
1. Assignor in good faith: Liability is limited only to the price
received and to the expenses of the contract, and any other
legitimate payments by reason of the assignment.
2. Assignor in bad faith: Liability is not only for the payment of the
price and all the expenses but also for damages.
(Article 1628, par. 2 and 3)
Legal Redemption in Sale or Credit or Other Incorporeal Right
in Litigation: Requisites

1. There must be a sale or assignment of credit


2. There must be a pending litigation at the time of the assignment
3. The debtor must pay the assignee the:
a) Price paid
b) Judicial costs; 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 (judicially or extrajudicially)
payment from him. (Article 1634)
SALE OF CREDIT OR OTHER INCORPOREAL RIGHTS IN
LITIGATION
General Rule: Debtor has the right of legal redemption in sale of credit
or incorporeal rights in litigation.
Exceptions:
1. Sale to a co-heir or co-owner (Ratio: The law does not favor coownership)
2. Sale to a creditor in payment of his credit (Presumption: The
assignment is above suspicion and is in the form of dacion en
pago, thus perfectly legal)
3. Sale to the possessor of property in question (Purpose: To
presumably preserve the tenement)
(Article 1635)