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ASSIGNMENT OF CREDIT AND OTHER
INCORPOREAL RIGHTS
Article 1624
Assignment of Credit a contract by which the owner
of a credit and other incorporeal rights transfers, either
onerously or gratuitously, to another his rights and
actions against a third person.
It is the process of transferring the right of the assignor
to the assignment who would then be allowed to
proceed against the debtor for the enforcement or
satisfaction of the credit to the same extend as assignor
could.
Nature of assignment of credit.
(1) Assignment of credit and other incorporeal rights is
a:
a. Consensual
b. Bilateral
c. onerous, and
d. commutative or aleatory contract.
(2) The assignment involves no transfer of ownership
but merely effects the transfer of rights which the
assignor has at the time to the assignee.
 As a consequence of the assignment, the third
party (assignee) steps into the shoes of the
original creditor (assignor) as a subrogee of the
latter.
(3) It may be done gratuitously (i.e., by donation) or
onerously. If done onerously (i.e., exchange,
dacion en pago), whatever may be the legal cause,
it is really a sale.
 the subject matter is the credit or right assigned;
 the consideration is the price paid for the credit
or right; and
 the consent is the agreement of the parties to the
assignment of the credit or right at the agreed
price.
After the transfer, a definite third person is obliged;
whereas in sale, the subject obliged is the whole world
which must respect the title to the buyer.
In assignments, a consideration is not always a requisite,
unlike in sales. an assignee may maintain an action
based on his title and is immaterial whether or not he
paid any consideration.
 In an assignment, title is transferred but
possession need not be delivered.
As in sale, the assignee cannot acquire a greater right
than that pertaining to the assignor. Hence, the act of
assignment cannot operate to erase liens or restrictions
burdening the right assigned.
Perfection of contract for assignment of credit.
- The contract for the assignment or transfer of
credit and other incorporeal rights is perfected
from the moment the parties agree upon the
credit or right assigned and upon the price even
if neither has been delivered.
However, the assignee will acquire
ownership only upon delivery.
Assignment distinguished from other terms.
(1) Renunciation is the abandonment of a right without
a transfer to another. (see Art. 1270.)
(2) Agency involves representation, not transmission
wherein the agent acts for the principal.
(3) Substitution is the change of a new debtor for the
previous debtor with the credit remaining in the same
creditor. (see 10 Manresa 377.)
(4) Subrogation is the change in the person of the
creditor with the credit being extinguished
Article 1625
Binding effect of assignment
1. Between the parties the 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.
2. Affect third persons the 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
3. The assignee merely steps into the shoes of the
assignor, the former acquiring the credit subject
to defenses (e.g., fraud, prescription, etc.)
available to the debtor against the assignor.
-assignee is deemed subrogated to the rights as
well as to the obligations of the seller

-He cannot acquire greater rights than those
pertaining to the assignor. Hence, the act of
assignment cannot operate to efface liens or
restrictions burdening the right assigned.
Article 1626
Consent of Debtor to assignment not required
- the consent of the debtor is not essential in order
that it may produce legal effects
- the duty to pay does not depend on the consent
of the debtor; otherwise, all creditors would be
prevented from assigning their credits because
of the possibility of the debtors’ refusal to give
consent.
- The law speaks not of consent but of notice to
the debtor.
 The purpose of the notice by the assignee is to
inform the debtor that from the date of the
assignment he should make payment to the
assignee and not to the original creditor
Effect of payment by debtor after assignment of
credit.
BEFORE NOTICE
- The notice is thus for the protection of the assignee
because before the said notice, payment to the
original creditor is valid.
- assignee has a right of action against the assignor,
the original creditor
- In the absence of notice, the burden of proving that
the debtor had knowledge of the assignment is on the
interested party which is the assignee.
- the law does not require the registration of an
assignment of a chattel mortgage, its registration
does not ipso facto operate as constructive notice to
the mortgagor.
AFTER NOTICE OR BEFORE NOTICE BUT
DEBTOR HAD KNOWLEDGE OF ASSIGNMENT
- Payment by the debtor to the original creditor after
the former had received notice of the assignment,
whether or not he consented, is not valid as against
the assignee.
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- Even without notice, the debtor will not also be
released from his obligation should he pay the
creditor after having had knowledge of the
assignment of the obligation He thereby acts in
bad faith. He can be made to pay again by the
assignee.
Article 1627
Extend of Assignment of Credit
It includes not only the credit itself but also all rights
accessory thereto.
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.
Ex. D owes C 1,000 with G as guarantor. C assigns his
credit to T with notice to D in case D fails to pay T,
T may enforce the guaranty of G UNLESS the credit
was transferred with express stipulation that G will be
releases from such obligation.
Article 1628
Warranties of the assignment of credit
Dation in paymenta special mode of payment, the
debtor offers another thing to the creditor who accepts
it as equivalent of payment of an outstanding debt.
- undertaking really partakes of the nature of sale
- the vendor in good faith shall be responsible for
the existence and legality of the credit
An assignment credit which is in the nature of sale of
personal property produces the effects of a dation in
payment which may extinguish the obligation.
The vendor or assignor is bound by certain warranties.
More specifically, they are provided in Article 1628
(par. 1.). (Lo vs. KJS Eco-Formwork System, Phil., Inc.,
413 SCRA 182 [2003].
(1) When a creditor assigns his credit, he warrants
only the:
(a) existence and
(b) legality of the credit at the perfection of the
contract.
He is not even liable for the warranty if the credit had
been sold as doubtful.

(2) There is no warranty as to the solvency of the
debtor
unless it is expressly stipulated or unless the
insolvency was already existing and of public
knowledge at the time of the assignment
If there be any breach of the above warranties, the
assignor vendor shall be held answerable
Liabilities of the assignor of credit
(1) For violation of the above warranties the liability
of the vendor (assignor) in good faith is limited
only to the
a. price received and
b. to the expenses of the contract, and
c. any other legitimate payments by reason of
the assignment.
(2) The assignor in bad faith is liable not only for the
payment of the price and all expenses, but also for
damages.
An assignor in bad faith is one who has knowledge of
any of the circumstances mentioned above (i.e., non-
existence or illegality of the credit, insolvency of the
debtor, etc.)
an assignor in good faith is one who is ignorant of
them.
Article 1629
Duration of assignor’s liability where debtor’s
solvency guaranteed.
- Not applicable if the assignor acted in bf.
In case the assignor has expressly warranted the
solvency of the debtor, the duration of the assignor’s
liability shall be as follows:
(1) If there is a stipulation, then for the term or period
fixed;
(2) If there is no stipulation:
(a) for one year from the assignment of the credit
when the period for payment of the credit has
expired; or
(b) for one year after its maturity, when such period
for payment has not yet expired.
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The liability of the assignor under Article 1629 is ex
lege;
 it rests on the breach of the warranty of solvency.
 Where the liability is ex contractu, the limiting
period set out in Article 1629 is not applicable.
 in a case, although the assignor warrants the
solvency of the debtors under the deed of
assignment, it also binds itself to become solidarily
liable with the other respondents in case of non-
payment by the debtors
 the assignor becomes a solidary debtor under the
terms of the receivables covered and transferred by
virtue of the Deed of Assignment.’’
Ex. D owes C 50k payable on July 1, 2004. C assigns
his credits to T with C making himself responsible for
solvency of D.
) If the agreement is that the duration of C’s liability
shall last for two years from July 1, 2004, then his
guaranty shall last as agreed upon.
(2) If there is no stipulation, and the assignment was
made on August 1, 2004, the liability is limited to one
year from the assignment.
(3) However, if the assignment was made on June 1,
2004, the responsibility shall cease exactly one year
after July 1, 2004 or one year after the maturity of the
debt.
Reason for the rule:
1. To prevent fraud which may be committed by
feigning the solvency of the debtor at the time
of the assignment when in fact he is insolvent;
and
2. to oblige the assignee to exert efforts in the
recovery of the credit and thereby avoid that by
his oversight, the assignor may suffer.
Article 1630
Sale of successional or hereditary rights
Subject of sale is hereditary right, not objects which
make up inheritance.
An inheritance may be sold either with
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a. specification of the properties to be alienated or - The vendor is not liable for eviction of each of the
b. without enumerating the things comprising it, various parts unless the eviction involves the whole
that is to say, the hereditary rights only. or the part of greater value.

What the law prohibits is the sale of a future inheritance,
upon which no contract can be made other than those
making a division inter vivos of an estate in accordance
with Article 1347.
Hereditary rights in an estate under judicial settlement
can be validly sold without need for approval by the
probate court.
Warranties of Seller The seller of an inheritance
warrants only the fact of his heirship but he does not
warrant the objects which make up his inheritance.
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.
Limitation
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.
the person concerned is an heir and may exercise his
rights as such, from the very moment of the death of the
decedent.
EXAMPLE: P is a partner in a partnership. He sells all
his interests to B for the lump sum of P150,000.00.
Upon the dissolution of the partnership, B received the
share of P in its assets consisting of P50,000.00, some
office equipment and a car. Subsequently, the car was
recovered by C, a creditor of the partnership.
 P is not liable to B because P does not warrant
each of the various parts of his interest in the
partnership but only the legitimacy of his rights
as partner taken as a whole. But if the value of
the car exceeds P75,000.00, P will be liable
because B is evicted from “the part of greater
value.
Article 1632
Liability of vendor of inheritance for fruits received.
Unless otherwise stipulated, the fruits of an inheritance
are included in the sale thereof.
a. If the vendor merely received the fruitshe must
deliver them to the vendee
b. if they have been consumed he must reimburse
the vendee
c. if they have been soldhe must deliver the price
of the sale

Sale of Hereditary Waiver of Hereditary The liability of the vendor for anything received from
Rights Rights the inheritance sold is subject to any agreement to the
Presumes existence of Mode of extinction of contrary
a contract of deed of ownership here there is an
Article 1633
sale between the abdication or intentional
parties relinquishment of a known Liability of vendee for debts and charges on estate
right with knowledge of its
the vendee is required to reimburse the vendor for
existence and intention to
whatever the latter has paid for the debts of and charges
relinquish it, in favor of
on the estate.
other persons who are co-
heirs in the succession. - The liability of the vendee for the debts and
charges is likewise subject to any contrary
agreement
Article 1631
Article 1634
Sale of whole of certain rights, rents, or products.
Legal redemption in sale of credit or other
- the subject matter is the totality of such rights,
incorporeal right in litigation
rents, or products
- the vendor warrants only the legitimacy of the Requisites before the right of legal redemption can be
whole and not the various parts of which it may be exercised:
composed

(1) There must be a sale or assignment of a credit.
- The concept of sale must be understood in its
restricted sense. The right cannot be exercised
if the transaction is exchange or donation
(2) There must be a pending litigation at the time of
the assignment.
- The complaint by the assignor must have been
filed and answered by the creditor before the
sale of the credit.
- Article 1634 applies only to a claim in litigation
the meaning of which is not a claim open to
litigation, but one which is actually litigated;
disputed or contested, which happens only after
an answer interposed in a suit.
(3) The debtor must pay the assignee:
(a) the price paid by him;
(b) the judicial costs incurred by him; and
(c) the interest on the price from the date of
payment;
(4) The right must be exercised by the debtor within
thirty (30) days from the date the assignee demands
(judicially or extra-judicially) payment from him.
- A debtor who has paid the full amount of a
litigated credit to one who has purchased such
litigated credit cannot counterclaim the difference
between the amount paid by such debtor and the
amount paid by the purchaser of such litigated
credit unless such debtor shall make use of his right
to do so within the prescribed period.
Ex.
1. Mortgagee assigned its rights as such and as highest
bidder in foreclosure sale of mortgaged land while
there was a pending case between unpaid seller of
the land and mortgagor (buyer)
S sold several lots to B. B after securing registration,
mortgaged them to C (bank). B failed to complete
payment. Sale was rescinded by court without prejudice
to right of C. C foreclosed the mortgage. At the public
auction, C was highest bidder. C assigned its rights and
mortgagee and as highest bidder to D. S filed a motion to
cancel encumbrance of D was granted by the lower court
on the ground that C “should have submitted the deed of
assignment for approval of the court knowing that the
subject matter of said deed is in custodia legis and so that
the consent of S could be taken.”
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- There is a valid assignment. There is nothing in
our statutes or jurisprudence which prohibits a
creditor without the consent of the debtor from
making an assignment of his credit and the
rights accessory
- an assignment of credit and its accessory rights
does not at all obliterate the obligation of the
debtor to pay, but merely puts the assignee in
the place of his assignor
 an assignment of credit pendente lite does not
extinguish the credit or accessory rights assigned,
but simply changes the bag into which the debtor
must empty the money in payment
2. Plaintiff in a case, who had previously assigned in
favor of his creditor his litigated credit in said case
by a deed of assignment which was duly submitted to
the court, entered into a compromise agreement
thereafter releasing the defendant therein from his
claim without notice to his assignee
T bought action against M for collection of a sum of
money. Case was pending, T assigned in favor of T for
guaranteeing T’s obligation to L his litigated credit
against M duly submitted to the court with notice to the
parties. Lower court ruled in favor of T. subsequently,
M entered into a compromise agreement with T, T
acknowledged that all his claims against M had been
settled. After the Court of Appeals rendered a decision
affirming in toto the decision of the lower court. The
validity of the guarantee or the pledge in favor of L has
not been questioned and it appears that the deed of
assignment fulfills the requisites of a valid pledge or
mortgage.
- The compromise agreement is not valid. Although T
(assignor) may validly alienate the litigated credit
under Article 1634, said provision should not be
taken to mean as a grant of an absolute right on the
part of T to indiscriminately dispose of the thing or
the right given as security
- Although the pledgee or assignee (L) did not ipso
facto become the creditor of M, the pledge being
valid, the incorporeal right assigned by T in favor of
L can only be alienated by T with due notice to and
consent of L or his duly authorized representative.
 To allow the assignor to dispose or alienate the
security without notice to and consent of the assignee

will render nugatory the very purpose of a pledge or
an assignment of credit.
Purpose of grant of right to debtor
Gives an advantage to the debtor because he will pay
less than the value of the credit assigned if he exercises
his right to redeem the same.
The object of the law in allowing the redemption by the
debtor is to avoid the purchase by the third person of
credits in litigations merely for speculation.
Article 1635
Exceptions to debtor’s right to legal redemption.
(1) Sale to a co-heir or co-owner. —based on the desire
to do away with co-ownership or pro-indivision.
 if the right of redemption is granted to the
debtor, it would not terminate litigation which
is the purpose of this article because the co-
owner or co-heir may still sue the debtor for the
share that corresponds to the former in the
credit
(2) Sale to a creditor. — 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.
(3) Sale to the possessor of property in question. —
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.
 The example usually given is that where a
vendee (assignee) of a property subject to a
mortgage acquires the mortgage credit of the
assignor (mortgage-creditor) against the vendor
(mortgage debtor)
 refer to a purchaser of property under
attachment who subsequently acquires the
credit giving rise to the attachment.
Article 1636
This article defines or explains the various terms used
in the preceding articles governing the sale of goods.
(1) Goods do not include things or choses in action or
negotiable instruments.
(a) A chose in action- is any claim or right which may
be pleaded in a suit at law, such as a claim of reparation
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for a tort or quasi-delict, or a right acquired under a
contract.
(b) Stock certificates- have been held to be goods
within the meaning of the U.S. Uniform Sales Act.
(Babb & Martin, op. cit., p. 86.)
(c) Real property- is 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.
(d) The U.S. Uniform Commercial Code excludes
money from the term “goods” but only where money
is the medium of payment.
 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 the transaction.
Said Code specifically provides that money, when
treated as a commodity, is a good and the contract
formed out of the transaction is one for the sale of
goods.
(e) Any transaction between the 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.
(2) Ascertained goods- means goods that are identified
and agreed upon as forming the subject matter of the
bargain.
(a) They are specific if they are identified and
agreed upon at the time the contract of sale is made.
(b) If identification takes place afterwards, the
goods are specified but not specific.
(c) Existing goods (owned or possessed by the
seller) may or may not be specific.
(d) Future goods (to be manufactured or acquired
by the seller after the making of the contract to sell)
cannot be specific.
BARTER OR EXCHANGE
Article 1638

Barterone of the parties binds himself to give one
thing in consideration of the other’s promise to give
another thing.
It is similar to sale with the only difference that instead
of paying a price in money, another thing is given in
lieu.
A contract whereby one person transfers the ownership
of non-fungible things to another with the obligation on
the part of the latter to give things of the same kind,
quantity, and quality is considered a barter.
Perfection and consummation of the contract.
 Perfected from the moment there is a meeting of
minds upon the things promised by each party in
consideration of the other.
 It is consummated from the time of mutual delivery
by the contracting parties of things they promised
Ex.
A party to a barter issued a promissory note for the
value of the things he promised to give.
Facts: The agreement between A and B was for A to
deliver sugar to B, who was to give A 50 bottles of
whisky for every picul of sugar. Because at the time B
had no whisky, he signed a promissory note for the
value of the whisky. Issue: Did the contract become one
of sale?
Held: The contract was still barter. The consideration
for the sugar was not cash but the whisky, and the note
was executed in consideration for the liquor.
In the contract entitled “barter,” the parties shall
enjoy the material possession, and neither shall
alienate the property received, one party even
obliging himself to return the property should any of
the children of the other need it.
Facts: Spouses A and B executed a written document
entitled “Barter” whereby they agreed to “barter” and
exchange their residential lot with the riceland of
spouses C and D. Under the agreement, the parties shall
enjoy the material possession of their respective
properties. A and B shall reap the fruits of the riceland,
while C and D shall have the right to build their house
on the lot, subject to the condition that should any of the
children of A and B decide to reside in the municipality
where the lot is located and build his house on the lot, C
and D shall be obliged to return the lot to such children,
and that neither party shall encumber, alienate or
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dispose of their respective properties without the
consent of the other. E, a son of A and B, filed a
complaint against C and D to recover the lot claiming
that he needed the property for the construction of his
house thereon. Issue: Did the contract of “barter”
transfer the ownership of the lot to C and D?
Held: No. Contracts are not what the parties may see fit
to call them but what they really are as determined by
the principles of law. Thus, in the instant case, the use
of the term “barter” in describing the agreement is not
controlling. The stipulations in the document are clear
enough to indicate that there was no intention at all on
the part of the signatories thereto to convey the
ownership of their respective properties. The agreement
is not barter but one of or akin to usufruct (see Art. 562.)
in that all that was conveyed or transferred from one to
the other is only the use or material possession or
enjoyment of each other’s real property
Article 1639
Effect where giver not lawful owner of thing
delivered.
The aggrieved party cannot be compelled to deliver the
thing he has promised.
Moreover, he is entitled to claim damages.
Article 1640
Effect of Eviction
The injured party is given the option either
1. to recover the property he has given in
exchange with damages or
2. only claim an indemnity for damages.
The right to recover is, however, subject to the rights of
innocent third persons.
Each contracting party warrants to the other that he has
right to transfer ownership of the thing exchanged.
Article 1641
Applicability of provisions on sales.
Barter is a mutual sale. Each party really is both a
vendor and a vendee.
 For this reason, the provisions on sales are also
applicable to barter.