Assignment of Credit

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PRE-EMPTION

REDEMPTION

1. arises before sale 1. arises after sale Ex. The right of an adjoining lot owner of the vendor of a small piece of urban land to buy the  property before it is offered to others 2. no rescission rescission because no sale as yet exists 2. there can be rescission of the original sale 3. the action is directed against the prospective 3. action is directed against aga inst the buyer  seller  - within 30 days from written notice by vendor  -within 30 days from written notice by prospective vendor  DISTINCTION BETWEEN RIGHT OF LEGAL REDEMPTION OF CO-HEIRS FROM CO-OWNERS CO-HEIRS CO-OWNERS Heir may redeem for himself alone the hereditary Co-owner may redeem property but even if uses his right sold by a co-heir own funds, redemption inures to the benefit of other co-owners Sale of hereditary right (1088) over no particular Sale of interest in particular property object CHAPTER 8: TITLE - Assignment of of Credits Credits and Other Incorporeal Rights Governing Law: See Arts . 1624  1634 Terms: Assignment  a. The transfer of a claim, right, r ight, interest, or property from one to another; b. The instrument by which this transfer is effected. Credit  assets - anything of material value or usefulness that is is owned by a person person or company; claims to sums which are owing Incorporeal  Of or relating to property or an asset that does not have value in material form, as a right or patent; having no material existence but existing existing by reason of its annexation annexation of something material, such as an easement, touchline, copyright, etc. Rights - A just or legal claim or title; exs. A stockholder's privilege of buying additional additional stock in a corporation at a special price, usually at par or at a price below the current market value, The negotiable certificate on which this privilege is indicated, privilege of s ubscribing for a particular stock or bond Concept of Assignment of Credit: -this is an agreement whereby credits, rights or actions pertaining to a person (called assignor) are t ransferred by him to another (called assignee) either onerously or gratuitously who acquires the power to enforce the same against the debtors.  a contract by which the owner of a credit transfers to another his rights and actions against a third person in consideration of a price certain in money or its equivalent Illustration: Debtor owes Creditor Creditor P10,000. Creditor assigns his credit credit right (right to collect) to A for a consideration consideration with notice to debtor. Parties: Creditor is the assignor, A is the assignee Effect of the assignment assignment of credit: D will have to make his payment to A (assignee) (assignee) and no longer to C (assignor)

2 Nature: 1. Has all the elements of a contract of sale, to wit: a. Consent  which is the agreement of the parties in the assignment b. Object  which is the credit, right, action assigned c. Consideration  which is the price paid for the assignment, or liberality of the assignor if the assignment is gratuitous 2. Partakes of the nature of a contract of sale thus is perfected at the moment there is a meeting of the minds upon the credit or right which is the object and upon the price. 3. Agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his cr edit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor. Note: notice (of the debtor) is different from consent NOTE: Transfer of rights by assignment takes place by the perfection of the contract of assignment without the necessity of delivering the document evidencing the credit.  this rule does not apply to negotiable documents and documents of title which are governed by s pecial laws. I. ASSIGNMENT - Mechanics: The owner of a credit transfers to another his r ights and actions in consideration of a price certain in money or its equivalent 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) 3. debtor can set up against the assignee (new creditor) all the de fenses he could have set up against the assignor (old creditor) II. What Makes Assignment Different From Species Sale? 1. Technical term but basically a sale 2. Sale of credits and other incorporeal things WHAT MAKES ASSIGNMENT DIFFERENT FROM SALE: ASSIGNMENT Technical term but basically a sale T erm Scope/Coverage Sale of credits and other incorporeal things Subject  Intangibles; Credit, incorporeal rights or matter/Object  rights of action Subject Obligated  A definite third person Form/When Consensual; Perfected/ As It may be in any form (oral, written, between the parties partly oral or partly written) Ownership transferred 

when

SALE

Generally Tangibles; Property The whole world Consensual; It may be in any form (oral, written, partly oral or partly written)  general rule Ownership is transferred upon delivery Transfer of ownership need not of the documents evidencing the credit be upon delivery of the thing. The parties may agree that or incorporeal rights ownership be transferred only after full payment (Art. 1478)

3 For Binding effect  rd  against 3 persons M anner of delivery  of object 

Consideration

Recorded in registry of property or in public instrument If personal property is involved - It must be through a public instrument; If real property is involved  public instrument recorded in the Registry of  Property It is not always a requisite. Action may be maintained by the assignee based on his title even if there is no consideration

No recording needed to such effect It need not be through a public instrument

It is always a requisite

III. Effects of Assignment  Effects of Assignment:  transfers the right to collect the full value of the credit, even if he paid a price less than such value  transfers all the accessory rights  similar with the natural obligations of a vendor, to deliver the fruits, accessories, and accessions along with the object of the contract of sale even without any stipulation to that effect o The accessory follows the principal  debtor can set up against the assignee all the defenses he could have set up against the assignor 1. lack of knowledge or consent of debtor not essential for validity but has legal effects 2. assignment of rights made w/o knowledge of de btor    debtor may set up against assignee the compensation w/c would pertain to him against assignor of all credits prior to assignment and of l ater ones until he had knowledge of the assignment 3. debtor has consented to assignment  cannot set up compensation unless assignor was notified by debtor that he reserved his right to the compensation 4. debtor has knowledge but no consent - may still set up compensation of debts previous to assignment but not the subsequent ones. *can set up compensation  meaning that the obligation is extinguished The sale of a credit which is in the nature of a sale of personal property, produced the effects of  dation in payment which may extinguish the o bligation.  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  If the object of the assignment is real property, to affect third persons, the instrument must be recorded with the appropriate Registry of Property  IMPORTANT: While assignment of credits is included in the Title of Sales, it must be noted that assignment of credits is not always a sale. It assumes the nature of a sale when the assignment is onerous, that is, when there is a price paid therefor as consideration.  If it is gratuitous, it is in the nature of a donation. As such, the law on donation applies as to its perfection and other incidents. Illustration: A obtained a loan P100,000 from B. To secure the payment of the loan, A mortgaged his property to B. B assigned his credit owing from A to D. A failed to pay the loan. D can foreclose the mortgage because being an accessory right, it is deemed included in the as signment. 

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IV. Transfer of Ownership 1. by tradition and not by perfection 2. by execution of public instrument because intangibles cannot be physically transferred 3. Without necessity of delivering the document evidencing the credit. 4. This rule does not apply to negotiable documents and documents of title which are governed by special laws. V. Effect of payment of de btor after assignment of credit Notice  is for the protection of the assignee 1. Before Notice of the Assignment a. Payment to the original creditor is valid and debtor shall be released from his obligation 2. After Notice a. Payment to the original creditor is not valid as against the assignee b. He may be made to pay again by the assignee Illustration: D owes C. C assigns his credit to B. If the debtor D had been notified of the assignment, and he paid his original creditor C despite the notice, the debtor remains liable to the assignee. However, if he paid the original creditor before having obtained knowledge of the assignment, his obligation is extinguished.

VI. Warranties of the assignor of credit (Art. 1529, NCC) 1. NO warranty against hidden defect - N/A because intangibles has no physical existence 2. He warrants the (1) existence of the credit at the time of the assignment; and (2) legality of c redit  unless he sold the thing as doubtful, meaning, he is not sure of the validity of his acquisition of the thing sold which fact he has disclosed to the assignee Effect of warranty: If the assignee cannot collect because of the invalidity of the credit such as when the credit is sourced from an illegal cause or when the credit is no longer inexisting (ex. It has prescribed), the assignee can go after the assignor. 3. NO warranty as to the solvency of debtor unless it is expressly stipulated OR unless the insolvency was already existing and of public knowledge at the time of the assignment * warranty shall last for 1 year only Note: The assignor warrants the solvency of the debtor if expressly stipulated, or if the insolvency of the debtor was prior to the sale and of common knowledge. Effect of no warranty: If the assignee cannot collect from the debtor because of incolvency, assignee cannot go after the assignor. 4. one who assigns inheritance right w/o enumerating rights, shall be answerable for his character as an heir 5. one who sells whole of certain rights for a lump sum, shall be answerable for legitimacy of the whole in general but not for each of the various parts

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VII. Breach of Warranty: Lia bilities of the assignor of credit for violation of his warranties 1. Assignor in good faith a. Liability is limited to price received, expenses of the contract and other legitimate payments made by reason of the assessment 2. Assignor in bad faith a. Liable ALSO for (expenses of contract and other legitimate payments plus useful and necessary expenses) damages VIII. Assignment of Credit or Incorporeal Right in Litigation  Requisites: 1. There must be a sale or assignment of credit 2. There must be a pending litigation 3. The debtor must pay the assignee: a. price paid by him AND b. judicial costs 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 (judicially or extre-judicially) payment from him NOTE: Presumption: buyers purpose is speculation and; law would rather benefit the debtor of such credits rather than the one who merely speculates for profit. NOTE: When credit or incorporeal right in litigation is assigned or sold, debtor has a right to extinguish it by reimbursing the assignee for the price the buyer paid plus interest y

right to redeem to be exercised within 30 days from demand by assignee for payment  Legal redemption

IX. Right to redeem by debtor not availa ble in the following instances (not considered speculative) 1. assignment of credit / incorporeal right to co-heir or co-owner; the law does not favor co-ownership 2. assignment to creditor in payment for his credit a. presumption is that the assignment is above suspicion; assignment is in the form of  dacion en  pago, thus perfectly legal 3. assignment to possessor of tenement or piece of land which is subject to the right in litigation assigned a. purpose is to presumably preserve the tenement 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.  WARRANTY OF HEIRSHIP - Sale of hereditary rights (sale of successional rights) and not of specific properties on the inheritance - Sale is done before the partition of the estate. - Sale is allowed because ownership is already vested upon the heirs upon the death of their predecessor Versus: sale of future inheritance  void Inheritance  merely potential or inchoate in nature

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A potential heir does not own anything yet during the lifetime of the predecessor -

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In the sale of hereditary rights, the heir merely warrants the fact of his heirship in the estate of the decedent. If it turns out that he is not an heir, then he is liable for the breach of his warranty and open to claims for damages and swindling, if there is deceit. Situations: o If after partition, the value in the share in the inheritance is less, no warranty thus still valid and no recourse against the assignor o If what was listed down as share in the inheritance did not exist after partition, the assignor is liable to the assignee, liable for breach of warranty o If assignor did not receive anything because he was not an heir, assignor will be made liable to the assignee for breach of warranty

Article 1632: Profits received by the vendor (assignor) Explanation/Illustration: When inheritance is sold, the fruits thereof or anything received out of it, are deemed included and therefore shall pertain to the vendee (assignee) unless there is a contrary stipulation between the parties. Consequently, in the absence of such stipulation, the vendor who received fruits or benefits from the inheritance after the sale, must pay the value thereof or restore the same to the vendee. Article 1631 Problem: A is the owner of a building which is rented to tenants. The yearly rentals amount to P5M. A sold to B his rental rights over the property for a lump sum of P4M. Later, C a creditor of A, garnished parts of the rentals. (1) If the amount garnished is the entire amount or is more than one-half (P2M) of the whole. Thus representing the greater value, A is liable for the eviction of B. (the assignee) (2) If the amount garnished does not cover the whole or consists only of the smaller (less than one-half), the seller incurs no liability for the eviction. MCQs on Assignment: Lucky is a lessee of a store in a shopping mall. She orally sells/assigns his right to Samonte. She then allows Samonte to occupy the stall. The delivery here is called: a. Actual delivery b. Quasi-traditio c. Traditio longa manu d. Traditio brevi manu