Short answer. Yes. When a credit is assigned, the security goes with it automatically. The Civil Code says the assignment of a credit includes all its accessory rights, so the mortgage, pledge, guaranty or preference passes to the new creditor without needing a separate transfer document.
What the law says
The assignment of a credit includes all the accessory rights, such as a guaranty, mortgage, pledge or preference.
Civil Code, Article 1627 — Assignment Includes Accessory Rights. Read the full provision →
Security follows the debt, not the person
A mortgage, pledge or guaranty is an accessory obligation: it exists only to secure a principal debt and has no independent life. So when the credit moves, the security moves with it. The buyer of a receivable does not acquire a bare right to collect and then have to renegotiate the collateral with the borrower; he steps into the same secured position the original creditor held, with the same rank. The article's list — guaranty, mortgage, pledge or preference — is illustrative rather than exhaustive, and the same logic reaches other rights that attach to the credit, such as accrued interest and the right to enforce a penalty clause.
The debtor cannot object, but he must be notified
A creditor may generally assign his credit without asking the debtor's permission, because who collects a debt does not change what the debtor owes. What the debtor is entitled to is notice. Until he knows of the assignment, a debtor who pays the original creditor in good faith is released, and the assignee's recourse is against the person he bought from. This is why assignment deeds are followed by a notice letter, and why anyone buying a receivable should insist on proof that the borrower was actually told rather than accepting a copy of an unsent letter.
Automatic transfer is not the same as automatic enforceability
The right passes by operation of law, but enforcing it against the outside world can still require paperwork. A real estate mortgage takes its effect against third persons from registration with the registry of deeds, so an assignee who never annotates his acquisition risks being outranked by someone who dealt with the property on the strength of the register. The same caution applies to chattel mortgages. Registration does not create the assignee's right — the article already gave him that — but it protects the right against buyers and later creditors who had no way of knowing about the transfer.
What the assignee is buying, and what he is not
He acquires the credit as it stands, defects included. Defences the debtor could have raised against the original creditor — payment already made, a counterclaim, the fact that the loan was never fully released — generally survive the transfer, because nobody can pass on more than he holds. The assignor's usual undertaking is that the credit exists and is legally his; unless he says more, he does not warrant that the debtor is solvent or that the collateral is worth what the file says. That is precisely why security matters. Before taking an assignment, verify the mortgage annotation on the title, check that the guarantor is alive and traceable, and confirm the outstanding balance with the debtor directly instead of relying on the seller's statement of account.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Metropolitan Bank & Trust Company vs. G & P Builders, Incorporated, Spouses Elpidio and Rose Violet Paras, Spouses Jesus and Ma. Consuelo Paras and Victoria Paras, G.R. No. 189509, November 23,2015 — read the decision on LawPhil →
- Servicewide Specialists vs. Court of Appeals, et al, G.R. No. 116363, December 10, 1999 — read the decision on LawPhil →