Short answer. No, not as a rule. Someone who sells a credit in good faith answers only that the debt exists and is legal, not that the debtor can pay. He becomes answerable for solvency in two situations: where he expressly agreed to it, or where the insolvency was already there and commonly known.

What the law says

The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge.

Civil Code, Article 1628 — Assignor's Warranty (Existence, Not Solvency). Read the full provision →

Existence and legality, not collectability

Article 1628 of the Civil Code separates two very different promises. A seller of a credit in good faith is responsible for the existence and legality of the credit at the time of the sale — that the obligation is real, that it belongs to him, and that it is not void or unenforceable. He is not for the solvency of the debtor. If you buy a receivable and the debtor simply cannot pay, that is the commercial risk you took on. Buying a debt is buying a claim, not a certainty, and the price usually reflects exactly that.

The two situations that change the answer

Solvency becomes the seller's problem where it has been so expressly stipulated, or where the insolvency was prior to the sale and of common knowledge. The first is a matter of drafting: a warranty of collectability has to be written in, because it is not implied. The second is about honesty in the market — a seller cannot pass off the paper of a debtor whose collapse was already public knowledge and then hide behind the general rule. There is a further limit on the seller's exposure. The article also excludes his warranty where the credit was sold as doubtful, which is the point of selling a distressed claim at a discount.

What the liable seller actually pays

Even when the seller is answerable, the article caps the exposure: Even in these cases he shall only be liable for the price received, together with the expenses it specifies by reference to Article 1616 — the expenses of the contract, and any other legitimate payments made by reason of the sale. So the good-faith seller who becomes liable refunds what he was actually paid and the costs of the transaction. He does not underwrite the face value of the debt or the profit the buyer hoped to make from it. A buyer who paid a fraction of face value recovers that fraction, not the full receivable.

Bad faith is a different exposure altogether

The last sentence removes the ceiling for dishonesty: The vendor in bad faith shall always be answerable for the payment of all expenses, and for damages. A seller who knew the claim was fictitious, already settled, time-barred or assigned to someone else is exposed without the price limit, and depending on the facts other consequences may follow. Two practical points for buyers: run your own check on the debtor before you buy, and put any warranty of collectability in the deed rather than relying on assurances. The steps needed to make the assignment effective against the debtor and against third parties are worth confirming with counsel before you pay.

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.

Related provisions

Note. Statute text quoted on this page is reproduced from the official enactment and is linked to the full provision. The explanation around it is general legal information from Vivas & Nobles Law Office, not legal advice. Whether it applies to your situation depends on facts only a lawyer reviewing them can assess.