When does an assignment of a credit become effective between the parties?

An assignment is perfected like a sale

Article 1624 of the Civil Code does not set up its own rulebook. It sends you to the law on sales, because an assignment of a credit is in substance the sale of a right. So the moment of perfection is the moment described in Article 1475 — a meeting of minds on the object and on the price.

The practical consequence is that the assignment is a consensual transaction. Nothing has to change hands. The assignee does not have to receive the promissory note, the invoice or the loan file for the right to be his. From perfection, the parties may reciprocally demand performance: the assignee can insist on the papers, and the assignor can insist on being paid.

Perfection between the parties is not the same as binding the debtor

This is where most disputes start. Perfection settles who owns the credit as between assignor and assignee. It does not by itself tell the debtor anything. A debtor who has not been notified and who pays the original creditor in good faith is generally released — and the assignee is left chasing the assignor for money he already parted with.

That is why a careful assignee does two separate things: closes the agreement, then serves written notice on the debtor and keeps proof of service. Notice is not what makes the assignment valid; it is what makes it safe.

Form, and when the law demands more

Article 1475 itself is expressly subject to the provisions of the law governing the form of contracts. A bare consensual assignment is enough to bind the two parties, but form still matters for other purposes. Where the credit involves rights over immovable property, the assignment normally has to appear in a public document to be registrable and to affect third persons.

A written, dated and notarised deed also does something a handshake cannot: it fixes the date against strangers to the deal. If the assignor later assigns the same credit to somebody else, or if his creditors garnish it, the dates decide the fight.

What the assignee actually gets — and does not get

The assignee steps into the assignor's shoes. He takes the credit with its accessories, such as guaranty and mortgage, and also with its weaknesses: whatever defences the debtor could raise against the original creditor generally travel with the credit. Assigning a debt does not launder it.

Unless he agrees otherwise, an assignor in good faith warrants that the credit exists and that it is legally his to transfer — he does not ordinarily warrant that the debtor can pay. Read the deed closely on this point before signing. If you are buying or selling receivables, have the wording of the warranties reviewed by a lawyer first.

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.

• Dr. Rico Vargas Substituted By His Wife, Cecilia Vargas And Children, Namely: Richelle Josie Judy Vargas-castro, Arvee T. Vargas And Cecilia Vargas, vs. Jose F. Acsayan, Jr, G.R. No. 206780, March 20, 2019 — read the decision on LawPhil →
• Heirs of Jose Peñaflor vs. Heirs of Artemio and Lydia Dela Cruz, G.R. No. 197797, August 9, 2017 — read the decision on LawPhil →
• Edgar Ledonio vs. Capitol Devt. Corp, G.R. No. 149040, July 4, 2007 — read the decision on LawPhil →
• Tomas Ang vs. Associated Bank, et al, G.R. No. 146511, September 5, 2007 — read the decision on LawPhil →

Related provisions

• Civil Code, Article 1624 — Assignment of Credits Perfected by Consent
• Civil Code, Article 1475 — Perfection of the Sale