Art. 1628. The vendor in good faith shall be responsible for the
He warrants the existence of the credit
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.
Even in these cases he shall only be liable for the price received
and for the expenses specified in No. 1 of Article 1616.
The vendor in bad faith shall always be answerable for the
payment of all expenses, and for damages. (1529)
COMMENT:
1. Warranties in the Assignment of a Credit
What the Assignor of the Credit Warrants? (ELS)
1. The existence of the credit at the time of the assignment
2. The legality of the credit 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
3. The solvency of the debtor, if expressly stipulated or if the
insolvency of the debtor was prior to the sale and of common
knowledge
Scope of Liability in case of breach of warranty
1. In good faith: Assignor shall pay
(a) consideration of price which he received from the assignee;
(b) expenses of the contract (c) other legitimate expenses occasioned
by the assignment
2. In bad faith: Same liabilities as in above but with damages
2. Example
3. Assignment of Credit Defined
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
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 special laws.
Effects of Assignment:
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
3. debtor can set up against the assignee all the defenses he could
have set up against the assignor
Effect of payment by the debtor after assignment of credit
1. Before Notice of the assignment
Payment to the original creditor is valid and debtor shall be
released from his obligation
2. After Notice
Payment to the original creditor is not valid as against the
assignee
He can be made to pay again by the assignee
Warranties of the assignor of credit:
a.
a. He warrants the legality of the credit at the perfection of the
contract
NOTE: 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
NOTE: The seller of an inheritance warrants only the fact of his
heirship but not the objects which make up his inheritance.
Liabilities of the assignor of credit for violation of his warranties
1. Assignor in good faith
Liability is limited only to the price received and to the
expenses of the contract, and any other legitimate payments
by reason of the assignment
2. Assignor in bad faith
Liable not only for the payment of the price and all the
expenses but also for damages
Legal Redemption in Sale or Credit or other incorporeal right in
litigation
Requisites:
1. There must be a sale or assignment of credit
2. There must be a pending litigation at the time of the assignment
3. The debtor must pay the assignee:
a. price paid by him
b. judicial cost 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 extra-judicially) payment
from him
SALE OF CREDIT OR OTHER INCORPOREAL RIGHTS IN
LITIGATION
GENERAL RULE: Debtor has the right of legal redemption in sale of
credit or incorporeal rights in litigation
EXCEPTIONS:
a. Sale to a co-heir or co-owner
a. Sale to a co-owner
a. Sale to the possessor of property in question
4. Cases
This is a case of assignment of credit. It is an agreement in which a
creditor or owner of a credit (assignor) transfers his credit and
accessory rights to another (assignee) who acquires the power to
enforce it to the same extent as the creditor could enforce it against the
debtor even without the consent of the latter. The assignment of credit
is in the nature of a sale of personal property and may extinguish the
obligation of the assignor to the assignee. But to extinguish said
obligation, the assignor must comply with certain warranties. This is
illustrated in this case of Luis, a building contractor, and KJS, a
supplier of steel scaffoldings.
Luis purchased steel scaffoldings from KJS worth P540,425.80. After
making the down-payment of P150,000.00 and paying the first two
monthly installments, Luis was unable to settle his obligations to KJS
anymore due to business difficulties. But he offered to pay KJS with his
receivables from JR Corporation (JRC) whose residential house he
was constructing and who supposedly still owed him P335,462.14. KJS
accepted the offer.
So on October 11, 1990, Luis and KJS executed a deed of assignment
whereby Luis assigned to KJS his abovementioned receivables from
JRC. Pursuant to the deed, Luis granted KJS, its successors and
assigns full power and authority to demand, collect, receive,
compound, compromise and release the receivables or any part
thereof in his name and stead. Luis also agreed and stipulated
that the said debt of JRC to him is justly owing and due and he
has not done or cause to be done anything to diminish or
discharge said debt. Luis further agreed to do all other acts and
deeds as shall reasonably be necessary to effectually enable
KJS to recover whatever collectibles he has from JRC.
However, when KJS tried to collect said credit from JRC, the
latter refused to honor the deed of assignment because it
claimed that Luis was also indebted to it.
become equivalent to forbearance of credit(Lo vs. KJS ECO
Formwork System Phils. Inc. G.R. 149420, October 8, 2003).
Art. 1629. In case the assignor in good faith should have
made himself responsible for the solvency of the debtor, and
the contracting parties should not have agreed upon the
duration of the liability, it shall last for one year only, from
the time of the assignment if the period had already expired.

In view of this unfortunate development, KJS sued Luis after the
latter refused to pay his obligations to it despite demands.
According to Luis his obligations to KJS were already
extinguished with the execution of the deed of assignment of his
collectibles from JRC.
If the credit should be payable within a term or period which
has not yet expired, the liability shall cease one year after
the maturity. (1530a)

Was Luis correct? No.

COMMENT:
As in any contract of sale, the vendor or assignor, like Luis, is
bound by certain warranties, particularly the existence and 1. Duration of the Warranty for the Debtors Solvency
legality of the credit (or collectibles) at the time of the sale or
assignment (Art. 1628, Civil Code). When indebted to it, KJS was
telling Luis that the credit he assigned was no longer existing and
that therefore it was asserting its claim to Luis’ warranty
Duration of the Liability of the Assignor in Good Faith (in
under the deed of assignment. Therefore, it behooved Luis to
case there is no agreement)
make good his warranty by paying his obligation. 1. One year from the date of the assignment of the credit if the
period of payment of the credit has already expired
Furthermore, Luis also breached his obligation under the deed of 2. One year after maturity of the credit if the period of payment
assignment requiring him to execute and do all further acts and has not yet expired
deeds as shall be reasonably necessary to effectually enable
KJS to recover whatever collectibles he had against JRC.
Indeed, by warranting the existence of the credit, Luis is deemed
to have ensured the performance thereof in case the same is
2. Example
later found to be non-existent. He should be held liable to pay
KJS the sum of P335,462.14 with legal interest of six percent per
annum from the filing of the action until fully paid. Upon the 3. Cases
finality of the decision, the rate of legal interest shall be 12
percent per annum inasmuch as the obligation shall thereafter