Assignment of debt

A reader is owed a sum of money which is now long overdue. He has been informed by his debtor that since he is not in a position to pay him, he may instead assign to him a debt of an equivalent amount owed to him from a third party. The reader is interested in his debtor's proposal however, he would like to be assured that the debt which is to be assigned to him is due and collectible.

Primarily, the assignment of the debt must be made in writing and such an assignment will include every security, privilege or hypothec that is attached to the debt and everything accessory to it.

According to the relative provisions of the Civil Code, an assignor of a debt is bound to warrant the existence of the debt at the time of the assignment even though no express stipulation of the warranty has been made in the assignment. Therefore, the warranty that the debt owed from the third party to reader's debtor (the 'assignor') does in actual fact exist is one implied by law.

If the debt does not exist, the assignor is bound to return the price received, unless the warranty as to the existence of the debt has been negatived either by a declaration of the assignor in the instrument constituting the assignment that he was making the assignment without any such warranty, or by other words to that effect.

To safeguard the reader's interests it is advisable that the warranty of the existence of the debt, which is being assigned, is stipulated clearly in the instrument constituting the assignment.

It is important for the reader to be informed that although the law does presume the warranty of the existence of the debt it does not presume the warranty that the debt is in actual fact good and collectible. Therefore it is also in the reader's interest to request the assignor to expressly stipulate that the debt, which is being assigned, is in fact good and collectible.

The law further provides that where the assignor has warranted the solvency of the debtor (the third party in this case) without any limitation as to the duration of such warranty, such warranty shall be limited to one year as from the day of the assignment if the debt has already fallen due, or from the day on which the debt falls due if at the time of the assignment it has not yet fallen due.

If the debt that has been assigned to the reader becomes irrevocable through the reader's own negligence, then the obligation as to the warranty of the solvency of the debtor ceases.

Reader should note that notice of the assignment of the debt must be given to the debtor. This shall be made by judicial act filed by the assignor or the assignee himself. Of course, such notice would no longer be necessary if the debtor would have acknowledged the assignment.

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