"A" Owes a debt to a reader which is long overdue. Reader has now been informed by A that since he is unable to pay him, he may instead assign to the reader a debt of an equivalent amount owed to A by B. Since the reader wants to settle this pending debt he is interested in his debtor`s proposal.
What guarantee does reader have that the debt which is going to be assigned to him is in fact due and collectible? In this respect, how far does the law safeguard the reader`s interests?
According to law, the assignor (in this case, A) of a debt or any other right 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 by B to reader`s debtor 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 that he was making the assignment without any such warranty, or by words to that effect.
To safeguard the reader`s interests it is advisable that the warranty of the existence of the debt 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 in the instrument constituting the assignment that the debt which is being assigned is in actual fact good and collectible.
In this case the assignor would be binding himself with regard to B`s solvency, both present and future, and therefore if B becomes insolvent and cannot settle the debt in question, A would have to do good for the unsettled debt.
The law further provides that where the assignor has warranted the solvency of the debtor 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 from A to the reader becomes irrevocable through the reader`s negligence, then the obligation as to the warranty of B`s solvency ceases.
The assignment of the debt must be made in writing and will include every security, privilege or hypothec attached to the debt and every other thing accessory to it.
After the assignment is made, the reader may not, vis-à-vis third parties, exercise the rights assigned to him except after due notice of the assignment has been delivered to B. Notice shall be by judicial act filed by the assignor or the assignee himself.
Naturally, this notice would no longer be necessary if B would have acknowledged the assignment. To avoid any doubt, it is always advisable that this last acknowledgment be made in writing.