Assignment of debt

A reader who owes some money has formally been warned by one of his creditors that unless he pays within a week, he will institute legal proceedings against him. At the moment the reader is rather short of cash, however, he is owed an equivalent sum by one of his debtors.

The reader wishes to assign the debt which owed to him to his creditor in order to settle the outstanding payment.

What is the position at law with respect to the assignment of one's debt?

Section 1469 of the Civil Code provides that the assignment of a debt is complete, and the ownership is ipso jure acquired by the assignee, as soon as the debt and the price have been agreed upon and the deed of assignment is made.

Primarily, for the assignment to be valid it must be made in writing. Secondly, the assignee (the creditor) shall not be entitled to exercise the rights assigned to him in regard to third parties except after due notice of the assignment would have been given to the reader's debtor.

Notification to the debtor may be made by the reader or the assignee by means of a judicial act. The reader should note that this notice shall not be necessary if the debtor would have already acknowledged the assignment.

The law further provides that the assignment of a debt shall include every security attached to it and every other thing accessory to the debt. However, it shall not include the fruits accrued due unless express mention thereof has been made in the written instrument of assignment and agreed to between the assignor (the reader) and the assignee.

The reader is bound to warrant the existence of the debt at the time of the assignment and if the debt does not exist than he shall be 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 reader that he was making the assignment without the warranty or by other words to that effect.

The reader shall not be responsible for the solvency of the debtor unless he would have expressly bound himself thereto either by declaring that the debt is good and collectible or by other words to that effect.

If the reader does in fact warrant the solvency of the debtor without any limitation as to the duration of such warranty, such warranty shall be limited to one year 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. The obligation as to this warranty shall cease if the debt becomes irrecoverable through the negligence of the assignee.

Finally, if, notwithstanding the assignment, the assignee is not paid, he shall be bound to proceed against the debtor before he can proceed against the reader, unless it would have been agreed that the assignor shall pay for the debtor should the latter fail to pay on mere demand. If there does exist such an agreement, the assignor shall be liable to the extent of the debt assigned.

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