Assignment of debt

A reader is owed money by one of his debtors (A). This debtor is not in a position to pay him and so he has suggested to the reader that he shall be assigning to him a debt of an equivalent amount owed to A by B. The reader is interested, but would like to know what guarantee would he have that the debt to be assigned to him by A is in fact due and collectible. The reader would like to know whether his rights in such a transaction are protected by law.

According to law, the assignor (which, in this case would be 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 A in fact exists 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 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 collectable. Therefore it is in the reader's interest to request the assignor to expressly stipulate in the instrument constituting the assignment that the debt that is being assigned is in fact good and collectible.

In this case the assignor would be binding himself with regard to the present and future solvency of B and therefore if B becomes insolvent and cannot settle the debt, A would have to make good for the unsettled debt.

The law further provides that where the assignor has guaranteed the solvency of the debtor without any limitation as to its duration, 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 negligence of the reader, than the obligation as to the warranty of the solvency of B ceases.

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 every other thing accessory to it.

After the assignment is made, the reader may not exercise the rights assigned to him vis-à-vis third parties 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.

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