Assignment of Credit (Philippines)

An Assignment of Credit in the Philippines sets out the conditions on which money is lent, including the rate of interest, any security taken and what happens on default.

The Civil Code treats an assignment of credit as a species of sale under Article 1624, subjecting it to the rules on sales insofar as not modified by the specific rules on assignment (Articles 1625-1635). The assignor warrants the existence and legality of the credit at the time of assignment (Article 1628) but does not, by default, warrant the debtor's solvency unless the insolvency was prior to and known to the assignor at the time of assignment (Article 1629). This warranty distinction is critical: assignees purchasing non-performing receivables at a discount take the risk of debtor insolvency.

Perfection of the assignment against the debtor requires notice to the debtor or the debtor's acceptance of the assignment under Article 1626 of the Civil Code. Until notice is given, the debtor may validly pay the assignor and be discharged. The Supreme Court in Kho Ah Chu v. Chua Pua (G.R. No. L-3468, February 29, 1952) held that a written notice to the debtor need not be formal — any clear communication of the assignment to the debtor satisfies Article 1626. For assignments of credits secured by a registered real estate mortgage, registration of the deed of assignment with the Registry of Deeds is required to bind third parties under Act No. 3344 and Presidential Decree No. 1529 (Property Registration Decree).

The Bangko Sentral ng Pilipinas (BSP) regulates the assignment of bank receivables and non-performing loans (NPLs) under the Special Purpose Vehicle Act (Republic Act No. 9182) and BSP Circular No. 855 (2015) on credit risk transfer, requiring banks to obtain BSP approval for bulk assignments of loan portfolios to special purpose vehicles (SPVs).

The legal framework governing the Assignment of Credit (Philippines) in Philippines draws on several key statutes and regulatory bodies. Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Parties executing a Assignment of Credit (Philippines) in Philippines should confirm the document reflects current law, including any amendments enacted since the original drafting date. The National Internal Revenue Code (RA 8424) sets the foundational requirements.

An Assignment of Credit in the Philippines is needed whenever a creditor wishes to monetize, transfer, or securitize a receivable or debt obligation owed by a third party.

An Assignment of Credit is required when a business sells its trade receivables — accounts receivable from customers — to a factoring company or financing institution under Republic Act No. 8556 (Financing Company Act) to convert outstanding invoices into immediate cash. The factoring company acquires the receivables at a discount and bears the collection risk.

An Assignment of Credit is needed when a bank, lending company registered under Republic Act No. 9474 (Lending Company Regulation Act), or financing company transfers a non-performing loan portfolio to a Special Purpose Vehicle (SPV) under Republic Act No. 9182 (Special Purpose Vehicle Act) to clean up its balance sheet and comply with BSP capital adequacy requirements.

An Assignment of Credit is required when an individual or company that has lent money to a third party under a promissory note or loan agreement wishes to sell the loan to a third-party investor, transferring the right to collect principal and interest to the new creditor.

An Assignment of Credit is needed in real estate transactions when a property developer assigns the installment receivables from buyers — backed by individual Contract to Sell agreements — to a bank or financial institution as collateral for a development loan, converting the developer's future income stream into present liquidity.

An Assignment of Credit is required when a judgment creditor who has obtained a final court judgment against a debtor assigns the judgment credit to a collection agency or investor who will undertake execution and collection proceedings before the Regional Trial Court.

Parties in Philippines should prepare a Assignment of Credit (Philippines) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A valid Assignment of Credit in the Philippines must contain the following essential elements for legal effectiveness and enforceability.

Party Identification: Full legal names, addresses, and legal capacities of the assignor (existing creditor), the assignee (new creditor), and identification of the debtor (the party obligated to pay). For corporate parties, include SEC Registration Numbers and Board Resolutions authorizing the assignment and execution of the deed.

Credit Description: A precise and complete description of the credit being assigned — the original contract or instrument creating the debt (promissory note number, loan agreement date, invoice numbers), the outstanding principal amount in Philippine peso (PHP ₱), accrued interest, maturity date, and any security (e.g., real estate mortgage, chattel mortgage, pledge). Identify whether the credit is current, past due, or non-performing.

Consideration: The purchase price paid by the assignee for the credit, whether at face value (par) or at a discount, and the payment terms. Specify whether the assignment is with recourse (assignor bears debtor insolvency risk) or without recourse (assignee bears the risk), as this determines the assignor's warranties under Articles 1628-1629 of the Civil Code.

Assignor's Warranties: Confirmation that the credit exists and is legally valid, that the assignor has full right and authority to assign the credit, that the credit is free from prior assignments or encumbrances, and that the assignor has not received payment reducing the outstanding balance. If the assignment is with recourse, state the assignor's obligation to repurchase or repay if the debtor defaults.

Notice to Debtor: The mechanism for notifying the debtor of the assignment under Article 1626 of the Civil Code — typically a written notice signed by the assignor and served on the debtor, acknowledging the assignment and directing the debtor to make all future payments to the assignee. The date of notice is the effective date of the assignment against the debtor.

Documents Delivered: A list of all original documents the assignor delivers to the assignee together with the deed — original promissory notes, loan agreements, mortgage documents, collateral instruments, BIR-stamped copies — enabling the assignee to enforce the credit.

Registration Requirements: For credits secured by registered mortgages, the obligation of the assignor to cooperate in registering the assignment with the Registry of Deeds under PD 1529 within a specified period after execution.

Additional compliance elements for a Assignment of Credit (Philippines) used in Philippines include: Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Forms-legal.com provides this template as a starting point for Philippines-compliant documentation.