Assignment of Rights and Subrogation

Assignment of Rights and Subrogation

The other situations in which a third party is a beneficiary in the contracts made by others are the case of assignment of rights and subrogation.

1. Assignment of Rights

1. Definition of assignment of rights

An important consequence of the right to property is the derived right of selling such property, the "abusus" element of the right of property.

2. Types of Assignment

1. 
   consideration or
   
2. 
   gratuitously.
   

1. 
   kind or
   
2. 
   in cash or
   
3. 
   both,
   

A gratuitous assignment, on the other hand, is a voluntary transfer of the creditor's right to the assignee which is made without consideration. In such cases, the assignor gets no economic benefit.

In case of assignment of rights, warranty may or may not be required depending on the form of the assignment. In this regard, our law makes distinction between onerous contracts and gratuitous contracts. Where the assignment is made against payment, "for a consideration", the Civil Code provides for a warranty due by the assignor.

Article 1964 (1) of the Civil Code provides in this case that the assignor has to guarantee the existence of the right at the time of the contract when the assignment is made for consideration. In the case of assignment of rights, warranty signifies a promise as to the title, defects, or quality or quantity contemplated in the subject matter of the assignment. This is a relatively restricted scope to the warranty, because it entails a transfer of risk to the assignee from the day of the sale. Thus the assignor shall be held liable towards the assignee if he had no right at all, if the right is destroyed by, for example, set-off, or if the credit exists for the benefit of a third person at the time the assignment was made.

But the greatest limitation to the scope of the warranty is that the assignor does not guarantee the solvency of the debtor (Article 1964 (2) of the Civil Code). It is for the assignee to endure the risk of insolvency, eventhough he has paid for the debt. This explains that he will generally have bought the right at a discount, precisely and has taken into account such a risk. But of course, the option is always open to the parties to expressly provide in the contract of assignment that the assignor shall in fact guarantee performance.

However, the situation is entirely different where the assignment is made gratuitously. In such cases the assignee should not expect any legal warranty (Article 1964 sub. 3 of the Civil Code)

The assignment is a transfer of the right to the performance of the contract. It entails naturally a transfer of the defenses open on the basis of this contract to the debtor. No restriction is imposed to the debtor as to the time when he became aware of the existence of the assignment. He may oppose them even if they preexisted the assignment (Article 1966 sub. 1 of the Civil Code). This provision allows the debtor to raise against the assignee those defenses he may have raised against the assignor when the debtor became aware of the assignment.

A special defense is open to the debtor by Article 1966 sub. 2. He may oppose a set-off to the assignee, based on a claim he had, not against the assignee (which is the ordinary case), but against the assignor, provided the conditions for set-off are present. In such a case, the assignee loses his right against the debtor. The issue is whether he will be covered by the statutory warranty of Article 1964, sub.l, which is not explicit on this issue. It is more probable he will have to resort to the criterion of unjust enrichment of the assignor.

Be this as it may, for set-off to occur both the negative and positive conditions set out under Article 1832 & 1833 should be fulfilled. It seems logical that the debtor may also raise set-off where he has a claim not against the assignor but against the assignee. The debtor may also raise as defense any matter, which renders the assignment of no effect. Fore example, where the right is legally prohibited from being assigned, the debtor could raise this as a defense.

Which provision is tenable? Why?

Who is duty bound to give information? What if the assignor accepts the payment after assignment?

It is an important requirement that, eventhough his consent is not needed, the debtor is informed of the change of creditor. This precaution should be clearly stated as to who must give information in the contract of assignment, and failing which, by the assignee who does not want to risk a valid refusal from the debtor. If the debtor is released, the original creditor is paid for a debt he has assigned. It seems logical then to open a remedy to the assignee on the basis of unlawful enrichment.

The a contrario reading of Article 1967(1) of the Civil Code implies that the debtor will be held liable where the debtor pays the original creditor after having been informed by either assignee or the assignor about the assignment.

This is because the debtor who pays the original creditor being aware of the assignment is acting in bad faith. Thus, such kind of debtor should not make payment to the assignor.

The subsequent two sub Articles of 1967 of the Civil Code deal with assignment of a given right to various persons. In such cases, you must distinguish between assignment of a single right to several persons under the same instrument and transfer of a single right to several persons by successive acts.

In the first case, the right shall be divided among the assignees in accordance with the terms of the contract of assignment. Failing any provision in their agreement, the right is deemed to be equal.

On the other hand, where the debt was assigned to several assignees by successive acts, the requirement of notification or acknowledgment by the debtor of the assignment in an authenticated document will serve to appoint which assignee has priority in the payment by the debtor pursuant to Article 1967(2) of the Civil Code. Failing any of the above two, the debtor is required to make payment to the debtor who avails himself of the earliest date by virtue of Article 1967(3) of the Civil Code.

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