Assignment of Claims: What Is It and How Does It Work in the Dominican Republic?

The assignment of claims is a legal transaction in which one person, called the assignor, transfers to another, called the assignee, the rights it holds in a claim against a third party known as the assigned debtor.

In this arrangement, the assignor and the assignee play an active role, while the assigned debtor plays a passive one: it is never asked to give its consent and is regarded as a third party to the assignment agreement.[1]

Purpose. When a debtor offers solid guarantees of solvency, performance of the obligation is assured and the claim is regarded as an asset. However, an asset of this kind would be of limited use if the creditor could not dispose of it. This mechanism allows the creditor to assign its claim, or to sell it before maturity.

Its basic aim is to simplify legal dealings. A debtor, in payment of what it owes, assigns to its creditor a claim it holds against a third party. When this happens, the assignment eliminates one legal relationship (one debtor is replaced by another).[2]

Assignment for value and gratuitous assignment. The Civil Code addresses the assignment of claims only in connection with the sale. In that sense, it presupposes a transfer for value. However, an assignment may also be made gratuitously, as a gift. For this reason, legal scholars prefer to separate the subject from the sale and to treat it within the general theory of obligations.[3] Scholars also hold that this mechanism may be used to effect a giving in payment (dación en pago), and even a gift.

Non-assignable claims. In principle, any claim, whether unconditional, subject to a term or conditional, may be assigned; even future claims may be assigned. However, certain claims cannot be assigned, such as court-ordered maintenance payments or statutory maintenance claims, civil and military pensions, and pensions and benefits inherent to Social Security.

When the right is transferred. It follows from articles 1689 and 1690 of the Civil Code that the assignment of claims does not take effect at the same moment between the parties as it does with respect to third parties.

Between the parties, the assignment takes effect as soon as the assignor and the assignee reach an agreement; the claim passes immediately from one to the other.

With respect to third parties, however, article 1690 provides that "The assignee is vested as against third parties only by notice of the transfer served on the debtor. The assignee may nonetheless also be vested by the debtor's acceptance of the transfer in an authentic instrument."

This is because the assigned debtor does not take part in concluding the transaction, which involves only the consent of the assignor and the assignee. That is why the law requires that the debtor be informed of the change of creditor: no new obligation is created for a non-consenting third party, since the assigned debtor was already bound to the assignor.

What does occur is a transformation of a pre-existing obligation without the assigned debtor's consent, because the debtor's obligation toward the assignee will not be exactly what it was toward the assignor. In this sense, a bond of obligation is transformed without the assigned debtor being consulted on whether the transformation suits it.[4]

Failure to give notice. Until notice has been served on the assigned debtor, the debtor is entitled to disregard the assignment. Nevertheless, the assigned debtor has the greatest interest in knowing of the assignment, since it must know who its creditor is in order to avoid the maxim "he who pays wrongly pays twice." The notice rules of article 1690 are therefore vital to the debtor, because they ensure its protection.[5]

Case law. Dominican case law shares this view, holding that "When sued, the assigned debtor may raise the nullity of the assignment so as not to have to pay twice."[6]

Another holding concerning these provisions states: "If the assigned debtor is unaware of the assignment of the claim because it has not been notified of it and has not accepted it in an authentic instrument, it may effect a set-off with the assignor that discharges its obligations."[7]

Regarding the provisions of this article, French case law has held that they are not required when assets and liabilities are transferred as a whole (à titre universel), as in the case of a corporate merger.[8]

In short, the assignment of claims is a versatile legal tool: it allows rights to receivables to be transferred between parties, improving liquidity and simplifying transactions. It is crucial, however, to understand its effects, restrictions and formalities, especially as regards notice to the assigned debtor.

[1] MAZEAUD, Henri, Leon & Jean. Lecciones de Derecho Civil. Part II, Vol. II. p. 497

[2] Ibid.

[3] WEILL, Alex. Droit Civil – Les Obligations. Dalloz, 1971. p. 887.

[4] LARROUMET, Christian. Teoría General del Contrato. Vol. I, Temis, Bogotá, 1999. p. 67

[5] MAZEAUD, op. cit. p. 501

[6] Supreme Court of Justice of the Dominican Republic. Boletín Judicial No. 725. Year 945º; reproduced in Boletín Judicial No. 734. Year XIVº

[7] Supreme Court of Justice of the Dominican Republic. Boletín Judicial No. 1062. Year 89º

[8] Com. 18 Dec. 1984: Bull. Civ. IV, No. 351.