A practical legal article for creditors, lenders, businesses, and collection agencies

1) The two most common “collection agency” setups (don’t mix them up)

A. Outsourced collection (Agency Collection)

You remain the creditor. The collection agency acts as your agent (service provider) and collects in your name (or on your behalf).

Ownership of the receivable stays with you.
The agency earns fees/commission.
Debtors generally still pay you (or the agency as authorized collecting agent).

B. Assignment or Sale of the debt (Transfer of Credit / Receivables)

You transfer ownership of the receivable to the collection agency (or a buyer). The buyer becomes the new creditor.

The buyer collects for itself (as assignee/new owner).
This is the structure used in many “debt purchasing” / NPL portfolio sales.

This article focuses on B (assignment/sale), but includes key points where A affects legality, privacy, and enforcement.

2) The legal foundation in the Philippines: “assignment of credit” under the Civil Code

Philippine law generally allows a creditor to transfer (assign/sell) a credit/receivable unless:

the law prohibits it,
the parties’ contract prohibits it, or
the obligation is purely personal (so tied to a person that transfer would defeat the purpose).

Key effects of a valid assignment/sale

The assignee (buyer) steps into the shoes of the assignor (seller) as creditor.
The assignment typically carries with it accessory rights (e.g., security, guaranty) unless excluded or legally non-transferable.
The debtor’s consent is usually not required for the assignment to be valid between seller and buyer, but notice matters for enforceability against the debtor (see Section 6).

3) What exactly can be assigned or sold?

Commonly transferable receivables include:

unpaid invoices / trade receivables
promissory notes / loans (consumer or commercial)
credit card receivables (subject to privacy/consumer rules and contractual terms)
rentals/lease receivables
judgment awards (with practical limits and procedural realities)

Watch-outs

“No assignment” clauses: Many loan/lease contracts allow assignment; some prohibit it or require consent. Treat these seriously—breach can create liability even if the transfer is otherwise effective.
Bank secrecy / confidentiality: If the receivable arises from a bank relationship or regulated financial product, information sharing may be constrained and must be structured carefully.
Employment-related, support obligations, and strongly personal obligations: Certain rights/claims may be restricted or impractical to transfer.

4) Sale vs. assignment: in practice they look similar, but the economics differ

Assignment (transfer of credit)

Often used as a broad legal term for transferring the receivable.
May be with recourse (seller remains liable if debtor doesn’t pay) or without recourse.

Sale of receivables

A “true sale” is used when the buyer bears the credit risk (often without recourse), except for limited warranties (e.g., the receivable exists).
Pricing is typically a discount (e.g., buyer pays a fraction of face value).

Why it matters: recourse/no-recourse affects:

your continuing liability,
accounting treatment,
the buyer’s remedies against you,
and sometimes tax characterization.

5) Pre-transfer checklist (do this before you sign anything)

A. Confirm the debt is “collectible” on paper

Proof of the obligation: signed contract, promissory note, invoices, delivery receipts, statements of account.
Default proof: demand letters, payment histories, dishonored checks (if any).
Interest/penalty basis: contract clauses and computations.
Prescription (time-bar) risk:
- Written contracts generally have a longer prescriptive period than oral ones; once prescribed, collectability drops sharply unless revived in legally recognized ways.
- Don’t sell “stale” accounts without pricing and disclosures reflecting that risk.

B. Check security and third-party undertakings

If the debt is secured or supported by third parties:

Real estate mortgage: check annotations, loan documents, and whether assignment requires annotation/registration for full effect.
Chattel mortgage: verify registration and compliance with formalities.
Pledge: confirm possession/control rules.
Surety/guaranty: check if transferable and if any notice/consent is required.

C. Contractual restrictions

“No assignment” or “consent required” clauses
confidentiality / data-sharing clauses
venue/jurisdiction clauses and arbitration agreements (the buyer inherits the procedural posture)

D. Compliance and reputation risk

Even if the buyer “owns” the debt, abusive collection tactics can create:

criminal exposure (threats, coercion, unjust vexation, etc.),
civil claims (damages),
regulatory problems (especially where consumer finance is involved),
and brand harm if your company’s name remains linked.

6) Notice to the debtor: the single most important operational step

Even when debtor consent isn’t required to transfer the credit between seller and buyer, notice protects the buyer and prevents the debtor from safely paying the wrong party.

Practical legal consequences of giving notice

Once properly notified, the debtor should pay the assignee (new creditor).
If the debtor pays the old creditor before notice, that payment may be treated as valid (depending on circumstances), creating avoidable disputes.

Best practices for notice

Provide written notice stating:
- the debt has been assigned/sold,
- the effective date,
- the new creditor’s name and payment instructions,
- a channel for questions/disputes and a request for updated contact info.
Deliver via traceable means (courier, registered mail, email where contract allows, and keep proof).
If a promissory note or negotiable instrument is involved, ensure proper endorsement/delivery mechanics are followed.

7) Form and documentation: what you should sign (and why notarization matters)

Core document: Deed of Assignment or Receivables Purchase Agreement

Typical components:

Parties (seller/assignor; buyer/assignee)
Definition of receivables (attach a Schedule/Annex listing accounts)
Purchase price / consideration and payment mechanics
Effective date and cut-off for payments
Transfer of title language (“sells, transfers, and assigns…”)
Representations & warranties (see Section 8)
Recourse provisions (if any)
Deliverables (loan files, statements, originals, electronic records)
Notice responsibility (who notifies, timing, template)
Data privacy & confidentiality (see Section 10)
Dispute resolution (venue, arbitration)
Governing law (Philippines)
Signatures + authority proof (board resolution/SPA)

Should it be notarized?

Notarization is not merely ceremonial in the Philippines:

It strengthens enforceability, evidentiary weight, and practicality for third-party dealings.
Where the underlying right or security requires registration/annotation, notarization is often expected as a baseline.

8) Warranties and liability: what the seller usually promises (and what you should avoid)

A buyer will usually demand that the seller warrants:

the receivable exists and is valid,
the seller is the true owner and can transfer it,
the receivable is not previously assigned,
the records provided are accurate (at least in material respects),
there is no known legal impediment (e.g., injunction, bankruptcy stay, etc., if applicable).

Solvency of the debtor: be careful

Under Civil Code principles, a seller often warrants existence and legality of the credit, but not the debtor’s solvency unless:

you expressly promise it, or
you structured the deal as with recourse.

Practical drafting tip: If you are selling delinquent accounts, limit warranties to “existence/ownership” and explicitly disclaim guaranteeing collectability, except for fraud/forgery/identity issues.

9) Transfer of security interests and guarantees: don’t assume it “automatically works” in the real world

In theory, accessory rights follow the principal credit. In practice, enforcement often depends on paperwork, registration, and proof.

If there is a mortgage (real property)

You may need annotation/registration steps to make the assignee’s rights fully opposable and operational for foreclosure or enforcement.
Coordinate with counsel familiar with local Registry of Deeds procedures.

If there is a chattel mortgage

Check registration and whether any amendment/assignment needs recording for smooth enforcement.

If there is a guarantor/surety

Provide notice and confirm the guaranty language covers successors/assigns.
The assignee must be able to prove it is the successor creditor.

10) Data Privacy Act (RA 10173): assignments often fail here if handled casually

Selling/assigning debt almost always involves transferring personal data (name, address, contact details, payment history). That triggers privacy obligations.

What to do (practical compliance)

Identify the lawful basis (often contractual necessity and/or legitimate interest, depending on context and how disclosures were made to the data subject).
Ensure your original loan/credit documentation and privacy notices contemplated:
- disclosure to “assignees,” “debt buyers,” “service providers,” or similar.
Execute a Data Sharing Agreement (or equivalent provisions in the main agreement) covering:
- purpose limitation (collection/servicing),
- retention,
- security controls,
- breach notification cooperation,
- subcontractor restrictions,
- cross-border transfer rules (if any systems are offshore).
Minimize data handed over: only what’s needed to collect and prove the debt.

Collection conduct and privacy

Even if the buyer owns the debt, contacting third parties, public shaming, or disclosing the debt to employers/friends without a lawful basis can create privacy and tort exposure.

11) Collection conduct: what “legal collection” looks like in the Philippines

The Philippines does not rely on a single “FDCPA-style” statute for all collectors, but multiple laws can be triggered by abusive practices.

Avoid these high-risk behaviors

threats of violence or unlawful harm
harassment (repeated calls at unreasonable hours, intimidation)
pretending to be law enforcement or a court officer
публич shaming / posting debtor info online
contacting unrelated third parties in a way that discloses the debt
coercion that crosses into criminal conduct

Safer practices

professional written demands,
clear validation of the account,
reasonable call cadence,
respectful settlement offers,
documented dispute handling,
escalation to legal action only when supported by records.

12) Taxes and fees: expect transaction costs and plan for them

The transfer of receivables can have tax implications, which vary depending on structure:

sale vs. assignment,
whether the seller is engaged in lending/financing as a business,
whether the receivables are treated as capital assets or ordinary assets,
and whether the deal is a portfolio sale.

Possible areas to check with a PH tax professional:

documentary stamp tax (DST) exposure depending on instrument/document type,
income recognition (gain/loss on sale),
VAT issues for services vs. asset sale characterization,
withholding obligations in some setups.

Because tax treatment is detail-sensitive, treat this as a must-review item, not an afterthought.

13) Step-by-step: a legally defensible assignment/sale workflow

Inventory and diligence
- build a clean data tape (account list), verify documents, compute balances, identify disputed accounts.
Check restrictions
- review the original contract for assignment restrictions and privacy disclosures.
Choose the structure
- true sale (no recourse) vs. with recourse; whole portfolio vs. per-account.
Negotiate commercial terms
- price, payment schedule, adjustments for defects, buyback for ineligible accounts.
Draft and sign the agreement
- deed/RPA + annex schedules + authority documents (board resolution/SPA).
Prepare the turnover package
- originals (where needed), certified copies, statements, demand letters, payment histories.
Send debtor notices
- traceable delivery; consistent payment instructions; dispute channels.
Transfer/record security interests if applicable
- mortgages/chattel mortgage/surety arrangements—complete operational steps for enforcement.
Implement data privacy controls
- data sharing terms + security + retention + access controls.
Post-transfer governance

dispute handling, complaint response, audit rights, and monitoring the buyer’s collection practices (especially if your brand remains visible).

14) What a good Deed of Assignment / Sale Agreement usually includes (quick clause checklist)

Definition of “Receivables” and exclusions (e.g., disputed, prescribed, bankrupt accounts)
Purchase price + true-up/adjustment mechanisms
Cut-off date and handling of payments received after cut-off
Representations & warranties (existence, ownership, authority, no prior assignment)
Remedies: repurchase/buyback of defective accounts; indemnities
Recourse (if any) and limits/caps
Document delivery obligations and timelines
Notice to debtors obligations and templates
Confidentiality and Data Sharing (RA 10173 compliance)
Collection standards (no harassment; legal compliance; complaint handling)
Dispute resolution (venue/arbitration)
Governing law: Philippines

15) Common mistakes that make assignments hard to enforce

No proof the debt exists (missing signed contracts, weak account history)
Selling accounts that are likely prescribed without disclosure/discounting
Not giving effective notice to debtors
Failing to transfer or operationalize security rights
Overpromising collectability (unintended “solvency warranty”)
Handing over personal data without a defensible privacy basis and controls
Letting collectors use abusive tactics that trigger criminal/civil/regulatory risk

16) Practical templates (what you can safely standardize)

You can standardize:

debtor notice of assignment letter,
deed of assignment short-form for single accounts,
receivables purchase agreement for portfolios,
turnover checklist (documents per account),
dispute intake and validation process,
privacy/data sharing addendum.

But you should still have counsel review final forms, especially where:

secured loans exist,
consumer loans are involved,
large portfolios are sold,
or regulated financial institutions are parties.

17) When you should get specific legal advice (high priority scenarios)

real estate or chattel mortgages securing the debt
large consumer portfolios (credit cards, salary loans, BNPL)
cross-border data processing or offshore servicers
assignments restricted by contract or requiring consent
prescribed/near-prescription accounts
litigation already filed or judgments involved
debtor complaints, reputational risk, or prior harassment allegations

Bottom line

To legally assign or sell a debt to a collection agency in the Philippines, you need three things to be solid:

a valid transfer agreement (properly documented and authorized),
effective notice and operational turnover (so the new creditor can actually collect and prove standing), and
privacy-compliant data sharing and lawful collection behavior (to avoid liability while enforcing the receivable).

If you want, I can provide:

a detailed Deed of Assignment (PH-style) outline with optional clauses for with/without recourse, and
a debtor notice template aligned with common Philippine practice and privacy safeguards.