HOW APPLICATION IS MADE A. Debtor designates
III. PAYMENT BY CESSION OR ASSIGNMENT
• It is the process of transfer of debtor’s property to creditors not subject to execution so that the latter may sell them and thus apply the proceeds to their credits. The purpose of the transfer or the assignment or the cession, is for the creditors to sell these properties, and to apply the proceeds in proportion to their respective credit.
• An assignment of credit is an agreement by virtue of which the owner of a credit, by legal causes (such has sale, dation, etc) without the need of the debtor’s consent, transfers the credit and its accessory rights to another who acquires the power to enforce it to the same extent as the assignor could have enforced it against the debtor.
Art. 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws. (1175a)
2 Kinds of Assignment
a. Legal – majority of creditors must agree b. Voluntary – all creditors must agree
• REQUISITES FOR VOLUNTARY ASSIGNMENT 1. More than 1 debt
2. More than 1 creditor
3. Complete or partial insolvency of debtor
4. Abandonment of all debtor’s property not exempt from execution to the creditors 5. Acceptance or consent on creditor’s part
• EFFECTS OF VOL. ASSIGNMENT
a) Creditors do not become owners; merely assignees with authority to sell;
b) Debtor is released up to the amount of the net proceeds unless stipulated;
c) Creditors will collect credits in the order of preference agreed upon or in default, in the order established by law.
DACION EN PAGO CESSION
1. does not affect all properties; In general, affects all properties;
2. does not require plurality of creditors; Requires more than 1 creditor;
3. only the specific creditor’s consent is needed;
(transfer is only in favor of one creditor to satisfy a debt) All creditors’ consent; (there are various creditors) 4. may take place during solvency; (no presumption of
insolvency)
Requires full/partial insolvency; (there is presumption of insolvency)
5. transfers ownership upon delivery; Does not transfer ownership, only possession and administration are transferred to the creditors with the authorization to convert the property into cash with which the debts shall be paid.
6. there is an act of novation Not an act of novation
7. May totally extinguish the obligation and release the debtor
Only extinguishes the credits to the extent of the amount realized from the properties assigned, unless otherwise agreed upon.
SUBSECTION 3. - Tender of Payment and Consignation IV. TENDER OF PAYMENT AND CONSIGNATION
TENDER OF PAYMENT – the act of offering the creditor what is due him together with a demand that the creditor accept the same.
CONSIGNATION – the act of depositing the thing due with court or judicial authorities whenever the creditor cannot accept or refuse to accept payment.
From transcription: tender of payment is the manifestation made by the debtor to the creditor of his desire to comply with his obligation with the offer of immediate performance. But mere tender alone does not extinguish the obligation. It must be followed by consignation, if the creditor refuses what you have tendered, without just cause.
Note: Tender and consignation is only true if there is a debt due. Because if it were in an exercise of a right, then mere tender is sufficient, as in the case of exercising the right to repurchase
(Meat Packing case).
Like the case of DBP, that act of the respondent in buying the property was an exercise of the right to repurchase.
Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the place of payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)
• REQUISITES OF A VALID TENDER OF PAYMENT
a) Must be in legal tender (lawful currency) – not a check but if there is consent – valid;
b) It must include whatever interest is due;
c) It must be unconditional; but if made with conditions and no protest on creditor’s part, he cannot later on prescribe the terms for the validity of the acceptance w/c he had already made – complete payment;
d) The obligation must be due.
• Requisites wherein the creditor is deemed to have unjustly refused the tender of payment 1. That there was previous tender of payment
2. That the tender of payment was of the very thing due, or in case of money obligations, that the legal tender currency was offered;
3. That the tender of payment was unconditional; and,
4. that the creditor refused to accept payment without just cause.
Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. (1177)
REQUISITES OF CONSIGNATION a) Existence of a valid debt;
b) Valid prior tender of payment, unless tender is excused;
c) Prior notice of consignation (before deposit);
d) Actual consignation (deposit);
e) Subsequent notice of consignation f) Hearing;
g) Judgment
DEPOSIT; EFFECTS OF
a) The property is in “custodia legis”;
b) Not exempt from attachment and execution;
c) But if property be perishable by nature, the court may order the sale of the property;
d) The debtor by consigning the thing practically makes himself the agent or receiver of the court, particularly if for some reason, the property cannot actually be placed in the hands of the court.
From transcription:
• REQUISITES FOR VALID CONSIGNATION
1. There must be a debt due; there must be a debt owing.
2. That the consignation was made because of some legal cause provided in the present article. (the unjust refusal of the creditor)
3. Previous notice of the consignation has been given to the persons interested in the performance of the obligation.
4. That the amount or thing due was placed at the disposal of the court (actual consigning or depositing the thing due with the clerk of court); and
5. That after the consignation had been made, the persons interested were notified thereof.
Q: what if the debtor decides to withdraw what has been consigned, would that be allowed?
A: Yes. The original obligation is revived.
Q: Can he withdraw after the court finds that consignation is proper?
A: Generally, no, unless or the exception is the creditor consents.
Q: what are the consequences if the creditor consents to the withdrawal after the finding of the court that consignation is proper? One of the consequences is that the creditor loses the preference of credit; He loses the security attached to that obligation.
EFFECT OF PROPER CONSIGNTATION: It retroacts to the time of consignation. Likewise, all interest shall be deemed to stop running from the time of consignation.
Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof.
(1178)
HOW IS CONSIGNATION MADE?
1. The things due must be deposited with the proper judicial authorities;
2. There must be proof that:
Tender was previously made;
Or that the creditor had previously notified the debtor that consignation will be made (in case tender is not required) Art. 1259. The expenses of consignation, when properly made, shall be charged against the
creditor. (1178)
Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force. (1180)
VALID CONSIGNATION, EFFECTS OF:
1. Debtor may ask the judge to cancel the obligation;
2. The running of interest is suspended;
3. It should be observed that before the creditor accepts or before the judge declares that consignation has been properly made, the obligation remains.
IMPROPER CONSIGNATION; EFFECTS:
1. If improperly made, obligation remains;
2. At the time of consignation, the debt already due; requisites are absent – DEBTOR is in default.
Art. 1261. If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall lose every preference which he may have over the thing. The co-debtors, guarantors and sureties shall be released. (1181a)
Effects of Withdrawal a) Obligation remains;
b) Creditor loses any preference over the thing;
c) Co-debtors, guarantors and sureties are released (unless they consented) LOSS OF THE THING DUE WHEN IS A THING CONSIDERED LOST
a) When it perishes;
b) When it goes out of commerce;
c) When it disappears in such a way that:
Its existence is unknown; or
It cannot be recovered.
Note: The term loss does not refer strictly to actual or physical loss but contemplates also impossibility of performance.
WHAT IMPOSSIBILITY OF PERFORMANCE INCLUDES a) Physical impossibility;
b) Legal impossibility;
Directly – prohibited by law;
Indirectly – e.g when debtor is required to enter a military draft.
c) Moral impossibility
Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. (1182a) 2 Kinds of Obligation “to give”
1. to give a generic thing;
2. to give a specific thing Effect of Loss
GEN. RULE: Obligation is extinguished EXCEPTIONS
1. If debtor is at fault;
2. When debtor is made liable for fortuitous event because of:
Provision of law;
Contractual stipulation;
Nature of obligation requires the assumption of risk (debtor) INSTANCES when Law requires Liability even in case of Fortuitous Event:
1. Debtor is in default;
2. When debtor has promised to deliver the same thing to 2 or more persons who do not have the same interest;
3. Obligation arises from a crime;
4. When borrower has lent the thing to another who is not a member of his own HH;
5. When thing loaned has been delivered with appraisal of value unless stipulated exempting borrower from responsibility;
6. When payee in solutio indebiti is in bad faith.
Q: What about partial loss? Will that extinguish the obligation? It depends. Why? Generally, if the partial loss is due to a fortuitous event, the obligor has to deliver the object at its deteriorated state. But if the loss is such that led the parties to enter into the contract, then there is extinguishment of the obligation. For instance, you bought a lot at Royal Pines because of the view that it affords. And then a high rise hotel was constructed which obstructed the view. Is there total loss? No, but there is extinguishment of the obligation.
Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. (n)
GEN. RULE: Genus never perishes EXCEPTIONS
1. If the generic thing is delimited;
2. If generic thing has been segregated or set aside – it becomes specific now.
e.g. MONEY
Art. 1264. The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. (n) Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of article 1165.
This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. (1183a)
Art. 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. (1184a)
Article 1266 refers to impossibility in obligations to do when the prestation has become legally or physically impossible without the fault of the obligor. The impossibility must arise after the constitution of the obligation.
Because if it were prior or at the time of the inception, the nullity of the contract. Legal/physical impossibility must be after the constitution of obligation.
Effect of Loss Thru Fortuitous Event in Reciprocal Obligation
GEN. RULE: The obligation that was not extinguished by the fortuitous event remains.
EXCEPTIONS:
1. In case of lease – if object is destroyed, both lease and rent are extinguished;
2. In contracts for a piece of work.
Note from transcription: what are the forms of impossibility?
1.
It might be physical, when by reason of its nature the act cannot be performed.2.
Second, legal: a law is subsequently passed making the act illegal.3.
Objective when the act or service itself, without considering the person of the obligor, becomes impossible. It is the act itself.4.
The last is subjective which is the opposite of objective. The act or service cannot be done by the obligor, and the reason why you entered into the obligation is the person who would perform the act or the service.Q: What happens if there is temporary impossibility?
A: You merely wait for the impossibility but you still have to comply with the obligation. Exception is if the obligation is to be performed at a definite time, and that time is within the period of that impossibility, so the obligation is extinguished.
Q: What happens if the debtor has complied with the obligation then here comes this temporary impossibility by reason of a circumstance or a situation. Is he entitled to the payment of his performance of what he has partially performed?
A: Yes, of course, unless it is an indivisible obligation. If it turns out the impossibility has become permanent, and you have not yet paid, then you have to pay, unless there is extinguishment of the obligation (falling under 1234 and 1235),
Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part.
(n)
Refers to moral impossibility or impracticability due to change of certain conditions;
Refers to personal obligation (or obligations to do) and not real ( to give)
Does not cover highly speculative contracts or agreements such as stocks and aleatory contracts such as insurance contracts
Based on the doctrine of unforeseen events or rebus sic stantibus Requisites:
1. Even or change of circumstances could not have been forseen at the time of the execution of the contract;
2. Performance is extremely difficult but not impossible;
3. The impossibility was not due to acts of any of the parties;
4. The prestation refers to a future one, not an immediate fulfillment;
Art. 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without justification to accept it. (1185)
Effect of Loss in Criminal Offenses – DOES NOT EXTINGUISH OBLIGATION, EVEN IF FORTUITOUS EVENT INTERVENES e.g theft. So this is one of the exceptions to the rule that if a determinate thing is lost through fortuitous events, the obligation is extinguished.
Exception is when Creditor is in Mora Accipiendi (default); otherwise stated, if the thing was offered to the person who should receive it and the latter refused without just cause.
Art. 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss. (1186)