The following statements concerning payment by cession are true except one which is it

SUBSECTION 2. PAYMENT BY CESSION

Article 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. 

By: Johannes Aquino

Ang may utang ay maaaring magtalaga ng kanya ng ari-arian sa kanyang mga pinagkakautangan bilang kabayaran. Ang pagtatalagang ito ang mag-absulwelto lamang sa pagkakautang hanggang sa buong halaga ng kanyang ari-arian, maliban na lamang kung may ibang pagsasaad sa usapan.

Meaning of payment by cession.

Payment by cession is another special form of payment. It is the assignment or abandonment of all the properties of the debtor for the benefit of his creditors in order that the latter may sell the same and apply the proceeds thereof to the satisfaction of their credits. (8 Manresa 321.)

Requisites of payment by cession.

They are: (1) There must be two or more creditors;

(2) The debtor must be (partially) insolvent;

(3) The assignment must involve all the properties of the debtor; and

(4) The cession must be accepted by the creditors.

Effect of payment by cession.

Unless there is a stipulation to the contrary, the assignment does not make the creditors the owners of the property of the debtor and the debtor is released from his obligation only up to the net proceeds of the sale of the property assigned. (Art. 1255.) In other words, the debtor is still liable if there is a balance.

Article 1255 refers to contractual assignment.

The assignment of property under Article 1255 refers to voluntary or contractual assignment which requires the consent of all the creditors as distinguished from legal or judicial assignment which is governed by the Insolvency Law. (Sec. 8, Act No. 1956, as amended.) It merely involves a change of the object of the obligation by agreement of the parties and at the same time fulfilling the same voluntarily. (Lopez vs. Court of Appeals, 114 SCRA 671 [1982].)

Dation in payment and cession distinguished.

Dation in payment or dacion en pago is a special form of payment whereby another thing is alienated by the debtor to the creditor who accepts it as equivalent of payment of an existing debt in money. There is no dation if the transfer of property is by way of security only, and not by way of satisfying the debt.  The differences are:

(1) In dation (see Art. 1245.), there is usually only one creditor, while in cession, there are several creditors;

(2) Dation does not presuppose the insolvency of the debtor or a situation of financial difficulties, while in cession, the debtor is insolvent at the time of assignment;

(3) Dation does not involve all the property of the debtor, while cession extends to all the property of the debtor subject to execution;

(4) In dation, the creditor becomes the owner of the thing given by the debtor, while in cession, the creditors only acquire the right to sell the thing and apply the proceeds to their credits pro rata; and

(5) Dation is really an act of novation (Art. 1291[1].), while cession is not an act of novation.

Both are substitute forms of payment or performance. They are governed by the law on sales.

Illustration:

Lori Gadon is indebted to several creditors in the total amount of P5 million. Her assets are not sufficient to pay all his debts.

With the consent of her creditors, Lori may assign property to them to be sold, to satisfy their credits. If the net proceeds of the sale amount only to P3 million, Lori is still liable for the balance of P2 million unless there is a stipulation that the assignment shall be in full satisfaction of all her debts.