Subsection 3. Tender of Payment and Consignation

• Tender of Payment

• Is the act, on the part of the debtor, of offering the creditor the thing or amount due.

• Consignation

• Is the act of depositing the thing or amount due with the proper court when the creditor does not desire, or refuses to accept payment, or cannot receive it, after complying with the formalities required by law.

• Applicable when there is a debt or an obligation to pay.

• Always juridical.

• Generally requires a prior tender of payment.

• Requisites of a Valid Consignation:

1. Existence of a valid debt which is due;

2. Valid prior payment by the debtor and refusal without justifiable reason by the creditor to accept it;

3. Previous notice of consignation to person interested in the fulfillment of the obligation;

4. Consignation of the thing or sum due; and

5. Subsequent notice of consignation made to the interested parties.

Example:

Hugh owes money to Hailey. Hugh offers to fulfill his obligation on the due date by paying, but Hailey refuses to accept the payment without any justifiable reason.

• Hugh's responsibility won't be extinguished in this situation unless he makes a valid consignment. Hugh will not be responsible for paying any interest going back to the tender date if Hailey refuses to accept the offer to pay without a valid reason.

• When Tender of Payment is not required.

• Tender of payment is not necessary before the debtor can consign the thing due with the court.

• It has been ruled that a creditor who, without a valid reason, informs a debtor that a payment won't be accepted waives that payment on the date it is due. As a result, the debtor is exempted in this situation from making a formal tender of the payment on that date.

• Failure to submit a fruitless tender after receiving notice from the creditor that the money won't be accepted does not constitute default by the debtor.

• Requirements for Valid Tender of Payment:

• Tender of payment must comply with the rules on payment (Arts. 1256-1258) or with the terms required by the contract in making such tender. The tender, even if valid, does not by itself produce legal payment, unless it is completed by consignation;

• It must be unconditional and for the whole amount due and in legal tender; and

• It must be actually made. The manifestation of a mere desire or intention to pay is not enough. The debtor must show present ability to perform by an actual offer of the thing or money due.

• The consignment, as payment, shall be void in the absence of previous notice to the persons interested in the fulfillment of the obligation.

• The notice's goal is to give the debtor's creditors an opportunity to reconsider his earlier refusal to accept payment in light of the fact that the costs of consignment would be held against him and that he will be responsible for any loss of the item that was consigned.

• Consignation, to amount to a valid payment, must also comply with the provisions which regulate payment.

• The notice of consignment delivered to the creditor and the tender of payment may be made in the same act. If a creditor is missing or unidentified, notice may be sent by publication.

Article 1258 of the Civil Code pertains to the legal concept of "consignation." Consignation is a legal remedy that allows a debtor to discharge their obligation to pay a debt by depositing the amount owed with a juridical authority when the creditor refuses to accept payment.

This article strives for fairness between debtors and creditors. It provides a legal way for debtors to pay their debts when creditors won't accept the payment. It also ensures that creditors with valid reasons for refusing payment can still recover what they're owed. However, the specific procedures for consignation may differ by location, so it's advisable to consult a legal expert or local laws for precise guidance in your area.

Key points of this article:

• The primary purpose of consignation is to protect the debtor when the creditor is unwilling or unable to accept payment. It allows the debtor to fulfill their obligation by depositing the owed amount under specific conditions.

• The debtor is required to deposit the things (usually money or an item of value) due with a juridical authority. This juridical authority could be a court or another entity designated by law to handle such deposits. This requirement ensures transparency and accountability in the process.

• Before making the consignation, the debtor must attempt to tender payment to the creditor. In case the creditor refuses the payment or if there is a valid reason for not making the payment directly to the creditor (such as the creditor's absence), the debtor can proceed with consignation.

• After the consignation has been completed, it is crucial that all interested parties are notified. This notification helps ensure that the creditor and other relevant parties are aware of the deposit, as this deposit effectively discharges the debtor's obligation.

• The article makes a distinction between "proper cases" and "other cases" regarding the requirement for announcing the consignation. In proper cases, the announcement of consignation is not required. Instead, the act of depositing the amount with the juridical authority is sufficient. In "other cases," an announcement of consignation is necessary.

• The announcement of consignation serves as formal notice to the creditor and other interested parties that the debtor has taken the necessary legal steps to fulfill their obligation. It also allows the creditor to claim the deposited amount, which they may do if they have valid reasons for refusing the original payment.

• The article specifies that the expenses of consignation are charged against the creditor "when properly made." This means that for the creditor to bear the expenses of consignation, the debtor must follow the legal requirements and procedures for consignation correctly. These requirements often include notifying the creditor of the intention to consign, depositing the exact amount of the debt, and providing proof of the deposit to the creditor.

• In cases where the debtor has correctly followed the legal procedures for consignation, the law places the burden of covering the expenses associated with consignation on the creditor. This is a protective measure for the debtor, ensuring that they are not unfairly burdened with the costs incurred in attempting to fulfill their obligation.

• The purpose of charging the expenses to the creditor is to encourage creditors to accept payments promptly and avoid unnecessary legal proceedings. It ensures that creditors do not unreasonably refuse payment or create obstacles for debtors, as doing so would result in them having to cover the expenses of consignation.

Here's a sample case to illustrate Article 1259:

Case Scenario:

Let's say Mr. Dong owes Ms. Ding Php 100,000 as payment for a loan that he borrowed from her. Mr. Dong has the intention of repaying the loan, but Ms. Ding repeatedly refuses to accept his payment, claiming that she will only accept the payment if he pays an additional Php 10,000 as interest, even though their initial agreement did not include any interest.

Frustrated by Ms. Ding’s refusal to accept his payment without interest, Mr. Dong decides to resort to consignation to fulfill his obligation. He follows the proper procedure for consignation, which includes notifying Ms. Ding of his intention to consign and then depositing the Php 100,000 with the local court.

Outcome:

In this case, if Mr. Dong follows the legal requirements for consignation, and it is deemed properly made by the court, the expenses associated with consignation, such as court fees, shall be charged against Ms. Ding, the creditor. This means that Ms. Ding will be responsible for reimbursing Mr. Dong for the costs he incurred in depositing the money with the court.

• According to the article, once the debtor has duly made the consignation (deposited the money or goods as required by law), they have the option to ask the judge to order the cancellation of the obligation. This means that if the debtor has fulfilled their part of the obligation by depositing the required amount or property, they can seek legal relief to have the obligation declared as satisfied or canceled.

• However, there are conditions mentioned in the article that limit the debtor's ability to simply consign the payment and walk away from the obligation. Specifically, it states that before the creditor accepts the consignation or before a legal declaration that the consignation has been properly made, the debtor can withdraw the deposited item or money. This implies that if the creditor hasn't acknowledged or accepted the consignation, the debtor can retrieve the deposited amount, and the original obligation remains in force.

• If a creditor believes that the consignation was not made correctly or disputes the validity of the consignation, they can seek legal redress. Similarly, if the debtor believes that the creditor is unreasonably refusing the consignation, they can ask the court to cancel the obligation.

Article 1161 specifically addresses the situation where the creditor, after the debtor has made the consignation, later authorizes the debtor to withdraw the deposited amount. The key consequence stated in the article is that the creditor will lose any preference they may have had over the thing owed.

• The loss of preference means that any special rights or privileges the creditor may have had concerning the thing owed will be forfeited. In cases where multiple creditors are competing for the same asset, this provision ensures that the creditor who initially had the advantage will no longer enjoy that benefit if they later allow the debtor to withdraw the consigned amount.

• Another significant consequence of this provision is that it releases co-debtors, guarantors, and sureties from their obligations. Co-debtors are individuals who share the same obligation, guarantors provide a guarantee of payment, and sureties offer security for the debtor's obligation. If the creditor authorizes the debtor to withdraw the consigned amount, these parties are no longer bound by their commitments.

• The co-debtors (referring to the solidary debtors) are released only from their solidary liability, but not from their shares of obligation, since unlike guarantors and sureties, they are also principal debtors.