What is payment by cession?

Article 1255 of the Civil Code governs the concept of payment by cession, to wit:

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)

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.[1] 

For a payment by cession to be fulfilled, the following requisites must concur:

a) there is plurality of debts;

b) there must be two or more creditors;

c) partial or relative insolvency of the debtor;

d) the assignment must involve all of debtor's properties; and

e) the cession must be accepted by creditors.

Unless a stipulation is made, the creditors do not become the owners of the ceded property and the debtor is released from his obligation only up to the net proceeds of things ceded or assigned.[2] In other words, the debtor is still liable to the creditors if there is a balance.[3]

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[1] 8 Manresa 321.

[2] Article 1255, Civil Code. 

[3] De Leon. (2014). Obligations and Contracts.