UNIT 6 (2015)Apunte Inglés
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UNIT 6: PERFORMANCE
We discuss performance of obligation.
Performance (realización) of a particular obligation: An obligation has two parties: - Debtor: has an obligation to deliver a good.
Creditor: has the obligation to pay for it.
Solvens: Solvens: person that performs the obligation (a debtor or a 3rd person) - - Delegation: debtors may be voluntarily or legally represented by other individuals or persons. Sometimes may use a representative in order to perform the obligation.
o Exception: intuitu personae obligations (obligations to perform services): obligations in which the creditor take into consideration the personal skills and qualities of the debtor (art. 1161 CC). E.g.: You have to organise a concert and you have to hair a music, instead of the original music, comes another.
Capacity to alienate goods + non-limited transferability assets (art. 1160 CC) o If some of these requirements are not met (no se cumplen), performance is not valid (art. 1160 CC) and restitution of assets (activos) may follow.
Performance by a third party We have the possibility of a 3rd person to perform instead of the debtor.
Where personal performance by the debtor is not required by the terms regulating the obligation, the creditor cannot refuse performance by a third person, regardless of the debtor’s assent.
- Only in non intuitu personae obligations (art. 1161 CC) - Also capacity requirements should be followed (art. 1160 CC) Article 1158 CC: “Puede hacer el pago cualquier persona, tenga o no interés en el cumplimiento de la obligación, ya lo conozca y lo apruebe, o ya lo ignore el deudor.
El que pagare por cuenta de otro podrá reclamar del deudor lo que hubiese pagado, a no haberlo hecho contra su expresa voluntad.
En este caso sólo podrá repetir del deudor aquello en que le hubiera sido útil el pago”.
Effects: In the Spanish law (art. 1158 CC: include 3 different rules): - - - The debtor knows about the 3rd person’s intention to perform and does not oppose it: credit relation between Creditor and Debtor is extinguished; obligation subsists and the third person takes over the creditor’s right by subrogation.
o A (debtor) 100€ B (creditor) o C (3rd person): performs the obligation instead of A (pays 100€ to B).
o B has to accept it.
o The obligation between A and B will extinguish.
o It creates a new obligation between A and C (A 100€ C) = subrogation Debtor ignores about 3rd person’s intention to perform: credit relation between Creditor and Debtor is extinguished; the third person does not take over the creditor’s right by subrogation but may seek (solicitor) reimbursement (acción de reembolso (art. 1159 CC)) o A (debtor) 100€ B (creditor) o C (3rd person): performs the obligation instead of A (pays the 100€ to B) o C will have a claim Debtor opposes performance by a third person: the third person may only seek reimbursement of amounts that have reported utility to debtor.
o A 100 B o B 50 A o C performs and pay 100 to B o A disagree with the performance of C o A has a payment strategy, because he has only to pay 50 to B, but if C has paid 100, A cannot do his strategy.
o C can only claim 50 to A Accipiens: Accipiens: person that benefits from the performance (a creditor or a third person) - - Legal capacity to administrate goods (art. 1163 CC) performance to an incompetent person is generally not valid (and thus can be null). It may be recommended to use deposit as an alternative to performance.
Representative of incompetent may accept performance ex post (“ratificación”) representation may work in cases of incompetent people.
Performance to a person who is not the creditor - - Authorized persons: sometimes the creditors will appoint a person that would be directly benefited by performance (art. 1162 CC).
o Representative (legal or voluntary representation) o Non-representative authorization (adiectus solutionis causa); e.g.: bank account “Apparent creditor” (art. 1164 CC: “El pago hecho de Buena fe al que estuviere en posesión del crédito, liberará al deudor”): - o The debtor is discharged by performing to an alleged assignee is he acts in good faith rule aimed at facilitating transactions in the market and protecting those agents that relied in the information conveyed by documents incorporating the credit. The debtor reasonably and in good faith believed that the right had been assigned to that person.
o Obligation is not extinguished: the true creditor may seek reimbursement against the alleged assignee.
Performance to a third person (art. 1163.2 CC: “También será válido el pago hecho a un tercero en cuanto se hubiera convertido en utilidad del acreedor”). Valid performance if, for instance, the third person afterwards delivers the assets (proporciona los bienes) to the creditor, or debtor pays to a creditor (obligation is extinguished by set-off (compensación)).
Plurality of debtors/creditors (recall from previous courses): - Several liability - Joint liability - Joint and several liability -solidarity Objective requirements Performance of an obligation shall meet the following requirements: - Identity: debtor has a duty to perform the behaviour that is the subject-matter of the obligation (realizar la conducta objeto de la obligación), unless the creditor accepts an alternative behaviour as valid performance (articles 1166 and 1167 CC). E.g.: datio pro soluto.
- Integrity: debtor has a duty to perform the obligation in full, that is, to deliver all elements of the good that was promised (including accessories) or to perform all behaviours that were the subject-matter of the obligation.
The creditor may accept a good that has been partially destroyed. In such cases, however, legal systems usually entitle (autoriza) the creditor to ask for a reduction of price (see for instance article 1460.II CC).
- Indivisibility: in cases of a plurality of obligations or, for instance, an obligation to deliver (entregar) a plurality of goods, debtor has a duty to perform all obligations or to deliver all goods (article 1169 CC).
The creditor may accept a partial performance, such as a incomplete delivery of goods.
In such cases, however, legal systems usually entitle the creditor to ask for a reduction of price (see for instance article 51 CISG).
The creditor has no obligation to accept that the different obligations are performed in different dates and therefore may reject a performance schedule submitted by the debtor.
Elements (recall from previous courses place, time and order of performance) - Place of performance (article 1171 CC) If the place of performance of an obligation cannot be otherwise determined from the terms regulating the obligation it is: in the case of a obligation to transfer a good, the place in which the good existed at the time the obligation was created.
o in the case of any other obligation, the debtor’s place of business.
o - Time of performance If the time at which, or a period of time within which, an obligation is to be performed cannot otherwise be determined from the terms regulating: o the obligation it must be performed immediately (article 1113 CC).
If a period of time within which the obligation is to be performed can be determined from the terms regulating the obligation, the obligation may be performed at any time within that period chosen by the debtor unless the circumstances of the case indicate that the creditor is to choose the time (article 1125 CC and 1129 CC).
- Early performance (article 1127 CC) o Periods of time within which the obligation is to be performed are included to benefit both creditor and debtor.
o A creditor may reject an offer to perform before performance is due unless the early performance would not cause the creditor unreasonable prejudice.
o A creditor’s acceptance of early performance does not affect the time fixed for the performance by the creditor of any reciprocal obligation.
- Order of performance (“imputación de pagos” – article 1172 CC).
Extinctive effect of performance Full performance extinguishes the obligation if it is in accordance with the terms regulating the obligation.
If all obligations that arise (surge) from a contract are performed, then the contract is also fully performed.
Alternatives to performance (“Subrogados del cumplimiento”) Alternatives to full performance that extinguish the obligation but not in accordance with the terms regulating the obligation: - Debtors are discharged In most of the situations, creditors experience the same level of utility and therefore it is assumed that they are initially indifferent.
Alternatives to performance: (art. 1156 CC): - Deliverance of an alternative good (“dación en pago”).
Deposit of goods (“consignación”; art. 1176-1181 CC).
Remission (“condonación”; art. 1187-1191 CC).
Merger (“confusión”; art. 1192-1194 CC).
Set-off (“compensación”; art. 1195-1202 CC).
Deposit (“Consignación”) - A person who has an obligation to deliver or return property other than money and who is left in possession of the property because of the creditor’s failure to accept or retake (recuperar) the property, has an ancillary obligation to take reasonable steps (medidas) to protect and preserve it.
The debtor left in possession would be entitled to be reimbursed or to retain out of the proceeds of sale any costs reasonably incurred.
- However, the debtor may obtain discharge from the obligation to deliver or return the goods –also money- by depositing the property on reasonable terms with a court (“depósito judicial”) to be held to the order of the creditor, and notifying the creditor of this. (e.g.: Debtor debt X money, the creditor rejects to accept the money. The debtor decides to go to the Court and decides to put the money in the Court).
- Different modalities of deposit depending on the property: corporeal property, real property.
cases in which performance is impossible by the debtor due to Situations (art. 1176 CC) causes cannot be attributed to him: - - Creditor rejects the reception without a justification (just cause) Creditor is absent (non-legally declared absence) Creditor is incompetent (risk of losing the money) (incompetence not declared by a judge) Uncertainty about the creditor’s identity (Not enough information about the creditor identity): two or more parties claim to be the holders (titulares) of a credit right (e.g.: there are more than two parties) Loss of document in which the obligation is included when its delivery is required (e.g.: bills of exchange).
Alternative good or object accepted by creditor (“Datio pro soluto”) (Dación en pago) - - The debtor offers a different good or behaviour that the one initially included in the obligation; and the creditor accepts it. E.g.: Mr. A hired (contrató) a lawyer and now has an obligation to pay an invoice (factura) for legal services; Mr. A informs the lawyer that he is having some cash liquidity problems and that he would like to pay the invoices by delivering an artwork (entregando una obra de arte). The lawyers accepts it the obligation is extinguished.
Spanish CC doesn’t regulate “datio pro solution”, it’s only mentioned in some provisions (arts. 1521, 1536.2, 1636 and 1849 CC). It is an atypical contract/agreement that may be concluded pursuant to freedom of contract (art. 1255 CC).
Requirements: - Alternative good or behaviour (aliud pro alio) Substitution consented by the creditor (=agreement) Obligation is cancelled: afterwards creditor may not seek specific performance of the previous obligation: - Pro soluto: default solution: obligation is cancelled with transfer of alternative good.
- Pro solvenda: parties may agree that transfer of good is made on a pro solvendo basis.
Datio pro solvedo is similar to assignments of goods made to the creditor aimed at obtaining liquidity as an alternative to performance (“cesión de bienes para el pago”; article 1175 CC).
- Assignment (cesión) does not involve a transfer of ownership.
Creditor has a power of representation to sell the debtor’s goods and retain the price that is obtained.
Pro solvendo effects: debtor is only discharged and the obligation is cancelled if the price obtained amounts or exceeds the obligation.
It is usual in pre-insolvency situations: there are some limits in the Bankruptcy.
Home Repossession (“Dación en pago”) Real Decreto-ley 6/2012, de 9 de marzo, de medidas urgentes de protección de deudores hipotecarios sin recursos.
The Act establishes a Code of Best Practices in the field of debts secured with a mortgage on the debtor’s home.
The Code establishes three mechanisms aimed at protecting underprivileged debtors.
- - First: lenders (banks) and debtors may restructure mortgage debts by way of: o (i) reducing the interest rate during four years; o (ii) establishing interest-only payments; o (iii) extending the total period for amortization.
Second: lenders may offer a rebate (descuento) or reduction of the debt up to a 25% of the amount.
Third: if none of the former mechanisms may be used debtors’ homes may be repossessed (embargada) by the bank and, as a consequence, the debt is cancelled (“dación en pago”).
SET-OFF (“Compensación”) “Set-off” is the process by which a person may use a right to performance held against another person to extinguish in whole or in part an obligation owe to that person Is the process used to perform to another party. Reciprocity. One obligation is extinguished and the other modified.
- Reciprocal obligations between two parties: A owes B €10,000 and B owes A €15,000: if set-off requirements are met (cumplido), A’s obligation is cancelled and B’s debt is amended (modificada): now B owes A €5,000.
Set-off extinguishes the obligations, as far as they are coextensive.
- Set-off may apply automatically without agreement by the parties and despite their knowledge (art. 1202 CC).
Advantages of set-off: - Payments are simplified (reduction of transaction costs, especially between firms or professionals in long-term agreements or in repeated interactions with reciprocal outstanding balances).
- Assurance or guarantee mechanism: one of the parties may use set-off in order to avoid the risk of paying the debted amount to the other party an remain uncertain about the prospects of being paid by the other party. Hence (Por lo tanto), set-off is not allowed when one of the parties is in insolvency proceedings (article 58 Bankruptcy Act 22/2003).
Types of set-off: - Legal set-off: - Voluntary set-off: decision of the parties - Judicial set-off: a Court applies a set-off Requirements for legal set-off (art. 1196 CC): - Objective requierements: If two parties owe (deber/ tener deudas) each other obligations of the same kind, either party may set off that party’s right against the other party’s right, if and to the extent that, at the time of set-off: (a) The obligations are of the same kind (money amounts, or goods with identical quality) (b) The obligations are reciprocal: no need to arise (surgir) from the same contract or legal relationship. Not necessarily synallagmatic obligations.
(c) Performance of the obligations is due or, even if it is not due, the party can oblige the other party to accept performance.
(d) The obligations have been quantitatively assessed (evaluados cuantitativamente): a debtor may not set off a right which is unascertained as to its existence or value.
- Subjective requirements: Reciprocal obligations between two parties who are linked by two relationships in which they both have the roles of debtor and creditor as regards (en lo que respecta)to the other party.
o Exception: a security provider (“fiador”) may allege (alegar) set-off between creditor and debtor (art. 1197 CC, and art. 1853 CC).
Example from the exception: A 10.000 € B 8.000 € B A C= bank security (has to pay the 8.000€ if B cannot pay, but, because of the other contract. C doesn’t pay A and A has to pay 2.000€ to B).
Parties shall be rightholders (titulares del derecho) of credits (no representation) Exclusion of set-off - Set-off cannot be effected where it is excluded by agreement Also set-off is excluded in some cases, for instance: o Aainst a right to the extent that that right is not capable of attachment (maintenance claims –“oblgiaciones de alimentos”; assets immune to seizure – “créditos inembargables”).
o Against a right arising from an intentional wrongful act.
o In insolvency situations.
Special rule on set-off and assignment of credits (article 1198 CC): “The debtor who has consented to the assignment of debt by the creditor to a third party (consentimiento a la cesión de la deuda por parte del acreedor a un tercero) may not use as defence against the assignee (cesionario) the set-off to which he would be entitled (que tendría) against the assignor (cedente).
If the creditor informed the debtor about the assignment and the latter (éste ultimo) did not consent to it, he may use as defence the set-off of debts that could be made before the date of the assignment, but not afterwards.
If the debtor is not informed about the assignment, the debtor may use as defence he set-off of debts that could be made before the date of the assignment, and afterwards until the debtor knows about the assignment”.
Merger of debts (“Confusión”) - An obligation is extinguished if the same person becomes debtor and creditor in the same capacity (art. 1156 and 1192-1194 CC) (e.g.: succession, when a parent dies) Obligations require two subjects: debtor and creditor Some examples: o Succession mortis causa between debtor and creditor o M & A between debtor and creditor (fusion between companies in which one of both was debtor and the other creditor) o Assignment of debts from creditor to debtor Special rules on merger of debts: - Ancillary obligations (art. 11193 CC): if the same person becomes debtor and creditor in the same capacity by merger of debts, security providers’ obligations are extinguished. However, if the same person becomes security provider and debtor or creditor, the security provider obligation is not extinguished. [retrofianza= security for the security providers] - Obligations with a plurality of debtors/creditors o Several obligations (art. 1194 CC): obligation is only extinguished in relations to the quota of the creditor or debtor who becomes the same person.
E.g.: Creditor has a right to be paid 150 € by 3 debtors, each of them with a debt of 50 €. If Creditor becomes the same person as one of the debtors, an obligation to pay 50 € is extinguished but the remaining two obligations subsist.
• A creditor B,C,D (debtors: 50€ each) • A + B (obligation of B disappears) • C and D must pay o Joint and several/solidary obligations (art. 1143 CC): the obligation is extinguished by merger of debts if one of the creditors or one of the debtors becomes debtor or creditor in the same capacity. The rest of debtors/creditors will have a right/obligation to reimbursement.
E.g.: Creditor has a right to be paid 150 € by 3 debtors, each of them with a debt of 50 €. If Creditor becomes the same person as one of the debtors, the whole obligation to pay 150 € is extinguished. However, the debtor that has merged with the creditor will have a right against the other debtors to be reimbursed with 50€+ 50€.
• A can ask for the total amount only to one part • If A + B, the payment of B to A extinguished (total 150€), but C and D have to pay B the 50 + 50€.