Protecting Your Right to Credit: Understanding Key Legal Concepts
ITEM 9: PROTECTION OF THE RIGHT TO CREDIT
1. The Principle of Universal Liability in Damages. Legal or Contractual Changes.
This principle of responsibility, enshrined in Article 1911, emphasizes the debtor’s obligation to fulfill their debts with all present and future assets. This principle has two key elements:
– Property:
The debtor’s responsibility lies with their property, not their person. It encompasses all legal relations and assets owned by the debtor, excluding rights without heritage value.
– Universality:
The debtor’s liability is universal, extending to all present and future assets, excluding written assets.
3. Special Warranty Means
– The Penalty Clause: Concept, Functions, and Effects
An obligation with a penal clause is one where a penalty is imposed for violation. A penal clause defines the penalty. A conventional penalty is the agreed-upon penalty the debtor suffers in case of failure to fulfill the obligation.
The purpose of the penalty clause is to ensure compliance. The penalty typically involves paying a sum of money, but it can also be any other obligation.
Characters of the Penalty Clause:
- It’s accessory.
- It is generally pecuniary.
- It refers to both failure and inadequate performance.
- It replaces compensation for damages unless otherwise agreed.
Functions and Effects:
- Civil Enforcement: The primary function is to compel the debtor to fulfill the obligation, as failure triggers the penalty.
- Role for Payment: Unless otherwise agreed, the penalty clause replaces potential damage compensation (Art. 1152).
- Cumulative Function: Exceptionally, the creditor may require fulfillment of the principal obligation, damage compensation, and the penalty. This requires explicit agreement.
Finally, Article 1154 allows the court to modify the penalty equitably if the principal obligation is partly or irregularly fulfilled.
– The Lien: Concept and Legal Status
The lien is the creditor’s right to retain possession of a debtor’s thing until the related obligation is met. It’s a means of protecting credit, a property right derived from the credit.
The creditor can only retain the thing, lacking the power of prosecution and preference. They possess the thing but cannot force payment or alienate earned money.
Cases Where Lien is Expected:
- Article 453: On the thing possessed in good faith, concerning necessary and useful expenses the new owner must cover.
- Articles 502 and 522: For the usufructuary, concerning reimbursement of extraordinary and essential repairs.
In three other cases, the code mentions the right of retention, incorrectly using the term pledge:
- The contractor executing work on movable property has a lien until payment (Art. 1600).
- The mandatary, on the things of the mandate, until the principal repays anticipated amounts and compensates for damages (Art. 1730).
- The depositary, on the deposited thing, until the depositor pays expenses and compensates for damages (Art. 1780).
As an exceptional figure, the lien cannot be adopted by analogy. However, parties can agree on a lien as security (Art. 1255), for example, in the exceptio non adimpleti contractus, where reciprocal obligations must be met.
– The Pledge: Concept and Types
Theoretically, the pledge is a form of credit protection applicable to all obligations. Practically, it’s often used in sales contracts (Art. 1454 CC).
The pledge is a sum of money. If the buyer defaults, they lose it. If the seller breaches, they return double the amount to the buyer.
This differs from the signal or part of the price, an amount the buyer pays against the price upon contract perfection.
A confirmatory deposit proves the contract’s perfection and is part of the price.
Types of Pledge:
- Criminal Pledge: Functions like a penalty clause. The buyer loses it upon default, and the seller returns double upon breach. Neither can withdraw.
- Withdrawal or Penitential Pledge: Allows parties to withdraw from the contract, as mentioned in Art. 1454 CC.
Determining the type of pledge depends on the parties’ intention:
- If unspecified, it’s considered a signal or part of the price.
- If confirmed as a pledge but the type is unspecified, it’s a withdrawal pledge.
- Only explicit negotiation indicates a criminal pledge.
4. Conservative Measures: Subrogation Actions, Direct Actions, and Revocation or Paulian Actions
– Subrogation Action
Subrogation action allows the creditor to exercise the debtor’s rights and actions to satisfy their claim (Art. 1111).
It’s a form of credit protection where the creditor doesn’t directly satisfy their claim but promotes the debtor’s assets to enable payment. This is also called indirect or oblique action.
Requirements:
- The creditor holds a claim against the debtor.
- The creditor has an interest in exercising the action, meaning the debtor’s inaction harms the creditor.
- The debtor lacks other assets to fulfill the obligation.
Subjects:
- Active Agent: The creditor seeking to protect their due and payable credit.
- Taxpayer: Not the debtor, but the debtor’s debtor (debitor debitoris).
Object:
The debtor’s rights and actions, excluding those inherent to their person, such as non-property and personal rights.
Shape:
Can be extrajudicial or judicial, depending on the debitor debitoris’s agreement.
Effects:
Increases the debtor’s assets to enable credit satisfaction. The creditor must still require the debtor to pay, but the action provides protection by improving the debtor’s financial standing.
– Direct Action
Allows the creditor to claim directly from the debtor’s debtor what’s necessary to satisfy their claim. The creditor is paid directly, bypassing the debtor’s estate.
While the name suggests a procedural action, it can also be extrajudicial. Legal action is necessary only if the debtor’s debtor opposes or disputes the claim.
Specific Cases in the Civil Code:
- Client against the deputy president (Art. 1722).
- Lessor against the sublessee (Art. 1551 and 1552).
- Contractor against the owner of the work (Art. 1597).
- Injured party against the insurance company in cases of wrongful act (misnamed contractual liability).
– Paulian Action or Revocation
Concept and Nature:
Allows creditors to challenge acts the debtor made in fraud of their right (Art. 1111). It’s a more effective protection than subrogation, as it addresses fraudulent acts.
It’s a rescissory action, subject to the general rules of termination in Articles 1290 and following.
Requirements:
- Damage to the Creditor: The debtor’s act reduces their heritage, hindering the creditor’s ability to satisfy their claim.
- Fraud: The debtor’s act is made in fraud of the creditor’s right (Art. 1111).
- For onerous acts, the debtor’s intent to harm isn’t necessary, but awareness of the damage and the other party’s bad faith are required.
- For gratuitous acts, fraud is presumed (Art. 1297).
Subjects:
- Active Agent: The creditor seeking protection from the debtor’s harmful and fraudulent act.
- Taxpayer: The debtor who performed the challenged act and any third parties involved, excluding good-faith purchasers for value.
Object:
Any legal act by the debtor meeting the requirements of damage and fraud (Art. 1111), typically contracts, but also acts creating encumbrances, obligations, or admissions of debt.
Shape:
Exclusively judicial, exercised through a declaratory action.
Effects:
Retroactive ineffectiveness of the act, returning the goods to the debtor’s assets. The effect is relative, impacting only the detrimental aspects for the creditor.
Duration:
Four years from the act’s perfection (Art. 1299).