Credit Transfer, Subrogation, and Contractual Clauses
Transfer of Credit
The Civil Code provides: “All rights acquired under an obligation may be transferred subject to the laws, if the parties had not agreed otherwise.”
In Roman law, the principle of transmission was not a primary concern.
The law usually dictates the place of transmission of credit.
The Civil Code states: “The subrogation of a third party to creditor rights cannot be assumed outside of the cases expressly stated in this Code. In other cases, it will be necessary to clearly state it to produce an effect.”
There is a legal transfer (which is determined by the law or is voluntary).
The assignment of a claim, right, or action shall have no effect against a third party, except from the date considered certain, in accordance with articles 1218 and 1227.
Subrogation for Payment
The Civil Code provides: “Subrogation shall be presumed:
- When a creditor pays another preferred creditor.
- When a third party, not interested in the obligation, pays with the express or tacit approval of the debtor.
- When the party paying has an interest in the performance of the obligation, except for the effects of confusion regarding the portion that concerns them.”
Subrogation Action
Creditors, after having pursued the property in the possession of the debtor to satisfy their claims, can exercise all rights and claims of the debtor for the same purpose, except those that are inherent in his person. They may also challenge the acts performed by the debtor in fraud of their rights.
The action goes directly against a third party or parties, debtors of the debtor. It involves acting against the debtors of the debtor due to the inactivity of the principal debtor, making it a subsidiary action.
Revocation Action
Its object is to render ineffective acts of fraudulent transfer by the debtor.
This is an action to set aside the debtor’s fraudulent conduct. The action to seek rescission expires in four years.
Presumption of fraud is established by the Civil Code. Contracts under which the debtor disposes of goods for free are presumed to be concluded to defraud creditors.
Conveyances for value, made by those against whom a conviction in any instance had been previously issued, or a warrant of seizure of goods had been issued, are also presumed fraudulent.
The Pledge
If a deposit or earnest money was included in the purchase and sale contract, the contract may be terminated, with the buyer forfeiting the deposit, or the seller returning double the amount.
Pledges often have a voluntary origin, usually referring to contractual obligations, and are commonly found in sales contracts.
Criminal Pledge: The amount that the buyer will lose or the seller must return doubled if the sale is not completed due to a breach of duty.
The Penalty Clause
A penalty clause is a provision agreed upon as ancillary to the main obligation, applicable in case the debtor fails to fulfill or improperly fulfills the principal obligation. Its functions are:
- Coercive: To encourage the debtor to fulfill the primary obligation under the threat of punishment; it acts as a form of pressure.
- Punitive: Regardless of the creditor’s satisfaction, it serves as a punishment or fine for noncompliance.
- Replacement: The penalty is meant to replace conventional compensation for breach.
Conventional modes of punishment:
- Cumulative: It assumes that, upon breach of duty, mandatory compliance with the penalty may be required in addition to the original obligation.
- Replacement: The penalty is agreed to replace compensation for breach.
- Optional: The debtor can relinquish their obligation by paying the penalty.