Short answer. You can, with their agreement. Article 1255 lets a debtor cede or assign his property to his creditors in payment of his debts. But unless it is stipulated otherwise, the cession releases you only up to the net proceeds of what was assigned — any shortfall remains yours.
What the law says
The debtor may cede or assign his property to his creditors in payment of his debts.
Civil Code, Article 1255 — Payment by Cession. Read the full provision →
What the law says
This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned.
Civil Code, Article 1255 — Payment by Cession. Read the full provision →
What payment by cession actually is
Article 1255 of the Civil Code recognises the arrangement in plain terms: The debtor may cede or assign his property to his creditors in payment of his debts. It is the remedy of the debtor who cannot pay everyone and would rather turn the assets over than be pursued asset by asset. What is transferred is not ownership of each item to a particular creditor but the property, so that it can be sold and the proceeds distributed. It presupposes several creditors and it presupposes their agreement — a debtor cannot impose a cession on people who have not accepted it.
You are released only up to the net proceeds
This is the sentence to read twice: This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. Handing over everything does not by itself wipe the slate. The assets are liquidated, the costs of that liquidation come off, and the balance credited to your debts is what is actually realised — often far below book value at a forced sale. Whatever remains unpaid is still owed. If the object of the exercise is a clean break, the release has to be written into the agreement, because the Code's default does not give you one.
It is not the same as handing over one asset in settlement
People often mean something narrower — giving the creditor a vehicle or a parcel of land to close out the account. That is dation in payment, governed by Article 1245, under which the alienation of property to the creditor in satisfaction of a debt in money is governed by the law of sales. One creditor, one thing, and the debt is extinguished to the extent agreed. Cession under Article 1255 is the collective version, involving the debtor's property generally and the body of creditors, and the two produce very different results on any unpaid balance.
Before you offer anything
Article 1255 closes by providing that the agreements made between the debtor and his creditors on the effect of the cession shall be governed by special laws, so the Civil Code is only the starting point and the surrounding statutory framework matters. Two things are worth settling first. Work out which assets are already encumbered, since a mortgaged or pledged asset carries little for the general body of creditors. And get the extent of the release stated expressly in the agreement, in figures, rather than assuming that turning everything over ends the exposure.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Development Bank of the Philippines vs. Court of Appeals, et al, G.R. No. 118342, January 5, 1998 — read the decision on LawPhil →
- Yulim International Company Ltd., et al vs. International Exchange Bank (now Union Bank of the Philippines), G.R. No. 203133, February 18, 2015 — read the decision on LawPhil →
Related provisions
- Civil Code, Article 1255 — Payment by Cession
- Civil Code, Article 1245 — Dation in Payment
- Civil Code, Article 1233 — Payment Must Be Complete