Legal Definitions - consignation

Consignation refers to a specific legal action taken by a debtor (someone who owes money) when their creditor (the person or entity to whom money is owed) refuses to accept a valid payment.

When a debtor attempts to pay a debt, and the creditor unreasonably or unlawfully refuses to accept that payment, the debtor can, in certain jurisdictions, deliver the payment to an authorized third party (often a court or a designated escrow agent). This act of delivery to the third party, known as consignation, legally discharges the debtor from their obligation, even though the creditor has not directly received the funds from the debtor.

This legal mechanism protects debtors from being held liable for non-payment when they have made a good-faith effort to fulfill their financial obligations, but the creditor has refused to cooperate.

• Example 1: Mortgage Repayment Dispute

  Imagine Mr. Henderson has been diligently making his mortgage payments for years. When he attempts to make his final payment, his bank, Apex Lending, refuses to accept it, claiming there's an outstanding fee from a decade ago that Mr. Henderson disputes and believes was already resolved. Mr. Henderson wants to clear his debt and avoid further interest or potential foreclosure proceedings.

  After Apex Lending repeatedly refuses his valid final payment, Mr. Henderson consults with his attorney. Following legal advice, he deposits the full, correct amount of his final payment into a court-approved escrow account, formally notifying Apex Lending that the payment has been made and is available for them to collect. This act of consignation legally discharges Mr. Henderson's mortgage debt, even though Apex Lending has not yet directly accepted the funds.

• Example 2: Commercial Lease Rent Refusal

  "Bright Ideas Inc." operates a retail store and has a commercial lease with Ms. Chen, the property owner. Bright Ideas Inc. attempts to pay its monthly rent on time, but Ms. Chen refuses to accept the payment. She might be doing this because she wants to terminate the lease early for a new development project, even though Bright Ideas Inc. is not in breach of contract.

  To avoid being considered in default of its lease and to protect its business operations, Bright Ideas Inc. deposits the full rent amount with the local court clerk, as permitted by law, and provides official notice to Ms. Chen. This act of consignation ensures that Bright Ideas Inc. has fulfilled its rental obligation, preventing Ms. Chen from claiming non-payment as a reason for eviction or breach of contract.

• Example 3: Payment for Goods Delivered

  "Green Farms Co." delivered a large shipment of organic produce to "Healthy Grocers" as per their contract. Healthy Grocers attempts to make the agreed-upon payment for the produce, but Green Farms Co. unexpectedly refuses to accept it, perhaps because they are trying to force a renegotiation of future supply terms or are claiming a minor, unsubstantiated quality issue to leverage more money.

  To demonstrate its fulfillment of the payment obligation and avoid potential lawsuits for non-payment, Healthy Grocers deposits the full contractual payment into a designated trust account managed by a neutral third party, as allowed by their jurisdiction's laws, and formally informs Green Farms Co. of this action. This consignation legally discharges Healthy Grocers' payment obligation for the delivered produce, protecting them from claims of non-payment.