Short answer. Only if the creditor agrees, and he is free to refuse. Article 1245 treats dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, as governed by the law of sales. It is a fresh agreement, and nobody can be forced into one.
What the law says
Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales.
Civil Code, Article 1245 — Dation in Payment. Read the full provision →
The creditor cannot be made to take the car
Article 1244 supplies the starting rule: the debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than, that which is due. A money debt is discharged by money. Offering a car worth more than the balance does not improve the position, because the creditor bargained for cash and is entitled to insist on it. Nor does refusal put him in default or excuse yours. If he says no, the debt continues to run exactly as before, with whatever interest and penalties the contract carries.
What changes when he says yes
If he accepts, you are no longer merely paying — you are selling. Article 1245 provides that Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. The debt, to the extent agreed, takes the place of the price. That brings the seller's obligations with it: under Article 1495 the vendor is bound to transfer ownership of and deliver the thing, as well as warrant it, and Article 1547 implies a warranty that he has the right to sell and that the buyer will enjoy legal and peaceful possession of it.
How much of the debt it actually kills
This is where these arrangements go wrong. The car extinguishes the debt only to the extent the parties agree it does, so the value credited must be stated in words, not assumed from the vehicle's market price. Article 1253 is the trap for the unwary: if the debt produces interest, payment of the principal is not deemed made until the interest has been covered. A car credited at three hundred thousand pesos against a loan carrying accrued interest may therefore clear the interest and only part of the principal, leaving a balance the borrower believed had disappeared.
What has to be on the paper
Insist on a written deed that names the amount credited, states whether the debt is extinguished wholly or in part, and identifies any remaining balance. If the car secures the very loan being settled, or is subject to a chattel mortgage in favour of anyone else, that has to be dealt with in the same document; a creditor taking an encumbered vehicle is not being paid so much as handed a dispute. Then transfer the registration properly. An unregistered handover leaves the debt argued about and the vehicle still recorded in your name.
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.
- Ramona Ramos, et al. vs. Philippine National Bank, et al, G.R. No. 178218, December 14, 2011 — read the decision on LawPhil →
- Ruby Shelter Builders vs. Romeo Y. Tan, G.R. No. 217368, August 5, 2024 — read the decision on LawPhil →
- Karen Nuñez Vito, et al. vs. Norma Moises-Palma, G.R. No. 224466, March 27, 2019 — read the decision on LawPhil →
- Strategic Alliance Development Corporation vs. Radstock Securities Limited and Philippine National Construction corporation, G.R. No. 178158 / G.R. No. 180428, December 4, 2009 — read the decision on LawPhil →
Related provisions
- Civil Code, Article 1245 — Dation in Payment
- Civil Code, Article 1244 — No Substitution of the Prestation
- Civil Code, Article 1253 — Interest Applied Before Principal
- Civil Code, Article 1495 — Threefold Obligation of the Vendor