Quick answer

Dacion en pago (also called dation in payment) is a special mode of extinguishing an obligation whereby the debtor delivers and the creditor accepts, as equivalent to the performance of a monetary obligation, a thing (property) other than the money originally due. In simpler terms, instead of paying a debt in cash, the debtor pays by giving property, and the creditor agrees to accept it as payment. The law 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. This is because dacion en pago is, in essence, a sale: the debtor (as seller) transfers ownership of the property, and the pre-existing debt is treated as the price or consideration; the creditor's acceptance of the property in lieu of money is the meeting of the minds. For a valid dacion en pago, the requisites generally are: the existence of a money obligation; the alienation (transfer) to the creditor of a thing (property) as accepted equivalent of the performance; and the extinguishment of the obligation, either totally or partially, as the parties agree. The effect is that the debt is extinguished to the extent of the value of the property accepted; if the parties intend it as full payment, the entire debt is extinguished even if the property's value is less, and if only partial, the balance remains. Because it is governed by the law on sales, the transfer must comply with the requirements for a valid sale (capacity, a determinate thing, and consideration, here the extinguished debt), and it conveys ownership to the creditor. Dacion en pago differs from a regular sale in that it is a mode of payment of a pre-existing debt, and from cession (assignment of all property to creditors), which does not transfer ownership but only the possession for the creditors to sell. So dacion en pago extinguishes a debt by transferring property in lieu of money, and it is governed by the law on sales.

What Dacion en Pago Is

Dacion en pago extinguishes a money obligation by the debtor transferring property (instead of cash), which the creditor accepts as payment.

Governed by the Law on Sales

The law provides dation in payment is governed by the law of sales, because it is essentially a sale: the debtor (seller) transfers ownership, and the pre-existing debt is the price.

Requisites and Effect

Practical Takeaways

Frequently Asked Questions

What is dacion en pago? A mode of extinguishing an obligation where the debtor delivers, and the creditor accepts, property other than the money originally due, as equivalent to the performance of the monetary obligation.

How is dacion en pago related to a sale? It is governed by the law on sales. In essence, the debtor transfers ownership of the property as a seller, and the pre-existing debt is treated as the price or consideration, with the creditor's acceptance being the meeting of the minds.

What are the requisites of dacion en pago? The existence of a money obligation, the transfer to the creditor of property as an accepted equivalent of performance, and the extinguishment of the obligation, either totally or partially, as the parties agree.

How is dacion en pago different from cession? Dacion en pago transfers ownership of specific property to the creditor to extinguish a debt. Cession is the assignment of all the debtor's property to creditors, which transfers only possession for the creditors to sell, not ownership.

This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.

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