Dation in payment is one whereby property is alienated to the creditor in full satisfaction of a debt in money;133 it constitutes “the delivery and transmission of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation.”134 By express provision of law, dation in payment is governed by the Law on Sales,135 since it essentially involves the transfer of ownership of a subject matter.
In Vda. De Jayme v. Court of Appeals,136 the Court observed that in its modern concept, what actually takes place in dacion
en pago is an objective novation of the obligation where the
thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale while the debt is considered as the purchase price; that is why the elements of sale must be present, including a clear agreement that the things offered is accepted for the extinguishment of the debt.137
132254 SCRA 170 (1996). 133Art. 1245, Civil Code.
134Philippine Lawin Bus Co. v. Court of Appeals, 374 SCRA 332 (2002); Yuson v.
Viton, 496 SCRA 540 (2007); Social Security System v. Atlantic Gulf and Pacifi c Co. of Manila, 553 SCRA 677 (2008).
135Art. 1245, Civil Code. 136390 SCRA 380 (2002).
It must be emphasized, however, that dacion en pago considerations are not in the realm of perfection of contract, but rather in the stage of consummation, for indeed dacion en pago is by defi nition a special mode of payment, whereby the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. Consequently, prior to delivery of the subject matter to constitute the dation in payment, the agreement does not necessarily constitute a separate contract, but only an arrangement by which an existing obligation may be extinguished.
Lo v. KJS Eco-Formwork System Phil., Inc.,138 holds that in order that there be a valid dation in payment, there must be:
(a) Performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (b) Some difference between the prestation due
and that which is given in substitution (aliud
pro alio); and
(c) An agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a presentation different from that due.139
Lo also holds that in dacion en pago “[t]he undertaking really
partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor’s debt. As such, the vendor in good faith shall be responsible, for the existence and legality of the credit at the time of the sale but not for the solvency of the debtor, in specifi ed circumstances.”140
The fi rst requisite of actual delivery is demonstrated in
Philippine National Bank v. Pineda,141 which held that dation in Security System v. Atlantic Gulf and Pacifi c Co. of Manila, 553 SCRA 677 (2008).
138413 SCRA 182 (2003).
139Reiterated in Aquintey v. Tibong, 511 SCRA 414 (2006). 140413 SCRA 182, 187 (2003).
payment requires delivery and transmission of ownership of a thing to the creditor as an accepted equivalent of the performance of the obligation. When there is no such transfer of ownership in favor of the creditor, as when re-possession of the subject matter of a trust receipt is only by way of security, there is no dacion.
The third requisite that there must be an agreement that the delivery of the property is in lieu of payment is best demonstrated in Philippine Lawin Bus Co. v. Court of Appeals,142 where the Court held that a transfer of property between debtor and creditor does not automatically amount to a dacion en pago, since it is essential that the transfer must be accompanied by a “meeting of the minds between the parties on whether the loan ... would be extinguished by dacion en pago.”143
The legal effects of a dacion en pago come into effect only when both the debtor and creditor agree to the terms thereof, for consent to dacion is an essential elements.144 But once the creditor agrees to a dacion, it ought to know, especially when it is a bank, and must abide by the legal consequence thereof; that the pre-existing obligation is thereby extinguished.145
In one case,146 the Court held that the execution by the borrower-mortgagor of dacion en pago covering the mortgaged property in favor of the lender-mortgagee effectively constitutes a waiver by the mortgagor-transferor of the redemption period normally given a mortgagor.
It must be noted that there is an implication in Social Security
System v. Atlantic Gulf and Pacifi c Company of Manila, Inc.,147 that would consider the mere agreement to dacion en pago identifying a particular parcel of land as the means to extinguish an obligation as already constituting a new contract of sale that is subject to specifi c performance. Quoting from the earlier decision
142374 SCRA 332 (2002).
143See also Filinvest Credit Corp. v. Philippine Acetylene Co., Inc., 111 SCRA 421 (1982); Vda. De Jayme v. Court of Appeals, 390 SCRA 380 (2002).
144Bank of Philippine Islands v. SEC, 541 SCRA 294 (2007). 145Estanislao v. East West Banking Corp., 544 SCRA 369 (2008). 146First Global Realty v. San Agustin, 377 SCRA 341 (2002). 147553 SCRA 677 (2008).
in Vda. De Jayme v. Court of Appeals,148 Atlantic Gulf which part held:
... In its modern concept, what actually takes place in
dacion en pago is an objective novation of the obligation
where the thing offered as an accepted equivalent of the performance of an obligation is considered as the purchase price. In any case, common consent if an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.149
The Court in Atlantic Gulf went on to rule that “This statement unequivocally evinces its consent to the dacion en
pago ... The controversy, instead, lies in the non-implementation
of the approved and agreed dacion en pago on the part of the SSS. As such, respondents fi led a suit to obtain its enforcement which is, doubtless, a suit for specifi c performance and one incapable of pecuniary estimation beyond the competence of the Commission.”150 It should be noted that Atlantic Gulf did not categorically rule that a mere agreement to effect a dacion en
pago which has not been implemented can successfully be the
subject of an action for specifi c performance, since the ruling only centered around which tribunal had jurisdiction on such cause of action.