Dation in Payment (Philippines)
DEED OF DATION IN PAYMENT
(Dacion en Pago) — Civil Code of the Philippines, Article 1245
This Deed of Dation in Payment ("Deed") is entered into this [Deed Date] by and between:
DEBTOR/TRANSFEROR: [Debtor Name], with address at [Debtor Address] (hereinafter, the "Debtor"); AND
CREDITOR/TRANSFEREE: [Creditor Name], with address at [Creditor Address] (hereinafter, the "Creditor").
RECITALS
WHEREAS, the Debtor owes the Creditor the following obligation: [Debt Description] (the "Debt");
WHEREAS, the Debtor is unable to pay the Debt in cash and proposes to transfer the property described herein in satisfaction of the Debt;
WHEREAS, the Creditor agrees to accept the transfer of property in lieu of cash payment under Article 1245 of the Civil Code of the Philippines;
1. TRANSFER OF PROPERTY
1.1 In consideration of the extinguishment of the Debt as provided herein, the Debtor hereby transfers, assigns, and conveys to the Creditor full ownership of the following property: [Property Description] (the "Property").
1.2 The agreed value of the Property for purposes of this Deed is [Agreed Value].
2. EXTINGUISHMENT OF DEBT
2.1 The transfer of the Property shall [Extinguishment Type] extinguish the Debt, pursuant to Article 1245 of the Civil Code.
2.2 The Debtor warrants that the Property is free from liens and encumbrances except as disclosed, and that real property taxes are current.
3. TAX COMPLIANCE
3.1 The parties acknowledge that this Deed is subject to Capital Gains Tax and Documentary Stamp Tax under the National Internal Revenue Code (NIRC). The Debtor shall be responsible for payment of Capital Gains Tax. The parties shall obtain the BIR Certificate Authorizing Registration (CAR) before registering the transfer with the Registry of Deeds under Presidential Decree No. 1529.
4. GOVERNING LAW
4.1 This Deed is governed by the Civil Code of the Philippines, Article 1245 and related provisions on extinguishment of obligations.
IN WITNESS WHEREOF, the parties have signed this Deed of Dation in Payment on the date first above written.
[Debtor Name]
Debtor / Transferor
[Creditor Name]
Creditor / Transferee
Debtor / Transferor
________________
Signature
Creditor / Transferee
________________
Signature
What Is a Dation in Payment (Philippines)?
A Dation in Payment in the Philippines sets out the rights and obligations of the parties on the matter it concerns and records the terms they have agreed.
The Supreme Court of the Philippines has extensively analyzed dacion en pago in landmark decisions. In Vda. de Jayme v. Court of Appeals (G.R. No. 128669, October 4, 2002), the Court held that dacion en pago is governed not only by Article 1245 but also by the law on sales, because the transaction transfers ownership of property in exchange for extinguishment of a debt. This dual characterization — as both a mode of extinguishing obligations and as a species of sale — has significant tax and documentary stamp tax consequences. In BPI Family Bank v. Buenaventura (G.R. No. 148196, September 30, 2005), the Court confirmed that dacion en pago requires the creditor's consent to accept the property in lieu of cash, and the parties must agree on the value of the property to be applied against the debt.
Banks regulated by the Bangko Sentral ng Pilipinas (BSP) frequently accept real estate properties or personal assets in dacion en pago to settle non-performing loans. BSP Circular No. 855 (2015) and the Manual of Regulations for Banks (MORB) govern bank acceptance of real and other properties acquired (ROPA) through dacion en pago, subjecting these assets to specific holding period rules and provisioning requirements. The Bureau of Internal Revenue (BIR) taxes dacion en pago transactions involving real property as sales for Capital Gains Tax and Documentary Stamp Tax purposes under Revenue Memorandum Circular No. 58-2019.
A Dation in Payment differs from a sale in that no additional consideration is paid beyond the extinguishment of the debt, and it differs from a simple payment because the object delivered is property rather than money. The difference between the outstanding debt and the agreed value of the property determines whether the debt is fully or partially extinguished.
The legal framework governing the Dation in Payment (Philippines) in Philippines draws on several key statutes and regulatory bodies. Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Parties executing a Dation in Payment (Philippines) in Philippines should confirm the document reflects current law, including any amendments enacted since the original drafting date. The National Internal Revenue Code (RA 8424) sets the foundational requirements.
When Do You Need a Dation in Payment (Philippines)?
A Dation in Payment is needed in the Philippines whenever a debtor lacks cash to settle a monetary obligation but holds property that the creditor is willing to accept as payment.
A Dation in Payment is required when a bank-regulated borrower under the BSP Manual of Regulations for Banks cannot service a loan that has become non-performing and the bank agrees to accept the mortgaged real estate in full or partial satisfaction of the outstanding loan balance, avoiding foreclosure proceedings under Act No. 3135 (as amended by Act No. 4118).
A Dation in Payment is needed when a property developer indebted to construction material suppliers cannot pay trade payables in cash and agrees to transfer a completed condominium unit or subdivision lot to the supplier in satisfaction of the outstanding accounts payable balance, requiring documentary compliance with the Bureau of Internal Revenue (BIR) for Capital Gains Tax and Documentary Stamp Tax.
A Dation in Payment is required when a taxpayer with outstanding tax liabilities owes the Bureau of Internal Revenue (BIR) back taxes and offers to pay through transfer of real property under Section 204 of the National Internal Revenue Code (NIRC), subject to BIR Revenue Regulations governing tax settlement through property transfer.
A Dation in Payment is needed when a judgment debtor cannot pay a final money judgment and offers real property or personal property to the judgment creditor in satisfaction of the judgment, with the creditor's agreement converting the execution proceedings into a consensual property transfer requiring a formal deed executed before a notary public.
A Dation in Payment is required when an insolvent debtor in rehabilitation proceedings under Republic Act No. 10142 (Financial Rehabilitation and Insolvency Act, FRIA) enters into a court-approved rehabilitation plan that includes the transfer of specific assets to creditors as full or partial settlement of claims.
What to Include in Your Dation in Payment (Philippines)
A valid Deed of Dation in Payment in the Philippines must contain the following essential elements to extinguish the debt obligation and effect a valid transfer of property.
Party Identification: Full legal names, addresses, and legal capacities of the debtor (transferor) and the creditor (transferee). For corporate parties, include SEC Registration Numbers, Board Resolutions or Secretary's Certificates authorizing the dacion, and confirmation that the transfer is within the debtor corporation's stated corporate purpose under its Articles of Incorporation.
Description of the Existing Debt: A precise description of the monetary obligation being extinguished — the original loan amount in Philippine peso (PHP ₱), promissory note or credit agreement date and number, outstanding principal balance, accrued interest and penalties, and the total amount being settled. Reference the specific credit facility or judgment being satisfied.
Property Description: A complete technical description of the property being transferred — for real property, the Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT) number, lot area in square meters, location (barangay, municipality, province), and tax declaration number from the Assessor's Office. For personal property, include model numbers, serial numbers, or other identifying information.
Agreed Value and Debt Extinguishment: The agreed value of the transferred property in Philippine peso (PHP ₱) — typically established by a licensed real estate appraiser accredited by the Professional Regulation Commission (PRC) — and the amount of debt extinguished. State clearly whether the transfer fully extinguishes the debt or only partially reduces it, with the remaining balance to be paid separately.
Tax Compliance Representations: The parties' allocation of responsibility for Capital Gains Tax (6% of gross selling price or zonal value under BIR Revenue District Office schedules, whichever is higher), Documentary Stamp Tax (PHP 15 per PHP 1,000 of consideration under Section 196 of the NIRC), and transfer tax payable to the local government unit. BIR must issue a Certificate Authorizing Registration (CAR) before the Registry of Deeds will process the title transfer.
Warranties of the Debtor-Transferor: Warranty that the property is free from liens, encumbrances, adverse claims, and back taxes (Real Property Tax under the Local Government Code, Republic Act No. 7160), except as specifically disclosed.
Notarization and Registration: The deed must be notarized before a commissioned notary public under the 2004 Rules on Notarial Practice, and subsequently registered with the Registry of Deeds under Presidential Decree No. 1529 for real property transfers.
Additional compliance elements for a Dation in Payment (Philippines) used in Philippines include: Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Forms-legal.com provides this template as a starting point for Philippines-compliant documentation.
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note = {Free legal document template. Based on National Internal Revenue Code (RA 8424)}
}Frequently Asked Questions
Whether a dation in payment fully extinguishes the debt in the Philippines depends on the agreement between the debtor and creditor regarding the value of the transferred property relative to the outstanding debt. Under Article 1245 of the Civil Code, the debt is extinguished to the extent of the agreed value of the property transferred. If the agreed value equals or exceeds the total outstanding obligation (principal, interest, penalties, and costs), the debt is fully extinguished. If the agreed value is less than the outstanding obligation, the debt is only partially extinguished and the residual balance remains payable in cash unless the parties expressly agree to a full and final settlement — sometimes called a deed of absolute condonation of the remaining balance. The Supreme Court in Filinvest Credit Corporation v. Philippine Acetylene Co. (G.R. No. L-50449, January 30, 1982) confirmed that the extent of extinguishment depends on the parties' agreement. Banks accepting properties in dacion en pago under BSP regulations typically document both the property value and the amount of loan balance being extinguished to comply with BSP provisioning and ROPA reporting requirements.
The Bureau of Internal Revenue (BIR) taxes a dacion en pago involving real property as a sale for tax purposes under BIR Revenue Memorandum Circular No. 58-2019. Capital Gains Tax of 6% applies on the higher of the gross selling price (agreed debt cancellation value) or the BIR zonal value published by the relevant Revenue District Office, under Section 24(D) of the National Internal Revenue Code (NIRC, RA 8424). Documentary Stamp Tax of PHP 15 per PHP 1,000 of consideration applies under Section 196 of the NIRC. Local transfer tax payable to the provincial or city treasurer under Section 135 of the Local Government Code (RA 7160) also applies at up to 0.5% in provinces and up to 0.75% in cities. Real property tax clearance from the local government unit is required before the Registry of Deeds issues a new title. The BIR issues a Certificate Authorizing Registration (CAR) upon payment of Capital Gains Tax and DST, which is a prerequisite for title registration under Presidential Decree No. 1529.
A bank in the Philippines is not legally obligated to accept a dation in payment from a borrower — the creditor's consent to accept property in lieu of cash payment is an essential element of a valid dacion en pago under Article 1245 of the Civil Code. The bank retains the discretion to reject the offer and proceed instead with foreclosure of the mortgage under Act No. 3135 (for extrajudicial foreclosure) or through judicial foreclosure proceedings before the Regional Trial Court under Rule 68 of the Rules of Court. However, BSP regulations under the Manual of Regulations for Banks encourage banks to consider dacion en pago as an alternative to foreclosure for resolving non-performing loans, subject to BSP rules on Real and Other Properties Acquired (ROPA) — including the requirement that properties acquired through dacion be valued by an independent appraiser and that the bank comply with statutory periods for disposing of ROPA under Republic Act No. 10142. Banks subject to BSP reporting requirements must book ROPA at the lower of the loan balance or the appraised value.
Dation in payment (dacion en pago) and mortgage foreclosure are both methods by which a secured creditor may ultimately acquire a debtor's property in satisfaction of a debt, but they differ fundamentally in process, consent, and legal consequences. In dacion en pago under Article 1245 of the Civil Code, the debtor voluntarily and consensually transfers ownership of property to the creditor with the creditor's agreement, extinguishing the debt to the agreed value. No court proceeding or public auction is required. In extrajudicial foreclosure under Act No. 3135, the mortgagee (bank) exercises a power of sale without court approval — conducting a public auction through the Sheriff's Office after publication and notice requirements — and the property is sold to the highest bidder, which is often the bank itself. The debtor retains a one-year right of redemption after extrajudicial foreclosure under RA 7353 (Rural Banks Act) or Act No. 3135. In dacion, there is no redemption right because ownership is voluntarily transferred. Dacion is generally faster and less costly than foreclosure, but requires the creditor's agreement on property value.
A Deed of Dation in Payment involving real property in the Philippines must be both notarized and registered to effectively transfer ownership and bind third parties. Notarization under the 2004 Rules on Notarial Practice (A.M. No. 02-8-13-SC) converts the deed into a public document under Rule 132, Section 19 of the Rules of Court. Registration with the Registry of Deeds under Presidential Decree No. 1529 (Property Registration Decree) is required to transfer the Torrens title from the debtor-transferor to the creditor-transferee. Before registration, the parties must: (1) pay Capital Gains Tax and Documentary Stamp Tax to the Bureau of Internal Revenue (BIR) and obtain a Certificate Authorizing Registration (CAR); (2) pay local transfer tax to the provincial or city treasurer and obtain a tax clearance; and (3) pay real property tax arrears if any. Without registration, the creditor-transferee does not acquire indefeasible title and the transfer is not binding on subsequent purchasers or encumbrancers who register first under the Torrens system priority rule.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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