Settling with something other than what is owed: giving in payment

It is Section Two of Chapter II of Title II of Book Four of the Civil Code of 2020, made up of a single article, 1138. It is the agreement by which the creditor accepts, in the same act, something other than what was owed, and with that the obligation is performed.

Any debtor and creditor who agree. Without that agreement there is no giving in payment: the creditor cannot be compelled to receive a thing other than the one owed.

• That there be agreement between the debtor and the creditor: the first condition in Article 1138.Verified against the official source
• That the agreement be simultaneous with the execution of the different performance.Verified against the official source
• That the different performance actually be executed: giving in payment is completed by handing over, not by promising.Verified against the official source

• The record of the agreement and of the delivery, on which the obligation being performed depends. Article 1138 requires no particular form, and this guide adds none.

1. 1

   Step 1: What the article says, in full

   A single sentence: the obligation may be performed with a performance different from the one owed if there is agreement between the debtor and the creditor, simultaneously with the execution of the different performance, without a new obligation being constituted. The section has no further articles, and this guide does not add what it does not say.

2. 2

   Step 2: No agreement, no dación

   The agreement is not a formality: it is the only thing that makes the substitution possible. Article 1118 of the same Code says the debtor of a thing cannot compel the creditor to receive a different one, even if of equal or greater value than the one owed. Giving in payment is precisely the case where the creditor does want it.

3. 3

   Step 3: And it has to be at the same moment

   The article puts the agreement simultaneously with the execution of the different performance. It is not a pact for later: the delivery and the agreement go together. A commitment to hand over something different in the future is not what this article governs.

4. 4

   Step 4: No new debt is born

   The last clause weighs most: without a new obligation being constituted. The original debt is not swapped for another nor refinanced; it is performed. That is why giving in payment sits in the chapter on substitutes for payment and not among the ways of modifying an obligation.

5. 5

   Step 5: What this article does not say

   It does not say what document is needed, nor whether anything must be recorded, nor what happens to sureties or securities, nor how the transaction is taxed. Nor does it say a word about mortgages, banks or housing. None of that is in Article 1138, and none of it will be found invented here.

6. 6

   Step 6: Handing the house to the bank is a different thing

   In Puerto Rico many people call "dación en pago" handing the house to the bank to close out an overdue mortgage. Article 1138 does not govern that: loss-mitigation programmes and each mortgage creditor’s own terms do, and we did not read them for this guide. If that is your case, there are separate guides on compulsory mediation and on loss mitigation, and this article of the Code will give you neither requirements nor deadlines.

There is no counter: giving in payment is agreed and executed between debtor and creditor. If it is later disputed whether there was agreement or whether the different performance was executed, the Court of First Instance decides. The Code names no agency here.

• Handing over something different and assuming the debt is settled without the creditor having accepted it.
• Agreeing today to hand over something different months from now and calling it a dación: the agreement goes simultaneously with the execution.
• Believing the dación creates a new obligation: the article expressly says none is constituted.
• Confusing it with novation, which does substitute one obligation for another.
• Leaving the agreement and the delivery unrecorded, and then having no way to prove them.
• Looking in Article 1138 for mortgage requirements: it mentions no mortgages, banks or housing.
• Assuming that handing the house to the bank follows these same rules: loss-mitigation programmes govern it.
• Taking for granted the effect on sureties, securities or taxes: the article says nothing about any of that.

These are the government pages this guide is based on.

• Poder Judicial de Puerto Rico

  Poder Judicial

  bvirtualogp.pr.gov