Novation

SECTION 6
-
NOVATION
Obligation and Contracts
Judge Nelson Leyco
SECTION 6 - NOVATION
Article 1291
• Art. 1291. Obligations may be modified by:
• (1) Changing their object or principal conditions;

• (2) Substituting the person of the debtor;
• (3) Subrogating a third person in the right of the credit.
Novation - the substitution or change of an obligation by another, which extinguishes or modifies the first,
either changing its object or principal condition, or substituting another in place of the debtor, or subrogating
a third person in the right of the creditor.
Principal Conditions - a change in the period to comply with the obligation, which change in the period
would only be partial novation, since the period merely affects the performance, not the creation of the
obligation.
2
Article 1291
• Purpose or Function of Novation - juridical act of dual function in that at the time it extinguishes
an obligation, it creates a new one in lieu of the old. Proper novation extinguishes an obligation, a
partial, modificatory imperfect novation merely modifies the old obligation.
• Kinds of Novation –
• (a) According to Its Object or Purpose
• 1) Real or Objective — (changing the object or the principal conditions of the obligation). (Art. 1291, par. 1).
• 2) Personal or Subjective — (Change of Persons)
• A) Substituting the person of the debtor (Expromision or Delegacion)
• B) Subrogating a third person in the rights of the creditor (change of creditor may be by agreement —
“conventional subrogation,” or by operation of law — “legal subrogation”)
3
Article 1291
• 3) Mixed (Change of Object and Parties)

• (b) According to the Form of Its Constitution
• 1) express
• 2) implied (when the two obligations are essentially incompatible with each other)
• (c) According to Its Extent or Effect
• 1) total or extinctive novation — (when the old obligation is completely extinguished)
• 2) partial or modificatory — (imperfect or improper novation)
• Requisites for Novation

• (a) The existence of a VALID old obligation.
• 1) If the old obligation is VOID or NON-EXISTENT, nothing to novate.
• 2) If the old obligation is VOIDABLE, novation is still possible provided the obligation has not yet been annulled. (Art.
1298, Civil Code).
4
Article 1291
• (b) The intent to extinguish or to modify the old obligation by a substantial difference.
• (c) The capacity and consent of all the parties.
• (d) The validity of the new obligation.
• Novation Is Not One of the Means Recognized by the Revised Penal Code Whereby Criminal
Liability can be Extinguished.
5
EXHIBIT 1
Novation Real or Objective
Ford Everest
6
EXHIBIT 1
Novation Real or Objective
Ford Everest
Ford Territory
7
EXHIBIT 2
Novation Personal or Subjective
$ 10,000
8
EXHIBIT 2
Novation Personal or Subjective
$ 10,000
9
EXHIBIT 3
Novation Mixed
Ford Evert
10
EXHIBIT 3
Novation Mixed
Ford Evert
11
Article 1292
• Art. 1292. In order that an obligation may be extinguished by another which substitutes the
same, it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligation be on every point incompatible with each other.
• Express and Implied Novation According

• (a) express novation (it is declared in unequivocal terms). (Art. 1292).
• (b) implied novation (complete or substantial incompatibility).
• in the object or subject matter of the contract
• in the cause or consideration of the contract
• in the principal terms or conditions of the contract
12
UNEQUIVOCAL DECLARATION
• The intention to substitute the old obligation with the new one must be clearly stated. This can be
done explicitly in writing or orally, provided that the declaration leaves no room for ambiguity.
13
EXHIBIT 4
Express Novation
$ 500,000
14
EXHIBIT 4
Express Novation
Promissory
$ 500,000
Note $500K
15
EXHIBIT 4
Express Novation
$ 500,000
Promissory
Note
$1M
$ 500,000
16
INCOMPATIBILITY:
• The old and the new obligations must be incompatible with each other on every point. This means
that the terms, conditions, and obligations of the new agreement must directly contradict those of
the original agreement, leaving no room for both obligations to coexist.
17
ART. 1292
Implied Novation (Substantial Changes)
• Example: A lease agreement states that the tenant must pay rent on the first day of each month.
The landlord agrees to terminate the lease early in exchange for a lump sum payment equal to
three months' rent. The new obligation, represented by the lump sum payment, is incompatible with
the original obligation to pay rent monthly because it replaces the ongoing monthly payments
with a one-time payment.
18
19
Article 1293
• Art. 1293. Novation which consists in substituting a new debtor in the place of the original one,
may be made even without the knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles
1236 and 1237.
• Personal or Subjective Novation
• (a) change of the debtor (passive)
• (b) change of the creditor (active)
• Substitution of Debtor
• (a) expromision - (where the initiative comes from a third person)
• (b) delegacion - (where the initiative comes from the debtor, for it is he who delegates another to pay the debt, and
thus, he excuses himself.)
20
Article 1293
• Expromision
• (a) Here the initiative comes from a third person.
• (b) It is essential that the old debtor be RELEASED from his obligation, otherwise there will be no expromision, no novation
• (c) Requisites:
• (a) The initiative must come from a third person (who will be the new debtor).
• (b) The new debtor and the creditor must CONSENT.
• (c) The old debtor must be excused or released from his obligation.
• Delegacion
• replacement of the old debtor by a new debtor, who (the old debtor) has proposed him to the creditor, and which
replacement has been agreed to by said creditor and by said new debtor.
• old debtor must be released from the obligation; otherwise, there is no valid delegacion.
21
Article 1293
• Parties
• (a) The delegante — the original debtor
• (b) The delegatario — the creditor
• (c) The delegado — the new debtor
• Requisites
• (a) The initiative comes from the old debtor.
• (b) All the parties concerned must consent or agree.
• may be given in any form
• may be express, or may be implied from his acts
• may be before or after the new debtor has given his consent
• may be conditional, but the condition has to be fulfilled; otherwise, there is no valid delegacion.
22
Article 1293
• Rights of the New Debtor

• The law says that “payment by the new debtor gives him the rights mentioned in Arts. 1236 and 1237” (namely,
“beneficial reimbursement,” if payment was made without the knowledge or against the will of the old debtor;
“reimbursement and subrogation,” if it was made with the old debtor’s consent).
• Novation Cannot Bind Respondent

• Not a Party to the Assignment.
23
PASSIVE PERSONAL OR SUBJECTIVE NOVATION
Expromission
$ 50,000
24
Expromission
$ 50,000
25
Expromission
$ 50,000
INSOLVENT
26
Expromission
Can Wade proceed

$against
50,000Lebron?
INSOLVENT
27
DELEGACION
• The initiative comes from the old debtor.

• All the parties concerned must consent or agree.
• The old debtor must be released from his obligation.
28
Delegacion
$ 50,000
29
Delegacion
$ 50,000
INSOLVENT
30
Article 1294
• Art. 1294. If the substitution is without the knowledge or against the will of the debtor, the new
debtor’s insolvency or non-fulfillment of the obligation shall not give rise to any liability on the
part of the original debtor.
• Effect of Insolvency or Non-Fulfillment by New Debtor in Expromision

• (a) This refers to expromision.
• (b) Reason why the old debtor will not be responsible for the new debtor’s INSOLVENCY or NON-FULFILLMENT: The
expromision was brought about without his initiative.
31
Article 1295
• Art. 1295. The insolvency of the new debtor, who has been proposed by the original debtor and
accepted by the creditor, shall not revive the action of the latter against the original obligor, except
when said insolvency was already existing and of public knowledge, or known to the debtor,
when he delegated his debt.
• (1) Effect of Insolvency by New Debtor in Delegacion

• (a) This refers to delegacion.
• (b) Note that the Article deals only with insolvency, and not with other causes of non-fulfillment. (In said other causes,
the old debtor is not liable.)
32
Article 1295
• Requisites to Hold Old Debtor Liable

• (a) The insolvency was already existing and of PUBLIC KNOWLEDGE at the time of delegation;
• (b) OR the insolvency was already existing and KNOWN TO THE DEBTOR at the time of delegation.
• (Note that if the insolvency occurred only AFTER the delegation, the old debtor is not liable.)
• (4) When Article Does Not Apply
• Does NOT apply if there really was NO EXTINCTIVE NOVATION, such as:
• (a) When the third person was only an agent, messenger, or employee of the debtor.
• (b) When the third person acted only as guarantor or surety.
• (c) When the new debtor merely agreed to make himself solidarily liable for the obligation.
• (d) When the new debtor merely agreed to make himself jointly or partly responsible for the obligation. (Here
the delegacion is merely with reference to the joint or proportionate share.)
33
Article 1296
• Art. 1296. When the principal obligation is extinguished in consequence of a novation, accessory
obligations may subsist only insofar as they may benefit third persons who did not give their
consent.
• Effect on Accessory Obligation

• Extinguished except if third party does not give their consent.
• Stipulation Contrary to Article 1296
• provided that the debtors of said accessory obligations give their consent.
• Effect on Stipulation Pour Autrui
• Accessory obligations or stipulations made in favor of third persons (stipulations pour autrui) remain unless said third
persons have their consent to the novation.
34
EXAMPLE
• Status of Accessory Obligations: Accessory obligations are those dependent on the principal
obligation. These may include guarantees, securities, or collateral attached to the primary debt.
Article 1296 stipulates that when the principal obligation is extinguished through novation,
accessory obligations may continue to exist only if they benefit third persons who did not give
their consent to the novation.
• Example: Suppose Alice's debt to Bob was guaranteed by Charlie, who pledged his car as
collateral. When Carol steps in and novates the obligation, Alice's debt to Bob is extinguished.
However, if Charlie did not consent to the novation, his collateral obligation may still subsist to the
extent that it benefits him as a third party who did not agree to the novation.
35
• In summary, Article 1296 ensures that when the principal obligation is extinguished through
novation, accessory obligations may only continue if they benefit third parties who did not consent
to the novation. This provision protects the interests of parties who may have provided guarantees
or collateral tied to the original obligation.
36
Article 1297
If the new obligation is void, the original one shall subsist, unless the parties intended that the
former relation should be extinguished in any event.
• Effect where the new obligation is void
• The original one shall subsist unless the parties intended that the former should be extinguished in any event.
• Effect where the new obligation is voidable
• Novation can take place. But the moment it is annulled, the novation must be considered as not having taken place,
and the original one can be enforced, unless the intention of the parties is otherwise.
37
VOID NEW OBLIGATION
Example
50,000.00
38
VOID NEW OBLIGATION
Example
50,000.00
kidnap the enemy of Celestine
39
VOID NEW OBLIGATION
Example
50,000.00
kidnap the enemy of Celestine
40
Article 1298
The novation is void if the original obligation was void, except when annulment may be claimed
only by the debtor, of when ratification validates acts which are voidable.
• Effect where the old obligation is void
• A void obligation cannot be novated because there is nothing to novate.
41
VOID OLD OBLIGATION
Example
Prohibited Drugs
42
VOID OLD OBLIGATION
Example
P 100,000.00
43
VOID OLD OBLIGATION
Example
Prohibited Drugs
P 100,000.00
44
Article 1298
• Effect where the old obligation is voidable
• If the original obligation is only voidable, the novation is valid.
45
VOIDABLE OLD OBLIGATION
Example
FORD EVEREST
46
Example
P 100,000.00
47
Example
FORD EVEREST
P 100,000.00
48
Article 1298
• Effect where the old obligation is voidable
• If the original obligation is only voidable, the novation is valid.
• Effect where the voidable obligation is validated by ratification
• If the voidable obligation is validated by ratification, the novation is valid.
49
VOIDABLE OBLIGATION VALIDATED BY RATIFICATION
Example
FORD EVEREST
P 100,000.00
50
Article 1299
If the original obligation was subject to a suspensive or resolutory condition,

the new obligation shall be under the same condition, unless it is otherwise
stipulated.
• Presumption where original obligation subject to a condition.

• If the 1st obligation is subject to a suspensive or resolutory condition, the 2nd obligation is
deemed subject to the same condition unless the contrary is stipulated by the parties in their
contract.
51
PRESUMPTION WHERE ORIGINAL OBLIGATION SUBJECT TO A CONDITION
Example
LAMBORGHINI
PASS THE BAR
52
PRESUMPTION WHERE ORIGINAL OBLIGATION SUBJECT TO A CONDITION
Example
PASS THE BAR
DIAMOND RING
53
Article 1300
Subrogation of a third person in the rights of the creditor is either legal or
conventional. The former is not presumed, except in cases expressly mentioned
in this Code; the latter must be clearly established in order that it may take
effect.
KINDS OF SUBROGATION:
• Conventional Subrogation (Art. 1301)
• When it takes place by express agreement of the original parties (the debtor and the
original creditor) and the third person (the new creditor).
• Legal Subrogation (Art. 1302)
• When it takes place without agreement but by operation of law.
54
Article 1301
Conventional subrogation of a third person requires the consent of the original

parties and of the third person.
• Consent of all parties required in conventional subrogation

• In conventional subrogation, the consent of all the parties is an essential requirement.
• The debtor – he becomes liable under the new obligation to a new creditor.
• The old creditor – his right against the debtor is extinguished.
• The new creditor – he may dislike or distrust the debtor.
55
CONVENTIONAL SUBROGATION
Example
P 100,000.00
56
Example
57
Example
58
Article 1302
It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the debtor's
knowledge;
(2) When a third person, not interested in the obligation, pays with the express or
tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as to
the latter's share.
CASES OF LEGAL SUBROGATION:
• When a creditor pays another creditor who is preferred.
• When a third person without interest in the obligation pays with the approval of the debtor.
• When a third person with interest in the obligation pays even without the knowledge of the debtor.
59
WHEN A CREDITOR PAYS ANOTHER CREDITOR WHO IS PREFERRED
Example
SECURED
60
Example
UNSECURED
61
Example
who should be
preferred
creditor?
62
Example
63
Example
64
WHEN A THIRD PERSON WITHOUT INTEREST IN THE OBLIGATION PAYS WITH THE
APPROVAL OF THE DEBTOR
Example
65
WHEN A THIRD PERSON WITHOUT INTEREST IN THE OBLIGATION PAYS WITH THE
APPROVAL OF THE DEBTOR
Example
With the express

consent of John
66
WHEN A THIRD PERSON WITH INTEREST IN THE OBLIGATION PAYS EVEN WITHOUT
THE KNOWLEDGE OF THE DEBTOR
Example
67
Example
Mr. Lee as guarantor

of John
68
Example
69
Article 1303
Subrogation transfers to the persons subrogated the credit with all the rights thereto
appertaining, either against the debtor or against third person, be they guarantors or
possessors of mortgages, subject to stipulation in a conventional subrogation.
• Effect of legal subrogation

• The effect of legal subrogation as provided in this article may not be modified by agreement. The effects of
conventional subrogation are governed by the stipulation of the parties.
70
EFFECT OF LEGAL SUBROGATION
Example
P 1,000,000.00
71
Example
P 1,000,000.00
Guarantor of Katherine
72
Example
P 1,000,000.00
Stranger to the
transaction
73
Example
Subrogated in place of
Lorie
74
Example
Subrogated in place of
Lorie
75
Article 1304
A creditor, to whom partial payment has been made, may exercise his right for the
remainder, and he shall be preferred to the person who has been subrogated in his
place in virtue of the partial payment of the same credit.
• Effect of partial subrogation

• The creditor to whom partial payment has been made by the new creditor remains a creditor to the extent of
the balance of the debt.
• In case of solvency of the debtor, he is given a preferential right under the above article to recover the
remainder as against the new creditor.
76
EFFECT OF PARTIAL SUBROGATION
Example
P 500,000.00
77
Example
With consent of
Katherine and Lorie
78
Example
P250,000.00
P250,000.00
79
Example
who should be
preferred?
80
Example
P 250,000.00
81
NOVATION SUMMARY
Article 1291. Definition of Novation

Article 1292. Express and Implied Novation
Article 1293. Personal or Subjective Novation
Article 1294. Effect of Insolvency or Non-Fulfillment by New Debtor in Expromision
Article 1295. Effect of Insolvency by New Debtor in Delegacion
Article 1296. Effect on Accessory Obligation; Effect on Stipulation Pour Autrui
82
NOVATION SUMMARY
Article 1297. Effect where the new obligation is void and voidable
Article 1298. Effect where the old obligation is void, voidable or validated by ratification
Article 1299. Presumption where original obligation subject to a condition
Article 1300. Definition of Subrogation
Article 1301. Conventional Subrogation
Article 1302. Legal Subrogation
Article 1303. Effect of Legal Subrogation
Article 1304. Effect of Partial Subrogation
83
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SECTION 6

• Art. 1291. Obligations may be modified by:

• (1) Changing their object or principal conditions;

• 3) Mixed (Change of Object and Parties)

• Requisites for Novation

• Express and Implied Novation According

• (b) The new debtor and the creditor must CONSENT.

• Rights of the New Debtor

• Novation Cannot Bind Respondent

Can Wade proceed

• The initiative comes from the old debtor.

• Effect of Insolvency or Non-Fulfillment by New Debtor in Expromision

• (1) Effect of Insolvency by New Debtor in Delegacion

• Requisites to Hold Old Debtor Liable

• Effect on Accessory Obligation

kidnap the enemy of Celestine

kidnap the enemy of Celestine

If the original obligation was subject to a suspensive or resolutory condition,

• Presumption where original obligation subject to a condition.

PASS THE BAR

PASS THE BAR

Conventional subrogation of a third person requires the consent of the original

• Consent of all parties required in conventional subrogation

With the express

Mr. Lee as guarantor

• Effect of legal subrogation

• Effect of partial subrogation

Article 1291. Definition of Novation

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