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 rights of the creditor. NOVATION- the total or partial extinction of an obligation through the creation of a new one which substitutes it. Dual Function of novation (a) To extinguish or modify an existing obligation (b) To substitute a new one in its place Kinds of Obligation (1) According to origin: (a) Legal. — That which takes place by operation of law (b) Conventional. — That which takes place by agreement of the parties. (2) According to how it is constituted: (a) Express. — When it is so declared in unequivocal terms (Art. 1292.); or (b) Implied. — When the old and the new obligations are essentially incompat with each other. (3) According to extent or effect: (a) Total or extinctive. — When the old obligation is completely extinguished; or (b) Partial or modificatory. — When the old obligation is merely modified, i.e., the change is merely incidental to the main obligation. (4) According to the subject: (a) Real or objective. — When the object (or cause) or principal conditions of the obligation are changed (Art. 1291[1].); (b) Personal or subjective. — When the person of the debtor is substituted and/or when a third person is subrogated in the rights of the creditor (c) Mixed. — When the object or principal condition of the obligation and the debtor or the creditor or both the parties, are changed. It is a combination of real and personal novations. (Ibid.) ARTICLE 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 obligations be on every point incompatible with each other. Requisites of novation (1) The existence of a previous valid obligation; (2) The intention or agreement and capacity of the parties to extinguish or modify the obligation; (3) The extinguishment or modification of the obligation; and (4) The creation or birth of a valid new obligation. Novation is not presumed. While as a general rule, no form of words or writing is necessary to give effect to a novation, it must be clearly and unmistakably established by express agreement or by the acts of the parties, as novation is never presumed. Even if novation were sufficiently shown, the presumptive rule (Art. 1299.) is that conditions attached to the old obligation also attach to the new obligation. ARTICLE 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. (1205a) Kinds of personal novation. (1) Substitution. — when the person of the debtor is substituted; or (2) Subrogation. — when a third person is subrogated in the rights of the creditor Kinds of substitution. (1) Expromission or that which takes place when a third person of his own initiative and without the knowledge or against the will of the original debtor assumes the latter’s obligation with the consent of the creditor. It logically requires the consent of the third person and the creditor. It is essential that the old debtor be released from his obligation; otherwise, there is no expromision; or (2) Delegacion or that which takes place when the creditor accepts a third person to take the place of the debtor at the instance of the latter. The creditor may withhold approval.In delegacion, all the parties, the old debtor, the new debtor, and the creditor must agree. In either of these two modes of substitution, the consent of the creditor is an indispensable requirement. Consent of creditor necessary In both the two modes of substitution, the consent of the creditor is an indispensable requirement. The reason for the rule is that the substitution implies a waiver by the creditor of his credit and it may be prejudicial to him. The prejudice may take the form of delay in the fulfillment of the obligation or the contravention of its tenor, or non performance thereof by the new debtor, by reason of his financial inability or insolvency. Right of new debtor who pays. 1. 2. In expromision, payment by the new debtor gives him the right to beneficial reimbursement under the second paragraph of Article 1236. If the payment was made with the consent of the original debtor or on his own initiative(delegacion), the new debtor is entitled to reimbursement and subrogation under article 1237. ARTICLE 1293 If the substitution is without the knowledge or against the will of the debtor, the new debtor’s insolvency or non-fulfi llment of the obligation shall not give rise to any liability on the part of the original debtor. (n) Effects of new debtor’s insolvency or non fulfillment of the obligation in EXPROMISION. The new debtor’s insolvency or non fulfillment of the obligation will not revive the action of the creditor against the old debtor whose obligation is extinguished by the assumption of the debt by the new debtor. Remember that in expromision, the replacement of the old debtor is not made at his own initiative. ARTICLE 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. (1206a) Effects of new debtor’s insolvency or non fulfillment of the obligation in DELEGACION. It must be noted that the article speaks only of insolvency. If the non-fulfi llment of the obligation is due to other causes, the old debtor is not liable. The general rule is that the old debtor is not liable to the creditor in case of the insolvency of the new debtor Exemptions: a. The said insolvency was already existing and of public knowledge (although it was not known to the old debtor) at the time of the delegacion; or b. The insolvency was already existing and known to the debtor (although it was not of public knowledge) at the time of the delegacion. ARTICLE 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. (1207) Effect of novation on accessory obligations. The above article follows the general rule that the extinguishment of the principal obligation carries with it that of the accessory obligations. (see Arts. 1230, 1273, 1280.) It provides, however, an exception in the case of an accessory obligation created in favor of a third person which remains in force unless said third person gives his consent to the novation. (see Art. 1311, par. 2.) This is so because a person should not be prejudiced by the act of another without his consent. 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. (n) Effect where the new obligation void Article 1297 stresses one of the essential requirements of a novation, to wit: the new obligation must be valid. The general rule is that there is no novation if the new obligation is void and, therefore, the original one shall subsist for the reason that the second obligation being inexistent, it cannot extinguish or modify the first. To the rule is excepted the case where the parties intended that the old obligation should be extinguished in any event. Effect where the new obligation is voidable. If the new obligation is only 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 ARTICLE 1298. The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor, or when ratification validates acts which are voidable. (1208a) Effect where the old obligation void or voidable - This article has its basis also on the requisites of a valid novation. - A void obligation cannot be novated because there is nothing to novate. - However, if the original obligation is only voidable (Art. 1390; Note: A voidable obligation is valid until it is annulled in court.) or if the voidable obligation is validated by ratification (see Arts. 1392, 1396.), the novation is valid. 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. (n) Presumption where original obligation subject to a condition If the first obligation is subject to a suspensive or resolutory condition, the second obligation is deemed subject to the same condition unless the contrary is stipulated by the parties in their contract. The reason for the rule contained in Article 1299 is that the efficacy of the new obligation depends upon whether the condition which affects the old obligation is complied with or not. (3 Castan 82.) If the condition is suspensive, and it is not complied with, no obligation arises; and if it is resolutory and it is complied with, the old obligation is extinguished. In either case, one requisite of novation, i.e., a previous valid obligation, would be wanting. 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. (1209a) Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the right of the other in relation to a debt or claim, including its remedies and securities to enforce payment. Kinds of subrogation. 1. Conventional. — when it takes place by express agreement of the original parties (the debtor and the original creditor) and the third person (the new creditor) (Art. 1301.); or 2. Legal. — when it takes place without agreement but by operation of law. (Art. 1302.) Conventional subrogation must be clearly established in order that it may take place. (Arts. 1292, 1300.) Legal subrogation is not presumed except in the cases expressly provided by law. (Art. 1302.) ARTICLE 1301 Conventional subrogation of a third person requires the consent of the original parties and of the third person. (n) Consent of all parties required in conventional subrogation. 1. the debtor - because he becomes liable under the new obligation to a new creditor. 2. the old or original creditor - because his right against the debtor is extinguished. 3. the new creditor - because he may dislike or distrust the debtor. 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. (1210a) Cases of legal subrogation. In the three cases enumerated, subrogation takes place by operation law even without the consent of the parties.2 Note that the subrogation is produced from payment which may be with or without the debtor’s knowledge or approval. 1. When a creditor pays another creditor who is preferred (see Arts. 2236, 2251.) 2. When a third person without interest in the obligation pays with the approval of the debtor 3. When a third person with interest in the obligation pays even without the knowledge of the debtor ARTICLES 1303 Subrogation transfers to the person subrogated the credit with all the rights thereto appertaining, either against the debtor or against third persons, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation. (1212a) Effect of legal subrogation The effect of legal subrogation is to transfer to the new creditor the credit and all the rights and actions that could have been exercised by the former creditor either against the debtor or against third persons, be they guarantors3 or mortgagors. Simply stated, except only for the change in the person of the creditor, the obligation subsists in all respects as before the novation. (see Art. 1237.) The effect of legal subrogation as provided in Article 1303 may not be modified by agreement. The effects of conventional subrogation are subject to the stipulation of the parties. There are distinctions between the right to be subrogated and the right to reimbursement. (see Art. 1237.) 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. (1213) 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 insolvency of the debtor, he is given a preferential right under the above article to recover the remainder as against the new creditor.
