EXTINGUISHMENT OF OBLIGATION PART 7 NOVATION

EXECUTIVE SUMMARY

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.

What is Novation?
-is the extinguishment of an obligation by the substitution or change of the obligation by
a subsequent one which extinguishes or modifies the first,either by changing the object
or principal conditions ,or by substituting another in place of the debtor,or by
subrogating a third person in the rights of the creditor.

Requisites:
1. There must be a previous valid obligation;
2. There must be an agreement of the parties concerned to a new contract;
3. There must be the extinguishment of the old contract ; and
4. There must be the validity of the new contract.

As a general rule, no form of words or writing is necessary to give effect to a novation.

A new contractual obligation, consent of both parties,must be required.
Novation is never presumed,and the animus novandi,whether totally or partially,must
appear by express agreement of the parties,or by their acts that are too clear and
unmistakable.

Kinds of Novation

❖ As of the subject
1. Real or objective
-Novation is made either by changing the object or the principal conditions.
- It is objective novation of the obligation where the thing offered as an accepted
equivalent of the performance of an obligation.

Example:
A obliged himself to deliver his only watch to B. Unfortunately, A will no longer
deliver his watch but he will change it to deliver his two rings.
 2. Personal or subjective
- Novation by substituting the person of the debtor or subrogating a third person
to the rights of the creditor.
-Dual Function
a.) Original obligation is extinguished
b.) New obligation is created requiring a conflix of four essential requisites: 1.)
a previous valid obligation 2.) an agreement of all parties concerned to a
new contravention 3.) the extinguishment of the old obligation 4.) the
birth of a valid new obligation

3. Mixed
-Changing the object or the principal conditions and by substituting the person of
the debtor or subrogating a third person to the rights of the creditor.

Example:
A obliged himself to deliver his watch to B. A and B agreed that instead of
delivering the watch, he will give the two laptops to C.

❖ As to Constitution
1. Express
-it is express when the new obligation declares in unequivocal term that the old
obligation is extinguished.
- It is imperative that it be so declared in unequivocal terms

2. Implied
-it is implied when the new obligation is incompatible with the old one on every
point.
- It is done by making substantial changes.

❖ As to extent or effect
1. Total or extinctive
-It is extinct when an old obligation is terminated by the creation of a new one
that takes the place of the former.

Dual Function of Extinctive Novation

a.) One to extinguish an existing obligation; and
b.) To substitute a new one in its place
 2. Partial or modificatory

-Merely modificatory when the old obligation subsists to the extent that it remains
compatible with the amendatory agreement.

❖ As to Origin
1. Legal
-Novation which takes place by operation of law.
2. Conventional
- Novation which takes place by stipulation of the parties.

Kinds of personal novation

A.) Substitutions - substituting the person of the debtor.

1.Expromision (Art 1293 & 1294)

- This occurs when a third party takes the initiative
- The obligation is fulfilled even without the consent or against the desire
of the original debtor, but with the consent of the creditor.
Example:
A is the original debtor. B is the creditor. C is the third person. The third
person, C, fulfilled A’s obligation without the knowledge of A but with the consent
of B.

2.Delegación (Art 1295)

- Is when the debtor makes an offer and the creditor accepts.
- Accept a third party to take the place of the original debtor in order to
satisfy the original debtor's obligation.

Example:
If A goes to B bringing C and proposes to B that C who is willing, will pay
the P10,000 and B consents to it, the novation by delegación extinguishes
obligation.

Necessity of creditor’s consents - must always be secured

(expromission or delegación)

Delegado - means the new debtor

Delegante - means the original debtor
Delegatario - means the creditor
 ❖ Effect of Novation on Accessory Obligations
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.
As a general rule, when the principal obligation is extinguished, the accessory
obligation also is extinguished.
Exception: Accessory obligation may subsist only if the third person who did
not give their consent.

Example:
X owes 100,000 to Y, and Y owes 50,000 to Z. Now, it was agreed by the parties
that X would pay half of 100,000 to Z as well as to Y. Besides the principal obligation to
Y, there is a stipulation in favor of Z. Now X and Y formed another contract, whereby
they agreed that X would deliver a refrigerator worth 50,000 to Y. In spite of novation,
the obligation to pay half of 100,000 to Z stays still unless Z also agrees to the novation.

❖ Effect Where the New Obligation is Void or Voidable

Article 1297 If the new obligation is void, the original one shall subsist, unless
the parties intended that the former relations should be extinguished in any event.
As a general rule, if the new obligation is void and, therefore, the original one
shall subsist. Take note that the first requisite of a valid novation is that there must be a
previous valid obligation.
Exception: the parties intended that the former relationship should be
extinguished in any event.

Example:
X is indebted to Y in the amount of P1, 000.00. Since X cannot pay his debt, X
and Y entered into a new contract whereby X will kidnap and kill the enemy of Y and the
latter will consider X debt extinguished. In this case, the original obligation of X and Y
shall subsist because the new obligation of X to Y is void it being against the law.

❖ Effect Where the Old Obligation is Void or Voidable

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)
General Rule:The novation is void if the original obligation was void.
Exception: When annulment may be claimed only by the debtor or when
ratification validates acts which are voidable. Voidable obligations are binding unless
they are annulled by a proper action in court. They are susceptible to ratification.
Ratification cleanses the contract from all its defects from the moment it was
constituted.

Example: X was forced by Y through fraud that X executes a promissory note

worth P100,000 in favor of Y, which is payable on January 1, 20x5. However, after the
fraud, they make a change to their previous agreement or transaction, such that,
instead of giving P100,000 X will just give to Y a specific gadget.

B.) SUBROGATION – it is the transfer of all rights of the creditor in a third person, who
substitutes him in all rights.

Example:
You were hit by a car. Therefore, when you were hit by a car the one who
repaired your car was the insurance, because insurance can get the payment for having
your car repaired by the person who damaged it because you are the one who can
charge the person who caused you. And the reason why you get insurance is because
to reduce the expenses you have to spend to repair your car.

KINDS OF SUBROGATION
1. Conventional Subrogation
-That takes place by agreement of the parties.
Example:
When the debtor requires a consent of the original parties and of the third
person.

2. Legal Subrogation
-.That which occurs without agreement but through the operation of law as a
result of specific activities.
Example:
When a creditor pays another creditor who is preferred, even without the debtor’s
knowledge.

Conventional Subrogation and Assignment of Rights, Distinguished

1. Conventional Subrogation
- Is the transfer of all creditors' rights to a third party who will substitute him in all
his rights, which arises by authorization of the parties.
-The debtor’s consent is necessary.
- Subrogation extinguishes an obligation and gives rise to a new one.
- Subrogation may alleviate the nullity of an obligation, making the new duty
entirely legal.

2. Assignment of Rights
- An agreement by which the owner's credit (known as the assignor), by legal
cause such as sale, dation payment, exchange, or donation, and without need to
 another (known as the assignee), who requires the authority to enforce it, to the
same extent that the assignor could have implemented it against the debtor.
- The debtor’s consent is not required.
- Assignment refers to the same right which passes from one person to another.
- Assignment of a creditor's entitlement to another does not make an obligation
null and void.

Effects of Subrogation
The effects of subrogation can vary depending on the specific circumstances and
the laws of the jurisdiction involved. Here are some common effects and considerations
related to subrogation:

a. Transfer of Rights: Subrogation normally entails the transfer of the

insured's rights to the entity paying the payment (usually an insurer). This means
that the insurer can act in the insured's place and pursue a claim against the
at-fault party.

b. Third-Party Liability: Subrogation is often used in cases involving

third-party liability, such as auto accidents, property damage, or personal injury
claims. It allows the injured party's insurer to seek compensation from the party
responsible for the damages.

c. Insurance Premiums: Subrogation can have an indirect effect on

insurance premiums. When insurers are successful in subrogation, they can
recover some of the costs they've paid out, which may help mitigate the impact
on premiums for policyholders.