SECTION 6

NOVATION

● Garcia, Benedick
● Sevilleno, Joy Marie
● Valdez, Vince Paolo
Article 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.
Classification of Novation

1. As to its nature: (a.) Subjective, (b.) Objective and (c.) Mixed

2. As to its form: (a.) Express and (b.) Implied
3. As to effect: (a.) Partial and Implied
As to its nature
(a.) Subjective - is the modification of the obligation by the
change of subject
I. Passive - if there is a substitution of debtor
II. Active - when a 3rd person is
subrogated in the rights of the creditor

(b.) Objective - is the change of the obligation by substituting

the object with another or changing the principal conditions

(c.) Mixed - combination of the subjective and objective

novation
As to effect
(a.) Partial - when there is only a modification or change in
some principal conditions of the obligation

(b.) Total - when the old obligation is completely extinguished

As to its form
(a.) Express - when the parties declared that the old
obligation is extinguished and substituted by the new obligation

(b.) Implied - when there is an incompatibility between the old

and new obligations that they cannot stand together
Requisites

● A previous valid obligation;

● The agreement of all the parties to the new contract;
● The extinguishment of the old contract; and
● The validity of a new one.
Article 1292

In order that an obligation may be extinguished by another which

substitute 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.
Novation not presumed

There is no novation in the absences of a new contract executed by

the parties. It must be established that the old and new contracts
are incompatible in all points, or that the will to novate appear by
express agreement of the parties or in acts of equivalent import.
G.R. L-56545 Osmena v CA

Facts: Spouses Quimbo, deciding to purchase Lots 1 and 2, informed the sellers of their plan. The Quimbos were
ready to pay the purchase price in full to Helena. However, because Helena told them that a road would traverse the
lots purchased by the Quimbos, the former proposed to exchange Lot 409, located within the same area. The
spouses reluctantly agreed.

A year and a half later, Helena sold Lots 1 & 2 to another person. Upon learning of this the Quimbos filed a civil case
against Helena. Both the CFI and CA decided in favor of Spouse Quimbo. On their appeal to the SC, the petitioners
asserted that there was a valid novation because of the subject matter or object of the contract.

Held: No new contract was entered into between the Quimbos and the petitioners. Novation is a contract containing
two stipulations: one to extinguish an existing obligation, the other to substitute a new one in its place. It requires
the creation of a new contractual relation as well as the extinguishment of the old. There must be a consent of all the
parties to the substitution, resulting in the extinction of the old obligation and the creation of a new valid one
Express v Implied
Express - takes place only when the contracting parties expressly
disclose that their object in making the new contract is to
extinguish the old contract

Implied - what is required is incompatibility between the original

and the subsequent contracts
- the test of incompatibility between 2 obligations/contracts, is
whether they can stand together, each one having an independent
existence
- in this case, the former obligation loses all its force and effect, and
only the new obligation can be the basis of an action
Peterson v Azada 8 Phil. 432
Facts: The sums of P500 and P 3,000 owing upon 2 overdue promissory
notes were included, with an addition of P300, in a new instrument upon which Azada
bound himself to pay P3,800 on a specified future date.

Held: It was held that the later obligation was a perfect novation of the
former debts, both being merged into a new obligation with the increase of the loan, under
new terms and conditions.
Implied; Essential changes
In order that there may be an implied novation arising from
incompatibility of the old and the new obligations, the change must
refer to the object, the cause, or the principal conditions of the
obligation. In other words, there must be an essential change.
Implied; Accidental Changes
Accidental modifications in an existing obligation do not extinguish
it by novation. Mere modifications of the debt, agreed upon
between the parties, do not constitute novation.

When the changes refer to secondary agreements, and not to the

object or principal conditions of the contract, there is no novation;
such changes will produce modification of incidental facts, but will
not extinguish the original 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.
Article 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
obligations shall not give rise to any liability on the part of the
original debtor.
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 the delegated his debt.
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.
Effect of novation on accessory
obligations

GR : the extinguishment of the principal obligation carries with it

that of the accessory obligations (accessory follows the principal).

XTN: accessory obligation in favor of a third person(stipulation

pour autrui) unless said third person gives his consent to the
novation
Stipulation Pour Autrui

● A stipulation in favor of a third person conferring a clear and

deliberate favor upon him, and which stipulation is merely part
of a contract entered into by the parties, neither of whom
acted as agent of the third person.
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.
A. Effect where the new obligation
void
1. VALID and EFFECTIVE new obligation is an essential
requisite of a valid novation.
2. the original one shall subsist for the reason that the
second obligation being inexistent, it cannot extinguish or
modify the first.
3. No novation
B. Effect where the new obligation
voidable

1. The old obligation is novated because a voidable obligation is

valid until it is annulled.
2. If the new obligation is annulled, the old obligation subsists,
and whatever novation has taken place will naturally have to
be set aside.
Encomienda v. Mendieta
(C.A.) 8A.C.R. 438

FACTS: A deed of sale was made validly. There was an

attempt to novate the same by two deeds containing, among
other things, a provision for conventional redemption. But one of
the parties to the new deeds was a minor.

HELD: As to said minor, said new deeds are not valid and
enforceable. Therefore the original contract subsists.
D and C entered into a contract whereby
D was to give C P800,000 in cash. Later,
they novated the contract by stipulating
that instead of cash, D would give a
particular car. Subsequently, the car was
destroyed by a fortuitous event. Is D
obliged to give P800,000?
ANS.: No, because the original obligation
had already been extinguished by the
valid novation. Moreover, the obligation
to deliver the particular car is also
extinguished because of the fortuitous
event.
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.
Effect if the Old Obligation Was Void/
Voidable
(a) If the old obligation is VOID, there is no valid novation.
(b) If the old obligation was VOIDABLE and has already been
annulled, there is no more obligation. Therefore, the novation is
also void.
1. Annulment may be claimed by the debtor;
2. Ratification validates acts which are voidable.
(1) S agreed to deliver prohibited drugs to
B. Later on, it was agreed that S would
pay B P100,000.00 instead of delivering
the drugs.

The novation is void because the original obligation is void.

(2) Suppose S was induced through fraud
committed by B to sign a contract
whereby S obliged himself to deliver a
specific car to B. Subsequently, it was
agreed between S and B that S would
give B P100,000.00 instead of the car.

The original obligation of S is voidable. As it has not yet been

annulled at the instance of S (see Art. 1397.), the second
contract is valid.
(3) In the same example, if S
subsequently confirmed his obligation to
deliver the car and the right of B thereto,
his ratification cleanses the contract from
all its defects (Art. 1396.) and makes it
valid and, therefore, the novation is also
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.
Effect if the Original Obligation Was
Conditional

GR: The conditions attached to the old obligation are also

attached to the new obligation.

E: If there is a CONTRARY STIPULATION

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.
Subrogation

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. It contemplates full
substitution such that it places the party subrogated in the shoes
of the creditor, and he may us all means which the creditor could
employ 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.) (must be
clearly established); or
(2) Legal. — when it takes place without agreement but by
operation of law. (Art. 1302.)
Article 1301

Conventional subrogation of a third person requires the consent

of the original parties and of the third person.
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.
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.
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.