Novation
ART. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substitutingthepersonofthedebtor;
(3) Subrogatingathirdpersonintherightsofthecreditor. (1203)
Meaning of novation.
Novation is the total or partial extinction of an obligation through
the creation of a new one which substitutes it.
It is the substitution or change of an obligation by another, which
extinguishes or modifies the first, either by changing its object or
principal conditions, by or substituting another in place of the
debtor, or by subrogating a third person in the rights of the
creditor.
Dual function or purpose of novation.
Novation is a contract containing two stipulations: one to
extinguish or modify an existing obligation, and the other to
substitute a new one in its place. Unlike other modes of extinction
of obligation, novation is a juridical act with a dual function.
It does not operate as an absolute extinction in the sense that it
ends with the extinguishment of an obligation but only as a relative
extinction because it creates a new one in place of the old which is
thus only “modified.” (Art. 1291.)
(1) The novation is extinctive when an old obligation is termi- nated
by the creation of a new obligation that takes the place of the
former because of the total incompatibility between the two
obliga- tions. An extinctive novation would thus have the twin
effects of first, extinguishing an existing obligation and second,
creating a new one in its stead. It does not necessarily imply that
the new agreement should be complete in itself. Certain terms and
conditions may be carried, expressly or by implication, over to the
new obligation.
(2) Wherethechangeisnotextinctivebutismerelymodificatory, i.e.,
incidental to the main obligation (e.g., change in interest rates or
an extension of time to pay), the new agreement will not have the
ef- fect of extinguishing the first but would merely supplement it or
sup- plant some but not all of its provisions. In other words, the old
obliga- tion subsists to the extent it remains compatible with the
amendatory agreement.
Whether the effect is extinctive or merely modificatory, is depen-
dent on the nature of the change and the intention of the parties.
In either case, novation is made as provided in Article 1291.
Kinds of novation.
They are:
 (1) According to origin:
(a) Legal.—thatwhichtakesplacebyoperationoflaw(Arts. 1300,
1302; see Art. 1224.); or
(b) Conventional. — that which takes place by agreement of the
parties. (Arts. 1300, 1301.
(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 incompatible with each other. (Ibid.) (3) According to
extent or effect:
(a) Totalorextinctive.—whentheoldobligationiscompletely
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) Realorobjective.—whentheobject(orcause)orprincipal
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 (Ibid., [2, 3].); or
(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.
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
obligations be on every point incompatible with each other.
(1204)
Requisites of novation.
In novation, there are four (4) essential requisites, namely:
(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.
There can be no novation unless two distinct and successive
binding contracts take place, between the same parties with the
second de- signed to replace the preceding convention.
Modifications introduced before a bargain becomes obligatory can
in no sense constitute novation in law.
A loan application, before bank approval, cannot be subsequently
novated because the first requisite, a pre-existing obligation, is
lacking.
If parties involved are corporations, it must first be proved that the
second contract was executed by persons possessing the proper
authority to bind their respective principals.
Novation of judgment.
A final judgment of a court that had been executed but not yet fully
satisfied, may be novated by compromise. In such case, the
judgment cannot subsequently be executed because the
agreement supersedes the judgment.
The novation of a contract or judgment may be subject to a suspen-
sive condition.
Novation with respect to criminal liability.
Novation is not a mode of extinguishing criminal liability. It may
prevent the rise of criminal liability as long as it occurs prior to the
filing of the criminal information in court. In other words, novation
does not extinguish criminal liability but may only prevent its rise.
In a case, a new agreement was reached by the parties to pay in
cash the value of goods delivered, for which a check was issued and
subsequently dishonored. The supposed agreement never took
effect as petitioner never complied with his undertaking. It was
held that the novation theory does not apply where the offer to pay
by the debtor, and accepted by the creditor, turns out to be merely
an empty promise. In this case, the empty promise only delayed the
filing of a use for violation of B.P. Blg. 22 against petitioner.
Novation not presumed.
While as a general rule, no form of words or writing is necessary to
give effect to a novation (Garcia, Jr. vs. Court of Appeals, supra.), it
must be clearly and unmistakably established by express
agreement or by the acts of the parties, as novation is never
presumed. (see Broadway Centrum Condominium Corp. vs.
Tropical Hut Food Market, Inc., 224 SCRA 302 [1993]; see Phil.
Savings Bank vs. Mañalac, Jr., 457 SCRA 203 [2005].) 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.
Ways of effecting conventional novation.
There are only two (2) ways which indicate the presence of no-
vation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same.
First, by the express agreement of the parties or acts of equal or
equivalent import or second, by the irreconcilable incompatibility
of the two obligations with each other in every material respect.
The second way can take place even in the absence of an express
agreement.
Thus, to effect an objective novation, it is imperative that the new
obligation expressly declares that the old obligation is thereby
extinguished, or that the new obligation be on every point
incompatible with the new one. In the same vein, to effect a
subjective novation by a change in the person of the debtor, it is
necessary that the old debtor be released expressly from the
obligation and the third person or new debtor assumes his place in
the relation. There is no novation without such release as the third
person who assumed the debtor’s obligation becomes merely a co-
debtor or surety.
Since novation is effected only when a new contract has
extinguished an earlier contract between the same parties, it
necessarily follows that there could be no novation if the parties in
the new contract are not the same parties in the old contract.
Burden of showing novation.
The burden of establishing a novation is on the party who asserts
its existence. The necessity to prove the same by clear and
convincing evidence is accentuated where the obligation of the
debtor has already matured.
Incompatibility between two obligations or contracts.
(1) Incompatibility in any of the essential elements of obligation. —
When not expressed, incompatibility is required so as to ensure
that the parties have indeed intended such novation despite their
failure to express it in categorical terms. The incompatibility should
take place in any of the essential elements of the obligation, i.e.:
(a) thejuridicalrelationortie,suchasfromamerecommodatum to
lease of things, or from negotorium gestio to agency, or from a
mortgage to antichresis, or from a sale to one of loan; or
(b) the object or principal conditions such as a change of the nature
of the prestation; or
(c) the subjects, such as the substitution of a debtor or the
subrogation of the creditor.
In other words, there must be an essential change otherwise, the
change is merely modificatory in nature and insufficient to
extinguish the original obligation. The fact that two agreements are
co-terminous with each other does not imply that a new obligation
has arisen.
(2) Test of incompatibility. — The test is whether they can stand
together without conflict, each one having its own independent
existence. If they cannot, they are incompatible, and the
subsequent obligation novates the first. Upon such novation, the
former obligation loses all its force and effect and only the new
obligation can be the basis of an action.
Corollarily, changes that breed incompatibility must be essential in
nature and not merely accidental. The incompatibility must take
place in any of the essential elements of the obligation, such as its
object, cause, or principal conditions; otherwise, the change is
merely modificatory (infra.) and insufficient to extinguish the
original obligation.
(a) Acompromiseagreementwhichmerelyclarifiedthetotal sum
owed by the would-be buyer to the would-be seller with the view
that the former would find it easier to comply with his obligation
under the contract to sell does not novate said contract to sell. In
fine, the compromise agreement1 can stand together with the
contract to sell.
(b) Similarly,ifthechangeconsistsonlyinthetimeorplaceof payment,
or in the mode or manner of payment, or rates of inter- est, without
really effecting a substitution of debtor, or adds other obligations
not incompatible with the old one, or where the new contract
merely supplements the old one, the change is merely modification
in nature and insufficient to extinguish the original obligation.
The term “principal condition’’ in Article 1291 includes a change in
the “period’’ to comply with the obligation. Such a change,
however, would only be a partial novation since the period merely
affects the performance, not the creation of the obligation.
(c) An agreement subsequently executed between a seller and a
buyer that provides for a different schedule and manner of
payment, to restructure the mode of payments by the buyer so that
it could settle its outstanding obligation in spite of its delinquency
in payment is not tantamount to novation.
(d) A deed of cession of the right of repurchase of a piece of land
does not supersede a contract of lease over the same property
where there is no clear agreement to create new contract in place
of the existing one.
(e) Novationismerelymodificatorywherethechangebrought about
by any subsequent agreement is merely incidental to the main
obligation. Thus, where parties to a case for the collection of a loan
increased the indebtedness due to accruing interest from P290,691
to P431,200; where the compromise agreement extended the
period of payment and provided for new terms of payment; and
where it provided for a waiver of claims, counterclaims, attorney’s
fees or damages that the debtors might have against their
creditors, but the settlement neither cancelled, nor materially
altered the usual clauses in the real estate mortgages, e.g., the
foreclosure of the mortgaged property in case of default, it was
held that the original obligation of the debtors had been impliedly
modified.
(f) In a case, an examination of the Deed of Absolute Sale and the
Promissory Note, as well as the surrounding circumstances, shows
that the deed was intended to novate and replace the Deed of
Conditional Sale, it appearing that the two deeds cannot co- exist
being of different nature and as they provide for separate and
distinct obligations.
(g) What actually takes place in dacion en pago(seeArt.1245.) is an
objective novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation is
considered as the object of the contract of sale while the debt is
considered as the purchase price.
Effect of modifications of original obligation.
(1) Slight modifications and variations. — When made with the
consent of the parties, they do not abrogate the entire contract and
the rights and obligations of the parties thereto, but the original
contract continues in force except as the altered terms and
conditions of the obligation are considered to be the essence of the
obligation itself. This is especially true where the original contract
expressly provides that such modifications and alterations may be
made. (see 9 C.J. 721.)
Under Article 1291(1), the change must involve the “principal”
conditions of the obligation.
(a) Thus, it has been held that there was no novation of the original
contract of loan where the debtor, to avoid an immediate demand
for the payment of the principal, promised to pay an extra rate of
interest which he was under no obligation to pay, as such promise
was a mere contractual agreement, separate and distinct from the
original contract which remained unchanged.
(b) Also, a mere extension of the term (period) for payment or
performance is not a novation; while the extension covers some of
the area originally agreed upon, this change does not alter the
essence of the contract (see Board of Liquidators vs. Floro, 110 Phil.
482 [1960]; see however, Art. 2079.); nor does the addition of a
new obligation (e.g., guaranty) not inconsistent with the old one
constitute novation.
(c) Neither is there a novation, where the surety subsequently
made an agreement with the creditor to be bound also as principal
and no longer as surety on the same obligation, and, therefore, the
principal debtor is not released from said obligation. (Santos vs.
Reyes, 10 Phil. 123 [1908].)
(d) Themerereductionoftheamountdueinnosenseconstitutes a
sufficient indicium of incompatibility, especially in the light of the
explanation by the creditor that the reduced indebtedness was the
result of partial payments. (Millar vs. Court of Appeals, 38 SCRA 642
[1971].)
(e) Theacceptanceofapartialpaymentbyacreditorbeforethe
maturity of the obligation is not a novation of the contract but a
waiver of the period agreed upon during which payment should not
be made. It is a relinquishment of his right to refuse any payment
before the expiration of the term. (Lopez vs. Ochoa, 103 Phil. 950
[1958].)
(f) The consolidation of three (3) loan agreements all secured by the
same real estate executed by a third person, which loans were
granted separately to three (3) entities, into a single loan through
the execution of a promissory note did not effect a novation that
would release the mortgaged property from liability where there is
nothing in the records to show that such was the unequivocal
intent of the parties.
(g) There is no novation where the second contract, a real estate
mortgage, indicates that the same was executed as new additional
security to the chattel mortgage previously entered into by the
parties who agreed that the chattel mortgage “shall remain in full
force and that not be impaired by this (real estate) mortgage.’’
(h) There is no novation where the obligation to pay a sum of
money remained, and the assignment of rights over the mortgaged
properties merely served as security for the loans covered by the
promissory notes. Thus, where the deed of assignment of leasehold
rights merely provided for the appointment by the mortgagor
(grantee of a fishpond lease agreement from the government) of
the mortgagee as attorney-in-fact with authority, among other.
things, to sell or otherwise dispose of the said rights in case of
default by the mortgagor and to apply the proceeds to the payment
of the loan covered by promissory notes, the said assignment did
not novate the notes, as it was only an accessory to the notes; it
merely complemented or supplemented the notes; hence, both
could stand together. (Development Bank of the Philippines vs.
Court of Appeals, 284 SCRA 14 [1998].)
(i) When the changes refer to secondary agreements, there is no
novation; such changes will produce modifications of incidental
facts, but will not extinguish the original obligation. (Young vs.
Court of Appeals, 196 SCRA 795 [1991], citing IV Tolentino, Civil
Code of the Phils., p. 388 [1985 Ed.].)
(j) An obligation to pay a sum of money is not novated in a new
instrument wherein the old is modified by changing only the terms
of payment, and adding other obligations not incompatible with the
old one, or wherein the old contract is merely supplemented by a
new one. The mere fact that the creditor receives a guaranty or
accepts payments from a third person who has agreed to assume
the obligation, when there is no agreement that the first debtor
shall be released from responsibility does not constitute novation.
(k) An obligation to pay a sum of money evidenced by three (3)
promissory notes for the amount of $50,000 each and uniformly
provided for a term of three (3) years, 15% interest per annum
payable quarterly, and the repayment of the principal loans after
three (3) years from their respective dates, is merely modified
where the interest was waived and the principal was payable in
monthly installments of P750, since the obligation to pay the sum
of money remains force.
(2) Material deviations or changes. — Where the original contract
is deviated from in material respects so that the object or principal
condition cannot reasonably be recognized as that originally
contracted for, the original contract should be treated as
abandoned.
ART. 1293. Novation which consists in substituting a new debtor
in the place of the original one, may be made even with- out the
knowledge or against the will of the latter, but not with- out 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.
Personal novation may be in the form of:
(1) Substitution. — when the person of the debtor is substituted
(Art. 1291[2].); or
(2) Subrogation.—whenathirdpersonissubrogatedintherights of
the creditor. (Ibid., [3]; Art. 1300.)
Kinds of substitution.
Article 1293 speaks of substitution which, in turn, may be:
(1) Expromision 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. (8 Manresa 436; Arts. 1293-1294.) It logically
requires the consent of the third person and the creditor. (De
Cortez vs. Venturanza, 79 SCRA 709 [1977].) 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. (Ibid.; Art. 1295.) In
delegacion, all the parties, the old debtor, the new debtor (see
Martinez vs. Cavives, 25 Phil. 581 [1913].), and the creditor must
agree. (see Pacific Commercial Co. vs. Sotto, 34 Phil. 237 [1915].)
In either of these two modes of substitution, the consent of the
creditor is an indispensable requirement. (De Cortez vs.
Venturanza, supra.)
Right of new debtor who pays.
(1) Inexpromision,paymentbythenewdebtorgiveshimtheright to
beneficial reimbursement under the second paragraph of Article
1236.
(2) 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.
Acceptance by creditor of payment from a third person.
It is a common thing in business affairs for a stranger to a contract
to assume its obligations, and while this may have the effect of
adding to the number of persons liable, it does not necessarily
imply the extinguishment of the liability of the first debtor.
“In case of subjective novation through a change in the person of
debtor, it is not enough that the juridical relation between the
original parties is extended to include a third person, as this
constitutes only an increase in the number of persons liable to the
obligee. It is essential that the old debtor be released from the
obligation and the third person takes his place in the relation. If the
older debtor is not released, there is no novation; the third person
becomes merely a co-debtor surety.’’
Novation is never presumed; thus, the mere fact that the creditor
receives a guaranty or accepts payment from a third person who
has agreed to assume the obligation, when there is no agreement
that the first debtor shall be released from responsibility, does not
constitute a novation, and the creditor can still enforce the
obligation against the original debtor.
This rule applies to a surety bond which is not a new and separate
contract but an accessory of the principal obligation.
Consent of creditor necessary to substitution.
In both the two modes of substitution (supra.), the consent of the
creditor is an indispensable requirement.
(1) Substitution implies waiver by creditor of his credit. — Since no-
vation of a contract by substitution of a new debtor extinguishes
the personality of the first debtor, it implies on the part of the
creditor a waiver of the right he had before the novation. Hence,
the creditor’s consent is necessary to the substitution of a new
debtor.
(2) Substitution may be prejudicial to creditor. — The requirement
is based on simple consideration of justice since the consequence
of the substitution may be prejudicial to the creditor and such
prejudice may take the form of delay in the fulfillment of the
obligation, or contravention of its tenor, or non-performance
thereof by the new debtor (see 8 Manresa 436.), by reason of his
financial inability or insolvency.
Thus, where X and Y bought from S a land with the unpaid balance
of the purchase price secured by a mortgage thereon, in the
foreclosure proceedings by S, X cannot avoid liability on the ground
that he had transferred his interest in the property to Y. Such
transfer cannot affect the relation between X and Y, on the one
hand, and S, on the other, since S is not a privy to the agreement
between X and Y.
(3) Creditorhasrighttorefusepaymentbythirdpersonwithoutinterest
in obligation. — It is also consistent with the rule that a creditor
cannot be compelled to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation. (see
Art. 1236, par. 2.) The creditor, however, may accept, if he so
wishes, payment from a third party. But mere acceptance of
payments for the benefit of a debtor, whose obligation the third
party has assumed, in the absence of facts unmistakably showing
an intention to make the third party alone liable, does not
constitute a novation consisting in the substitution of a new debtor
in lieu of the old one.
Article 1293 does not state that such consent to the change of
debtor be express, or given at the time of the substitution. Its
evident purpose being to preserve the creditor’s full right, it is
sufficient that his consent be given at any time and in any form
whatever, while the agreement of the debtors subsists. The
creditor may impose conditions for the substitution.
(4) Involuntary novation by substitution of debtor. — By means of
garnishment (see Art. 1243.), which is a species of attachment or
execution for reaching any property pertaining to a judgment
debtor which may be found owing to such a debtor by a third
person, the latter, through service of the writ of garnishment,
becomes a virtual party to, or a “forced intervenor’’ in the case. The
court, having acquired jurisdiction over the person of the
garnishee, requires him to pay his debt, not to his former creditor,
but to the new creditor, who is creditor in the main litigation.
The remedy is merely a case of involuntary novation by the
substitution of one creditor for another.
Substitute must be placed in the same position of original debtor.
In stating that another person must be substituted in lieu of the
debtor, Article 1293 means that it is not enough to extend the
juridical relation to that other person, but it is necessary to place
the latter in the same position occupied by the original debtor who
is released from the obligations.
Consequently, the obligation contracted by a third person to
answer for the debtor, as in the case of suretyship, in the last
analysis, does not work as a true novation, because the third person
is not put in the same position as the debtor — the latter continues
in his same place and with the same obligation which is guaranteed
by the former.
Effect where third person binds himself as principal with debtor.
Since it is necessary that the third person should become a debtor
in the same position as the debtor whom he substitutes, this
change and the resulting novation may be with respect to the
whole debt, thus releasing, as a general rule, the debtor from his
obligation; or he may continue with the character of such debtor
and also allow the third person to participate in the obligation.
(1) Inthefirstcase,thereiscompleteandperfectnovation;inthe
second, there is a change that does not free the debtor nor
authorize the extinguishment of the accessory obligations of the
latter. (Estate of Mota vs. Serra, supra.) The mere circumstance of
the creditor receiving payment from a third party who acquiesced
to assume the obligation of the debtor when there is clearly no
agreement to release the debtor from her responsibility does not
constitute novation. (Reyes vs. Court of Appeals, 264 SCRA 35
[1996].)
(2) It is essential that the old debtor be expressly released from the
obligation, and the third person or new debtor take his place in the
new relation. Novation is never presumed. If the old debtor is not
released, no novation occurs and the third person who has
assumed the obligation of the debtor becomes merely a co-debtor
or a surety or a co-surety.
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. (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.
ART. 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 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 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.
ART. 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.
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.

ART. 1299. If the original obligation was subject to a sus- pensive

or resolutory condition, the new obligation shall be un- der 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 con-

dition, 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.