MODULE I-WEEK 2

CHAPTER 4-EXTINGUISHMENT OF OBLIGATIONS

SECTION6-Novation
Article 1291-1304

Mindanao State University-Iligan Institute

of Technology
Class: HTM108

Topic: Law on Obligations and Contracts

CHAPTER 4- EXTINGUISHMENT OF OBLIGATIONS

General Provisions Article 1231
SECTION 1 Payment or Performance Articles 1232-1251
SUBSECTION 1. Application of Payments Article 1252-1254
SUBSECTION 2. Payment by Cession Article 1255
SUBSECTION 3. Tender of Payment and Consignation Article 1256-1261
SECTION 2 Loss of the Thing Due Article 1262- 1269
SECTION 3 Condonation or Remission of the Debt Article 1270-1274
SECTION 4 Confusion or Merger of Rights Article 1275-1277
SECTION 5 Compensation Article 1278-1290
SECTION 6 Novation Article 1291-1304
II.Learning Objectives
At the end of the Chapter, the student should be able to:

1. Master the different modes of extinguishing obligations, as well as the respective requisites;

2. Understand their effects and consequences on the rights of the debtor.

SECTION 6. - Novation
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. (1203)

NOVATION- is the extinction of an obligation through the creation of a new one which substitutes it.

Dual function of novation:

Is a contract containing two stipulations; one to extinguish or modify existing obligation, the other to substitute a
new one in its place.

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. 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- (this is also termed imperfect or improper novation)

Ex. ROCKY agreed to deliver to LEAH a car. Later, they entered into another contract whereby, instead of
ROCKY delivering a car, he would deliver ten air conditioners. The obligation to deliver the car is
extinguished by the obligation to deliver the ten air conditioners. The change may involve the principal
terms of the obligation.

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 are on every
point incompatible with each other. (1204)

Requisites of novation:
1. A previous valid obligation
2. Capacity and intention of the parties to modify or extinguish the obligation
3. The modification or extinguishment of the obligation
4. The creation of a new valid obligation

Novation is not presumed. It must be clearly and unmistakably established either by the express agreement of the
parties or acts of equivalent import (Aboitiz vs De Silva, 45 Phil. 883) or by the incompatibility of the two
obligations with each other in every material aspect.

Ex. Suppose the obligation of SIMON is to construct a house on a certain parcel of land. Subsequently, SIMON
agreed to construct an apartment on the same parcel of land. The area of the land is such both the house and
the apartment as per the building plans cannot be constructed on the same site.
There is novation in this case even in the absence of an express agreement to that effect because the two
obligations are absolutely incompatible with each other.

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. (1205a)
Kinds of personal novation:
1. Substitution- when the person of the debtor is substituted. (Art. 1291, par. 2)
2. Subrogation- when a third person is subrogated in the rights of the creditor. (Ibid, {3}; Art. 1300.)

Substitution of Debtor:
1. Expromision (where the initiative comes from a third person)(Art. 1294)
2. Delegacion (where the initiative comes from the debtor, for it is he who delegates another to pay the debt,
and thus, he excuses himself. Here the 3 parties concerned- the old debtor, the new debtor, and the
creditor- must agree).(Art. 1295)

Ex. JASON tells STEEL that THUNDER will pay JASON’s debt. STEEL agrees. It does not necessarily mean that
there is delegacion here. But if JASON tells STEEL that THUNDER will pay his debt and he asks STEEL to
release him from his obligation, to which STEEL agrees, delgacion results.

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 obligations shall not give rise to any liability on the part of the original
debtor. (n)

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 whose obligation is extinguished by the assumption of the debt by
the new debtor. In expromision, the replacement of the old debtor is not made to his own initiative.

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 the delegated his
debt. (1206a)

General rule: Is that old debtor is not liable to the creditor in case of the insolvency of the new debtor.
Exceptions:
1. 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.
2. The insolvency was already existing and known to the debtor (although it was not of public knowledge) at
the time of the delegacion.

The exceptions are intended to prevent fraud on the part of the old debtor.
Ex. ROME owes ANNISA P1, 000. ROME proposed to ANNISA that JACKSON would substitute him as debtor.
ANNISA agreed to the proposal. If, at the time of the delegacion, JACKSON was already insolvent but his
insolvency was neither of public knowledge nor known to ROME, then ROME is not liable. Neither is ROME
liable if the insolvency of JACKSON took place after he delegated his debt.
It is believed that ROME is also not liable if ANNISA had knowledge that JACKSON was insolvent at the time the
debt was delegated to him.
 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)
It follows the general rule that the extinguished of the principal obligation carries with it that of the accessory
obligations. (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. (Art. 1311, par.2 ). This is so because a
person should not be prejudiced by the act of another without his consent.

Ex. PSALM owes SIDNEY P2, 000 with interest at 14 %. SYDNEY owes STONE P280.00. It was agreed
among the parties that PSALM would pay the interest of P280 to STONE. In this case, besides the principal
obligation of PSALM, there is a stipulation in favor of STONE, a third person. (see Art. 1311, par. 2). Later
on, PSALM and SIDNEY executed another contract whereby they agreed that PSALM would deliver to
SIDNEY a television set in payment of the loan.

In spite of yhr novation, the accessory obligation to pay the interest of P280 to STONE will subsist unless
STONE gives his consent to the novation.

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. (n)

 One of the essential requisites of a valid novation, namely, the new obligation must be valid and effective. Thus,
if the new obligation is void, there is no novation, and the old obligation generally will subsist.

 If the new obligation is only voidable, novation can be 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)

 If the obligation is void- there is no valid novation.

 If the old obligation was voidable and has already been annulled, there is no more obligation. Therefore, the
novation is also void.

Ex. SAM agreed to deliver prohibited drugs to NERISSA. Later on, it was agreed that SAM would pay
NERISSA P100, 000 instead of delivering the drugs. The obligation is void because the original obligation is
void.

Art. 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)

General rule: The conditions attached to the old obligation are also attached to the new obligation.
Exceptions: If there is a contrary stipulation.

Reason for the general rule: If, for example, the suspensive condition attached to the obligation is not fulfilled, the
old obligation never arose. Therefore, there would be nothing to novate, since novation requires the existence of a
previous valid and effective obligation.

Ex. REX to give LEX a car if LEX should pass the bar exams. Later, both agreed that what should be given
would be a diamond ring. Nothing was mentioned in the second contract regarding the condition. Is the
new obligation also subject to a suspensive condition?
Yes, unless it was otherwise stipulated in the new contract. The delivery of the diamond ring would,
therefore, be due only after Laila has passed the bar exams.

Art. 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 transfer to a third person of all the rights appertaining to the creditor, including the right to
proceed against guarantors, possessors of mortgages, subject to any legal provision.

Kinds of subrogation:

From the viewpoint of cause or origin:

 Conventional or voluntary subrogation – this requires an agreement and the consent of the
original parties and of the creditor.
 Legal subrogation – takes place by operation of law

From the viewpoint of extent:

 Total subrogation
 Partial subrogation

Art. 1301. Conventional subrogation of a third person requires the consent of the original parties and of the
third person. (n)

For conventional or legal subrogation, the consent of all the parties is required:

 The debtor – because he becomes liable under the new obligation and because his old obligation ends
 The old creditor – because his credit affected
 The new creditor – because he becomes a party to the obligation

Art. 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)

In the three cases enumerated, subrogation takes place by operation of law even without the consent of the parties.

When a creditor pays another creditor who is preferred.

Example: ART owes BEN P1, 000 secured by a first mortgage on the land of ART. ART also owes
CRIS P2, 000. This debt is unsecured. Under the law, BEN is a preferred creditor, has preference to
payment with respect to the land as against CRIS who is merely an ordinary creditor. If CRIS pays
the debt of ART to BEN, CRIS will be subrogated in BEN’s right so that he can have the mortgage
foreclosed in case ART fails to pay the P1, 000 debts.

When a third person without interest in the obligation pays with the approval of the debtor.

Example: ART owes BEN P1, 000. CRIS pays BEN with the express or implied consent of ART. Carl
will be subrogated in all the rights of BEN.

When a third person with interest in the obligation pays even without the knowledge of the debtor.

Example: ART and BEN are joint debtors of CRIS for the amount of P1, 000. Without the knowledge
of ART, BEN pays the debt of P1, 000. In this case, BEN becomes a creditor of ART for P500, the
latter’s share of the debt but not for the remaining P500, the portion of the debt which corresponds
to BEN, which is extinguished by confusion or merger of rights.

Art. 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. (1212a)

Credit and all the appurtenant rights, either against the debtor or against third persons are transferred.

Example: JAM owes CATH P1, 000,000. GEROME is the guarantor. A stranger STEEL paid CATH
the P1, 000,000 with the consent of JAM and CATH. STEEL is now subrogated in the place of CATH.
If JAM cannot pay the P1, 000,000, STEEL can proceed against the guarantor GEROME.

It is understood that if the transferred credit is subject to a suspensive condition, the new creditor cannot collect
until after said condition is fulfilled.

Art. 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)

Partial Subrogation
 1.) The old creditor, who still remains a creditor as to balance

2.) The new creditor who is a creditor to the extent of what he had paid the creditor.

Example: ASH owes BRIX P500, 000. With the consent of both, CRIS pays BRIX P250, 000. Now BRIX
and CRIS are the creditor of ASH to the amount of P250, 000. Suppose ASH has only P250, 000 who should
be preferred? BRIX, the original creditor, should be preferred inasmuch as he is granted by the law
preferential right to recover the remainder, over the person subrogated in his place by virtue of the partial
payment of the same credit.

1. Cabulay, D. and Carpio, C. (2014). Philippine Tourism Laws, (2nd ed.). Philippines. Rex Bookstore, Inc
2. Javier, Nancy Joan M.,(2012).Tourism Laws, 3rd ed.Philippines. Central Bookstore
3. Soriano, Fidelito R.(2011).Obligations and Contracts.GIC Enterprises
4. www.lawphil.net
5. www.supremecourt.gov.ph