NOVATION
2.
Personal/subjective
change of persons
Art. 1291.
o
Obligations may be modified by:
o
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.
3.
NOVATION
substitution or change of an obligation extinguishes/modifies the 1st either by 1.
changing its object or principal condition
2.
substituting another in place of debtor
3.
by
Expromision
Delegacion
another
w/c
1.
Express
2.
Implied
2.
Creates a new one in lieu of the old
The existence of a valid old obligation 1.
2.
According to its Object/Purpose 1.
If valid
KINDS OF NOVATION
imperfect or improper
REQUISITES OF NOVATION
Extinguishes an obligation
old obligation is totally extinguished
Partial or modificatory
subrogating a 3rd person in the rights of creditor
Total or extinctive
incompatibility of 2 obligations
According to its Extent/Effect 1.
PURPOSE OF EXTINCTIVE NOVATION
change of object and parties
According to Form of its Constitution Constitution
Subrogating a 3rd person in the rights of creditor by agreement or by law
Mixed
Substituting the person of debtor.
If voidable
Real/objective
nothing to novate
possible novation before annulment
changing the object/principal conditions of obligation
Intent to extinguish or to modify the old obligation by substantial difference
ways:
The capacity and consent of all the parties except in case of expromision
o
Express
o
Implied
1.
Notes by Stephanie Dawn Sibi Gok-ong
OBLICON
old debtor does not participate
Validity of new obligation
Atty. Daryl Bretch Largo
USC
QUESTIONS
Is there novation if the amount in the new obligation is increased? 1.
No.
But if the new obligation is increased but if separate from the old obligation? There is an increase in the old but it is found in a separate document. 1.
NOTE
Obligations to pay a sum of money is not novated by a new instrument which merely changes the terms of payment.
Novation however is proper in case of change of juridical relation, example would be from commodatum to lease of thing.
There is because the prior promissory notes are extinguished and superseded by the new promissory notes.
1.
Even if that is merely an implied novation, are there incompatibilities in all material points?
If the period is increased, is there novation or lengthened or shortened? 1.
There is no novation.
None, it merely becomes a simple debt.
Yes.
Surrender of the evidence of credit? 1.
3.
From mortgage to antichrisis. Yes, there is a novation. There is a novation if there is a change in the nature of the prestation.
Take note that novation is never presumed. 1.
In order that there is implied novation, the agreements must be incompatible with each other.
2.
Otherwise, if the change is merely accessory or accidental, it does not affect either the principal object, condition, person of the creditor or debtor, there is no novation.
From alternative to simple or simple to alternative? 1.
It also says from negotiorum gestio to contract of agency, because it is from a non-contractual relation to a contractual relation.
Renunciation of security? 1.
It merely affects the performance of the obligation.
If the evidence of credit from promissory note payable to order to payable to bearer? 1.
2.
No.
Why? 1.
No. (remission) There is no novation there because the obligation is extinguished.
In order that there shall be novation, four requisites must be complied with: 1.
There must be a previous valid o bligation
2.
The consent of the parties to extinguish the prior obligation
3.
A valid new obligation
4.
The extinguishment of the old obligation
From contract of donation to contract of sale? 1.
Yes, the change is the juridical tie. But there is no novation in a subsequent execution of a real estate mortgage as security, why? The mortgage being merely an accessory obligation to secure the loan or promissory note.
Notes by Stephanie Dawn Sibi Gok-ong
OBLICON
Yes. In commodatum, it is a free use of thing while in lease, you have to pay.
Absent any, there is no novation
Novation arising from a purported change in the person of the debtor must be clear and express because it is never presumed
Atty. Daryl Bretch Largo
USC
Art. 1292.
3.
Must be clearly proved
INSTANCES WHEN COURT HELD: NO EXTINCTIVE NOVATION
declared in unequivocal terms that their object in making the new contract is to extinguish the old contract, otherwise the old contract remains in force and the new contract is added to it, and each gives rise to an obligation still in fo rce.
Implied Novation
complete/substantial obligation
substantial changes
incompatibility
between
old
and
In object/subject matter of contract
2.
In cause or consideration of contract
3.
In principal terms or conditions of contract
4.
If debt subject to condition is made an absolute one w/out a condition
5.
Reduction of term/period stipulated without consent of subscribers
Slight alterations or modifications in construction plans of buildings
New contract merely contains supplementary agreement
When additional interest is agreed upon
When additional security is given
When after a final judgment, a contract was entered into precisely to provide a method of payment other than that stated in judgment
When a guarantor enters into an agreement with creditor that he (guarantor) will also be a principal debtor
When creditor in the meantime refrains from suing debtor or even when creditor merely extends the term of payment for here the period merely affects performance, not the creation of the obligation
Place of payment is changed or there is variation in amount of partial payments
When a public instrument is executed to confirm a valid contract\When payment of purchase price for certain trucks is made by execution of promissory note for said price.
Art. 1293.
Incompatibility Test Whether or not the two obligations can stand together, each one having its independent existence
NOTE
new
1.
1.
Express Novation
Must be established that the old and new contracts are incompatible in all points, or that the will to novate appears by express agreement of the parties or in acts of equivalent import
EXPRESS/IMPLIED NOVATION
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.
2.
EXPROMISION
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.
Novation is never presumed 1.
No novation in the absences of a new contract executed by the parties
2 Kinds of Personal/Subjective Novation
Notes by Stephanie Dawn Sibi Gok-ong
OBLICON
Change of debtor
Atty. Daryl Bretch Largo
USC
1.
passive
Old debtor is released from his obligation with creditor’s consent o
Change of Creditor = subrogation actually 1.
o
Active
o
Implied/express Before/after new debtor has given consent Maybe conditional
has to be fulfilled
FORMS OF PASSIVE NOVATION
Expromision 1.
initiative comes from 3rd person
2.
it is essential that old debtor be released from his obligation
3.
Requisites
4.
3 Parties
Delegante o
Initiative from 3rd person who will step into debtor’s shoes and assume his role
New debtor and creditor must consent to the rd proposal made by 3 person
Old debtor must be released from his obligation with creditor’s consent
Delegatario o
1.
initiative from debtor for it is he who delegates another to pay
2.
3 parties (old, new debtor and creditor) must agree
3.
Requisites
The substitution is upon the initiative or proposal of the old debtor by proposing to the creditor the entry of another person as the new debtor who will replace him in the payment of the obligation
What happens if the obligation is one with an accessory obligation or contract and the principal obligation is extinguished? Would that carry the extinguishment of the accessory obligation? 1.
an example is being named as a beneficiary of an insurance policy
review PNB vs. CA compensation case
GR 1.
OBLICON
Yes. Exception if there is a stipulation pour autrui
RULES FOR DELEGACION
All parties concerned must consent and agree to the proposal made by old debtor
Notes by Stephanie Dawn Sibi Gok-ong
new debtor
QUESTION
Delegacion
creditor
Delegado o
original debtor
The creditor is estopped from going after the old debtor because the obligation of the latter to the creditor had already been extinguished by Novation
XPN
Atty. Daryl Bretch Largo
USC
1.
When the insolvency of the new debtor was already existing and of public knowledge
2.
If the old debtor knew that the new debtor is insolvent when he delegated his debt
NOTE FOR DELEGACION
1.
If the substitution is without the knowledge or against the will of t he 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.
RULES FOR DELEGACION
GR o
NOTE FOR EXPROMISION
In expromission, the original debtor's consent is not necessary
What happens if the new debtor is insolvent? Is t he old debtor liable for the new debtor? 1.
The old debtor. So in both cases the consent of the creditor is always necessary
Now what happens if the new debtor is insolvent. Will that revive the old obligation?
1.
Art. 1294.
Who proposes the new debtor?
XPN o
No, precisely because he did not consent or it was made without his knowledge. He cannot be held liable by reason of insolvency of the new debtor
o
Legislative intent
to exempt the old debtor from future liability when he did not propose the new debtor.
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.
Notes by Stephanie Dawn Sibi Gok-ong
OBLICON
The creditor is estopped from going after the old debtor because the obligation of the latter to the creditor had already been extinguished by Novation
When the insolvency of the new debtor was already existing and of public knowledge If the old debtor knew that the new debtor is insolvent when he delegated his debt
Requisites to Hold Old debtor Liable
Insolvency was already existing and of public knowledge at time of Delegation
Or the insolvency was already existing and known to the debtor at the time of delegation
When Art. 1295 does not apply – OLD DEBTOR IS STILL LIABLE
3rd person is only an agent, messenger or employee of debtor
3rd person action only as g uarantor/ surety
Atty. Daryl Bretch Largo
USC
New debtor merely agreed to make himself solidarily liable for the obligation
New debtor merely agreed to make himself jo intly or partly liable for the obligation
If in coming up with the new but void obligation, the parties agree that it shall in any event extinguish the old, obligation, then such old obligation will not be revived
QUESTIONS
Now, what happens if the new oblilgation is void? Would that extinguish the old obligation? 1.
Now what if the old obligation is void, would that extinguish the new obligation? 1.
Art. 1296.
RULES
The accessory always follow the principal. All accessory obligations such as those arising from a contract of mortgage, guarantee, and pledge are likewise extinguished
If old obligation is void 1.
1.
the accessory obligation may subsist only insofar as they may benefit third persons who do not give their consent
Applies to novation by substitution of debtor
1.
Novation may be possible is made before annulment
2.
Even if there has been no previous ratification at the time of Novation, if the nullity can be claimed only by the debtor, the consent of the debtor to the Novation will render the Novation effective because such consent is impliedly a waiver of the action for nullity
3.
If annulled, Novation is also void
If the new obligation is void, the original one shall subsist, unless t he parties intended that the former relation should be extinguished in any event.
NOTES
Voidable new obligation 1.
the novation becomes effective but if action to annul was brought the old obligation shall be revived unless it was otherwise agreed by the parties
Notes by Stephanie Dawn Sibi Gok-ong
OBLICON
no more obligation; novation is also void
If old obligation is voidable
Art. 1297.
no valid novation
If old obligation is voidable and annulled
The law states that 1.
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.
NOTE
Yes.
Art. 1298.
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.
It does not. This is 1297.
QUESTIONS
When can a debtor claim annulment? What would be an instance wherein a debtor can claim annulment? 1.
A very common defense would be prescription of debt.
Atty. Daryl Bretch Largo
USC
But can a prescribed debt be the subject of novation? prescribed debt be an object of a contract? 1.
QUESTION
Yes.
Can minority be a defense? 1.
Yes. So a prescribed debt can be the subject of novation in as much as the prescribed debt can be the subject of a contract.
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.
But can it be a defense of the obligor? The prescription of the debt? 1.
Can a
1.
Yes.
But can it also be subject to ratification? 1.
Now what if the original obligation has a suspensive or resolutory condition? Would the new obligation that novates the old obligation carry with it the condition? Yes. 1299 says the new obligation shall be under the same condition, unless it is otherwise stipulated
SUBROGATION
Yes.
transfer to a 3rd person all the rights appertaining to creditor 1.
right to proceed against guarantors, possessors of mortgages and etc.
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.
RULES
GR 1.
The conditions attached to the old obligation are also attached to the new obligation
1.
If there is a contrary stipulation
CONVENTIONAL SUBROGATION
Mere transfer of same right or credit transfer does not extinguish credit
Extinguishes obligation and creates a new one
Does not require consent of debtor
Requires debtor’s consent
Defect in credit/right is not cured by assigning the same
Defect in old obligation may be cured in such a way that the new obligation becomes entirely valid
XPN
NOTE
ASSIGNMENT OF CREDIT
Art. 1301. In order not to subject the obligation to the previous suspensive condition, there must be an express statement to that effect in the new obligation as novated
Subrogation of a third person in the rights of the creditor is either legal or
Notes by Stephanie Dawn Sibi Gok-ong
Conventional subrogation of a third person requires the consent of the original parties and of the third person.
Art. 1300.
OBLICON
CONVENTIONAL SUBROGATION
NOTE
Subrogation is different from ex promission or delegacion
Atty. Daryl Bretch Largo
USC
1.
CLASSIFICATION OF SUBROGATION
the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter's share.
PRESUMPTION OF LEGAL SUBROGATION
Conventional 1.
2.
the latter involves a change in the person of the debtor, while subrogation involves change in the person of the creditor.
must be clearly established by the unequivocal terms of the substituting obligation or by the evident incompatibility of the new and old obligations on every point
when the creditor pays another creditor who is preferred, even without the debtor's knowledge 1.
takes effect by mandate of law and does not proceed from an agreement of the parties
Who is the creditor who is preferred? A, whose credit of 100,000 has an interest of 12% per annum, or B, whose credit of 100,000 is secured by a chattel mortgage?
QUESTION
May a legal subrogation be changed into conventional subrogation?
1.
Yes, Autonomy of will.
PARTIES THAT MUST AGREE FOR CONVENTIONAL SUBROGATION TO TAKE PLACE
The debtor
The old creditor
The new creditor
Art. 1302.
If debtor does not agree, he shall be liable only to the extent it has been beneficial to him
So, in this case, if A pays B, even without the knowledge of the debtor, A now steps into the shoes of creditor B and is entitled to the security of B.
When a third person, not interested in the obligation, pays with the tacit or express approval of the debtor
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.
NOTE
B is preferred, because in the event of default by the debtor, need not go to court to file an action for the collection of the 100,000. All he has to do is to foreclose the mortgage and his credit is extinguished by reason of the foreclosure.
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.
LEGAL SUBROGATION
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 d ebtor;
3.
When, even without the knowledge of the debtor, a person interested in
Notes by Stephanie Dawn Sibi Gok-ong
OBLICON
GENERAL EFFECT OF SUBROGATION
the 3rd person, “steps into the shoes” of the creditor and becomes the new creditor
NOTES
Atty. Daryl Bretch Largo
USC
In conventional subrogation, the parties may stipulate the nature, limits, extent and scope of the subrogation provided these are not contrary to law, morals, good customs, public order or public policy
If transferred credit is subject to suspensive condition 1.
new creditor cannot collect until after such condition is fulfilled
For as long as the original credit has not been fully satisfied, then he has a right of preference over the new creditor
In the event partial payment is made by a third person, creditor can still demand from the debtor the balance of the obligation
So despite the fact that there is legal subrogation, the parties may still enter into a conventional subrogation
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.
NOTE
Applies where 1.
A debt has been partially paid by a third person, with the consent of the debtor.
In the event that the creditor and the 3rd party demands from the debtor at the same time the payment of what is due them, the creditor will be preferred. He will be paid first as the law states that he is preferred 1.
2.
Speaks of two creditors
The old creditor whose debt has been partially performed
The new creditor whose debt has also been partially performed
As between the two, who is preferred?
The old creditor
Notes by Stephanie Dawn Sibi Gok-ong
OBLICON
Atty. Daryl Bretch Largo
USC
